The investment fund industry has been going through a period of continuous change since the economic downturn largely due to the effects of such a crisis. There have been a number of consequences as a result, such as increased regulation and reporting, and raising capital has become an art that far from guarantees targets to be successfully reached. Despite this, the Channel Islands have experienced steady growth of investment funds under management and administration as they continue to lead the market of offshore fund centres. Guernsey, in particular, has experienced a 45% growth in the NAV of investment funds under management and administration since 2008.
Infrastructure, renewable and traditional energy have been extremely prevalent in the past year and this is reflected by our own client base as John Laing, Riverstone and Bluefield all managed successful fundraisings which formed part of the Top 10 Investment Companies IPOs and Secondary Issues of last year. Debt funds have also seen a growth as they seek to fill the gaps where banks are currently under pressure to reduce their lending exposure or simply don’t have the appetite. Private equity and property continue to be significantly represented in Guernsey.
The Channel Islands have a well-established investment fund industry with a 30 year track record due to their strategic location, fiscal neutrality, excellent talent pool and long term political and economic stability. In particular, Guernsey remains a key jurisdiction for structuring private and alternative funds due to its specialism in the establishment and servicing of fund structures coupled with the Island’s robust regulatory framework which provides investor protection whilst retaining flexibility to adapt responsively to changing market conditions – all while being outside of the EU. Guernsey continues to be proactive in its approach to worldwide regulatory changes to ensure the jurisdiction continues to provide the vital infrastructure to funds and remains the domicile GPs know and prefer to use. The high quality services available in Guernsey in relation to fund management and administration also contribute to the appeal of Guernsey as a jurisdiction.
Fundraising continues to present a challenge, especially for new managers who are fund raising for the first time. The challenges that arise are the maintenance of the same level of capital in funds when many of the larger investors are investing directly or co-investing, making fund raising even more difficult. A portion of managers are having to scale back their expectations and often go with smaller capital raisings or even work with co-investors on a deal by deal basis. In times of economic downturn, clients and financial services businesses focused on their operational efficiencies and by doing this, the robust and effective organisations rose to the forefront and still managed growth despite difficult market conditions. Others with a poor offering or an inflated cost base have needed to change and this has led to some consolidation.
The wider investment community has been faced with a wall of regulation over the last few years, however, asset managers in particular have had to deal with the additional registration and reporting obligations to financial regulators worldwide. Regulations and increased focus on corporate governance have made it a more expensive industry to be in and clients, particularly prospective, have become a lot more cost/value sensitive on all aspects of running their funds in recent years.
The widely publicised AIFMD is still producing uncertainty and while it seeks to regulate EU based AIFMs and EU established AIFs, it also aims to regulate managers that market AIFs into the EU. In other words, if either the manager or the fund has a relationship with the EU then AIFMD comes into the picture. This feature of the Directive is having evident effects on the Channel Islands’ investment funds as the Islands have a broad range of managers for whom Europe is their main market, or at least a very important market.
Managing the impact of AIFMD has become a critical business process as many managers have examined the structuring arrangements for their funds to try to reduce the compliance obligations and costs that come with complying with those rules. Actively working with clients to find an optimal solution and help them wade through the regulation has been, and will continue to be, important. With offices onshore in the UK and the launch of our Depositary business, Heritage Depositary Company (UK) Limited, we are well positioned to accommodate investment managers who are wishing to be AIFMD compliant. Conversely, we feel that Guernsey will continue to be a prime location for the domiciliation and marketing of private equity and alternative investment funds as the Island has introduced a dual regulatory regime which allows Guernsey funds to continue to be distributed to both European and non-European countries. Heritage is equally well placed to advise and provide fund services for investment managers wishing to opt out of AIFMD. The recent launch of Heritage Services Limited provides office accommodation, facilities and professional support services to investment managers wishing to establish a more substantial presence in an offshore jurisdiction.
Reproduced courtesy of Finance Monthly.