GUERNSEY LOCATION Why Guernsey is well-suited geographically for the establishment of hedge funds

Transcription

1 HFMWEEK S P E C I A L R E P O R T GUERNSEY 2014 LOCATION Why Guernsey is well-suited geographically for the establishment of hedge funds EXPERTISE How the island boasts a wealth of knowledge and know-how DIVERSITY The wide range of fund structures that the jurisdiction provides FEATURING Carey Olsen // Guernsey Finance // Ogier // RBC Wealth Management

2 Understanding that relationships are key. It s in our nature. The qualities you need in a Guernsey law firm come naturally to us. We provide a broad range of services including: fund establishment, structuring, listing services and regulatory advice to investment funds, investment managers and intermediaries. We have a flexible and commercial approach and are focused on delivering outstanding client service. To find out how we can assist your business, please contact Caroline Chan on or gsy@ogier.com ogier.com/legal British Virgin Islands Cayman Islands Guernsey Hong Kong Jersey Luxembourg Shanghai Tokyo

3 GUERNSEY 2014 W Joe Truelove is vice chairman of the Guernsey Investment Fund Association (GIFA) and is a director at Carey Group, a Guernsey fund administrator. He began his career at PwC, where he trained as a chartered accountant, before specialising in AIFs at Kleinwort Benson. hy should you read this supplement? In Guernsey our investment fund industry is principally known for two key areas of success: London Stock Exchange listed investment funds and private equity funds. So if you aren t interested in either category why bother reading any further There are Guernsey domiciled funds invested in a diverse range of interesting asset classes: shipping, aircraft, infrastructure, student housing, renewable energy, clean technology, debt (distressed or not), funds of funds, forestry, agriculture, hedge funds and listed securities. So whatever asset class excites you, we ve probably seen it before. Guernsey boasts a full range of fund structures which suit open- and closed-ended funds investing in both liquid and illiquid assets. We also support regulated fund management companies. A short flight away from London we can provide real substance with highly qualified directors and company secretaries attending board meetings on the island and adding value by sharing their many years of experience in their areas of expertise. If you are a fund manager and wish to establish a complete fund structure, which may include an investment vehicle, general partner or management company outside the EU, but in the heart of Europe, read on. We have an intelligent regulator, the Guernsey Financial Services Commission, and our very own internationally recognised stock exchange, the Channel Islands Securities Exchange Authority. We also provide complementary services for you including trusts, foundations, banking, investment management, depositary, custodian, risk management and regulatory compliance services. You may be surprised with the depth of knowledge and breadth of expertise within our industry. We ve been supporting fund structures for over 50 years. We would like to help you with your next structure. Please read on and then feel free to give us a call. Joe Truelove Vice chairman, Guernsey Investment Fund Association (GIFA) 4 FUND SERVICES CHANGES TO THE CLASS B RULES IN GUERNSEY Caroline Chan and Val Rouse of Ogier discuss the changes to the Class B Rules in Guernsey and what this means in practice for Guernsey funds 10 WEALTH MANAGEMENT HIGH DEMAND Vignesh Vijayakumar, senior manager, Corporate & Institutional Services, RBC Wealth Management, discusses the main trends in the funds industry in Guernsey 6 FINANCIAL SERVICES GUERNSEY PROVES AN ATTRACTIVE OPTION UNDER AIFMD Fiona Le Poidevin of Guernsey Finance explains why Guernsey is a great place for funds in light of the implementation of the AIFMD 13 LEGAL GUERNSEY: THE BEST OFFSHORE SOLUTIONS Tom Carey and Ben Morgan of Carey Olsen tell HFMWeek how Guernsey has maintained its solid reputation following the implementation of the AIFMD Published by Pageant Media Ltd LONDON Third Floor, Thavies Inn House, 3-4 Holborn Circus, London, EC1N 2HA T +44 (0) NEW YORK 1441 Broadway, Suite 3024, New York, NY T +1 (212) REPORT EDITOR Karolina Kaminska T: +44 (0) k.kaminska@pageantmedia.com HEAD OF PRODUCTION Claudia Honerjager SUB-EDITORS Rachel Kurzfi eld, Eleanor Stanley, Luke Tuchscherer GROUP HEAD OF CONTENT Gwyn Roberts +44 (0) g.roberts@pageantmedia.com CEO Charlie Kerr GROUP COMMERCIAL MANAGER Lucy Churchill T: +44 (0) l.churchill@hfmweek.com SENIOR PUBLISHING ACCOUNT MANAGER Tara Nolan +44 (0) , t.nolan@hfmweek.com PUBLISHING ACCOUNT MANAGER Rebecca Wheeler, +44(0) r.wheeler@hfmweek.com CONTENT SALES Tel: +44 (0) sales@hfmweek.com CIRCULATION MANAGER Fay Muddle T: +44 (0) f.muddle@pageantmedia.com HFMWeek is published weekly by Pageant Media Ltd ISSN Printed by The Manson Group 2014 all rights reserved. No part of this publication may be reproduced or used without the prior permission from the publisher 21 HFMWEEK.COM 3

4 GUERNSEY 2014 CHANGES TO THE CLASS B RULES IN GUERNSEY CAROLINE CHAN AND VAL ROUSE OF OGIER DISCUSS THE CHANGES TO THE CLASS B RULES IN GUERNSEY AND WHAT THIS MEANS IN PRACTICE FOR GUERNSEY FUNDS Caroline Chan is a partner of Ogier and a Guernsey advocate. She qualified as an English solicitor with Allen & Overy in 1991 and as a Hong Kong solicitor in She specialises in investment funds, private equity, regulatory and corporate and commercial work, including mergers and acquisitions and stock exchange listings. Val Rouse is a senior associate of Ogier and a Guernsey advocate. She has over 25 years experience in the Guernsey finance industry, including several years spent with the Guernsey Financial Services Commission. She specialises in investment funds and regulatory matters and has extensive knowledge of the Guernsey investment fund regulatory regime. The vast majority of open-ended funds in Guernsey tend to be established as Class B schemes because of the flexibility of the regime, which has operated successfully since It has only recently been updated for the first time. The Authorised Collective Investment Schemes (Class B) Rules, 2013 (Class B Rules) came into operation on 2 January 2014 and this article discusses certain of the changes that have been made and the main points to note. If they have not already done so, Class B scheme service providers will need to take certain action. Scheme particulars must be updated by no later than 2 January 2015 and any derogation granted under the previous rules which continues to be required must be reapplied for within the same timeframe, otherwise it will lapse. If principal documents require updating, this must be carried out by no later than 2 January The changes include the following: APPLICATIONS Each new class or cell of a Class B authorised scheme will now be declared approved by the Commission. A declaration will be valid for one year and may be revoked if the new cell or class is inactive. NOTIFICATIONS AND APPROVALS A change of designated administrator or trustee continues to require prior notification and the Guernsey Financial Services Commission s approval in practice because of the need for the scheme s Class B declaration of authorisation to be varied. There are also new requirements relating to reconstructions which may result in the need to obtain the Commission s prior approval for any such a proposal. However, otherwise, the new regime is one of notification only. In particular, there is no longer any need to obtain prior written approval from the Commission for a change to a scheme s investment, borrowing and hedging powers, although it is still necessary to notify the Commission in advance and give sufficient notice to holders to allow them to redeem their shares before the change takes place. The requirement to obtain prior approval from the Commission for payment out of scheme property of previously unauthorised or undisclosed fees, expenses or charges has also been replaced with a requirement to notify the trustee and to give notice to holders. Other notification requirements include a proposed change of principal manager, investment adviser, director, registrar or auditor and any proposal to terminate a class or cell. Suspension of dealings must also be notified, together with reasons, forthwith. SERVICE PROVIDER ROLES AND DUTIES The designated manager for the purposes of the Protection of Investors (Bailiwick of Guernsey) Law, 1987 as amended is now redefined in the Class B Rules as the designated administrator to better reflect its role. It is also now made clear that the term principal manager means the Guernsey-based principal manager (if any), who would normally delegate some or all of its administration functions to the designated administrator. New guidance clarifies that the Commission expects the duties of a designated administrator normally to be limited to administering the scheme and monitoring the constituents of the scheme property. Responsibility for investment decisions is expected to be that of the principal manager (or in the case of a company scheme, the company). As regards the trustee, its principal duties remain that of safe custody of scheme property and oversight over the designated administrator and the principal manager (if any). It has responsibility for the safe custody of all the scheme property and will be liable to the relevant authorised scheme in the event that the loss of any scheme property occurs as a result of the trustee s unjustifiable failure to perform its obligations or its improper performance of them. The Class B Rules now recognise that the function of registrar will often be carried out by a service provider other than the trustee, normally the designated administrator. Accordingly, that appointment may now be made direct by the scheme, subject to provision being made for the trustee s oversight role. Respective roles and responsibilities of service providers under the Class B Rules are not necessarily the same as previously. For example, certain responsibilities which would previously have fallen to the manager (meaning either the designated manager or the principal manager or both) may now be stated as being those of a principal manager only (or in the case of a company scheme, the company). Further, the Commission notes by way of guidance that whoever is ultimately responsible will be a matter of contractual arrangement and that, in assessing compliance with the Class B Rules, it will take into account those contractual arrangements. As a result of these changes, Class B scheme service providers should consider carrying out a full review of their roles under the Class B Rules in conjunction with the contractual arrangements under which they are appointed and take advice as appropriate. 4 HFMWEEK.COM

5 FUND SERVICES FEES AND EXPENSES One point to note, in particular, is that the prohibition on double charging is now stricter than previously. The Class B Rules provide that where a Class B scheme invests in other schemes managed by the same manager or investment adviser or persons in the same group, double charging of any charge payable by a target scheme is prohibited. The Commission has now confirmed by means of its Class B FAQs that any charge in fact means management or investment advisory charges. However, this is still stricter than the position under the previous rules where the prohibition was limited to preliminary or redemption charges. However, double charging in feeder fund structures is not prohibited, provided that the relevant fee structure is fully disclosed. It is no longer necessary for 90 days notice to be given to holders of any increase in the manager s periodic charge. Instead, the Class B Rules provide that sufficient notice must be given such that an investor may redeem his shares prior to the increase coming into effect. Note, however, that there is now a requirement to disclose in the scheme particulars the amount of notice to be given to holders to increase the principal manager s and investment adviser s charges. MEETINGS OF HOLDERS The minimum period of notice fixed by the Class B Rules for a meeting of holders is reduced from 14 to 10 days, subject to any longer period specified in the principal documents or by applicable law. The provisions of the Companies (Guernsey) Law, 2008 relating to the deemed service of notices and documents will apply regardless of the constitution of the scheme in question. For some Class B schemes, this may extend the EACH NEW CLASS OR CELL OF A CLASS B AUTHORISED SCHEME WILL NOW BE DECLARED APPROVED BY THE COMMISSION, VALID FOR ONE YEAR period that is normally allowed for deemed service and the position may need to be checked and advice taken, as appropriate. In relation to the powers of a meeting of holders, a resolution for this purpose now requires only a simple majority of the holders or class of holders in order to be passed. An extraordinary resolution is no longer required. OTHER CHANGES able or misleading names in relation to a scheme or class updated lars may now be made available on a relevant website issue certificates within 21 days or to file interim report and accounts with the Commission for scheme particulars have been reduced, there are several new requirements, including disclosure of accounting standards, director s interests, material conflicts of interest, arrangements for the removal of service providers and the notice required to be given to increase principal manager or investment adviser charges that are held and have been held in the past five years must be made available to any potential holder at the registered office of the authorised scheme brella fund to be wound up. This article is a summary only. Specific legal advice should be sought in relation to any particular set of facts. HFMWEEK.COM 5

6 GUERNSEY 2014 GUERNSEY PROVES AN ATTRACTIVE OPTION UNDER AIFMD FIONA LE POIDEVIN OF GUERNSEY FINANCE EXPLAINS WHY GUERNSEY IS A GREAT PLACE FOR FUNDS IN LIGHT OF THE IMPLEMENTATION OF THE AIFMD Fiona Le Poidevin is CEO of Guernsey Finance, where her role includes business development and promoting Guernsey s finance industry in European, US and emerging markets. Previously a senior tax manager with a Big Four accountancy firm, she has over 15 years experience working in financial services in both the UK and Guernsey. Latest figures from Guernsey s financial services regulator, the Guernsey Financial Services Commission (GFSC), show that it approved 30 new investment funds during the fourth quarter of last year, amid a total of 103 additions during However, while asset values have proved sluggish, largely due to external factors at play during 2013, the GFSC has been kept busy with new fund applications. The 103 new funds launched are investing across a wide range of asset classes and markets and include two notable listed renewable energy funds, Bluefield Solar Income Fund and The Renewables Infrastructure Group, with city sources quoting the latter as the largest IPO of a clean energy firm in London, with an initial raising of 300m in July There were also a number of notable infrastructure funds, for example, John Laing Infrastructure Fund which raised 242m as well as debt funds, for example NB Global Floating Rate Income which raised 363m. Indeed one of the final deals of the year saw the launch of the JP Morgan Senior Secured Loan Fund. Earlier in the year, in June, JP Morgan had launched a similar Guernsey offering called the JP Morgan Global Convertibles Income Fund which raised 136m (and has a market capitalisation of 173m at the time of writing). Notably in relation to non-guernsey funds, we see this as a growth area for the future. Many of the funds are Cayman incorporated but are opting to have some element of management or administration (or both) undertaken in Guernsey. This is a testament to the quality infrastructure available and is increasingly setting us apart from other competitor territories. In fact, the NAV of non-guernsey domiciled funds having some element of servicing provided in Guernsey is in excess of 88bn. More recent new funds launched from Guernsey include commercial property investment company Summit THE NAV OF NON-GUERNSEY DOMICILED FUNDS HAVING SOME ELEMENT OF SERVICING PROVIDED IN GUERNSEY IS IN EXCESS OF 88BN CO-OPERATION AGREEMENTS At the time of writing, Guernsey has signed 27 co-operation agreements with the securities regulators from the following EU/ EEA countries: Austria; Belgium; Bulgaria; Cyprus; Czech Republic; Denmark; Estonia; France; Finland; Germany; Greece; Hungary; Iceland; Ireland; Latvia; Liechtenstein; Lithuania; Luxembourg; Malta; Norway; Poland; Portugal; Romania; Slovak Republic; Sweden; The Netherlands; and United Kingdom. Germany and Nimrod Sea Assets Limited, both of which have listed on the London Stock Exchange (LSE) in early PRE-EMINENCE Guernsey s closed-ended funds sector increased in value by 5.1bn (3.9%) year on year to reach 136.1bn at the end of December. The experience and expertise Guernsey has in investment funds, particularly in private equity, is proving attractive to family offices and other private investors who are seeking not just asset protection but investment returns for their private wealth. These investors and their advisers are turning to Guernsey investment structures to achieve returns and enhance wealth. We are also seeing greater allocations by fund managers into insurance-linked securities (ILS). Guernsey has seen growth in ILS transactions due to the fact that the island has a strong heritage in providing both investment and insurance services; fund managers and promoters with capital to deploy are brought together with transformation managers who understand insurance risk. For example, 2013 saw the launch of DCG Iris Fund as a feeder fund into the Low Volatility Plus Fund managed by Credit Suisse Asset Management s ILS team. Dexion Capital Guernsey raised over 60m for the fund which has been listed on the Main Market of the LSE. Figures from the LSE show that there are 115 Guernsey-incorporated entities listed on its markets, which is more than any other jurisdiction except the UK itself. 17 Guernsey-incorporated entities joined the LSE markets during 2013, which again is more than any other jurisdiction globally aside from the UK. The fact that Guernsey entities can be listed on not just the LSE but also a num- 6 HFMWEEK.COM

7 FINANCIAL SERVICES TOTAL NAV OF GUERNSEY FUNDS BUSINESS 266bn Growth 5yr: +33% Total NAV of Guernsey funds business reached 266bn at end of December Total NAV of Guernsey funds business increased 33% year on year to the end of December order to obtain authorisation under the AIFMD, a manager will need to comply with various organisational, operational and transparency obligations, which may create significant additional compliance costs, some of which will likely be passed to investors in the fund. Second, Guernsey s position as a third country means our managers and funds who want to access Europe continue to be able to use NPP regimes, which are expected to remain in place until at least Guernsey s regulator has signed bilateral co-operation agreements with 27 regulators from the EU and the EEA, including the UK, Germany and France (see box). Having these agreements in place means that Guernsey funds continue to be able to market to appropriately qualified investors in these European countries through their NPP regimes. Third, it is expected that a full passporting regime for non-eu AIFMs will be implemented from July Guernsey intends to ensure that our AIFMs will be ideally placed to take advantage of being able to market AIFs on a pan-european basis with a single authorisation, as passporting is currently envisaged to operate. Indeed, Guernsey introduced an opt-in AIFMD equivalent regime with effect from 2 January this year ahead of when, as a third country, it was required to do so. ber of exchanges around the world, including Euronext Amsterdam, Frankfurt, Ireland, Toronto, Johannesburg, Hong Kong and Australia, as well as the local Channel Islands Securities Exchange (CISE), means that the island is viewed as an ideal location for establishing vehicles to access global capital markets. Taken together, these developments provide a major vote of confidence in Guernsey s approach to the Alternative Investment Fund Managers Directive (AIFMD). DUAL REGULATORY REGIME Guernsey is not in the EU or wider EEA (although it is in the European time zone) and therefore, is not required to implement the AIFMD. Although Europe remains one of our biggest markets, we also have a substantial and increasing amount of funds business which originates outside of Europe. As such, Guernsey has introduced a dual regulatory regime so that it is possible to continue to distribute Guernsey funds into both EU and non-eu countries: the existing regime remains for those not requiring an AIFMD fund, including those using national private placement (NPP) regimes and those marketing to non-eu investors; and there is an opt-in regime which is fully AIFMD-compliant. The first thing to note is that this means managers and funds with no connection to the EU continue to be able to use the existing regulatory regime which is completely free from the requirements associated with the AIFMD and as such, will have significant operational and cost benefits. In OPTIONALITY The attraction of Guernsey for fund managers wishing to market into Europe is that it can provide a European platform but one which is not actually in the EU and therefore can offer optionality. For those marketing into Europe, the NPP route will likely be favoured by many. Indeed, it is expected that fullblown AIFMD compliance will only be sought if there are particular commercial reasons to do so. For example, it makes commercial sense for a fund manager marketing almost exclusively to Europe to have a fully AIFMD compliant platform. However, this does not have VALUE OF PRIVATE EQUITY FUNDS IN GUERNSEY PE Growth 5yr: +123% Value of private equity funds in Guernsey reached 86bn at the end of December 2013 up 123% over the past five years. HFMWEEK.COM 7

8 GUERNSEY 2014 FINANCIAL SERVICES to be based in a mainland European domicile and indeed, it could be a Guernsey platform given that there is a fully equivalent, opt-in AIFMD route to market in place. Managers should review whether the pan-european marketing model is relevant to their investor base. Many managers have increasingly geographically diverse investors and, therefore, it is essential to have a platform which suits all. European directives such as the AIFMD but also the Undertakings for Collective Investment in Transferable Securities (Ucits) Directive cater for European investors; as such, if you don t need Ucits/ AIFMD or only need limited access to them for certain investors, then it is advisable (and possible) to structure in a way that will greatly reduce the obligations and costs that come with those regimes. For those managers with elements of EU and non-eu business, it will be possible to break the non-eu business away into a parallel or feeder structure for which AIFMD compliance would neither be required nor necessary. The potentially onerous administration burden and costly compliance with the AIFMD will mean that parallel structures are likely to be given serious consideration. Conversely, if a manager has a platform in a mainland European domicile then it will have to comply fully with the AIFMD even if there were a large proportion of non- EU investors. European mainland platforms do not offer the ability to separate the reporting obligations away from non-eu investors, as with a Guernsey platform. SUBSTANCE One important factor is that AIFMs should ensure that they do not fall foul of the letter box entity provisions, i.e. sufficient substance is needed to demonstrate that the management entity is established outside the EU, if that s what it is aiming to achieve for AIFMD purposes. Therefore, investment houses must ensure they have enough substance in the domicile of their fund if they opt for it to be self-managed, for example. Guernsey has an advantage over a number of other third countries as there is already significant substance to our fund structures. For example, large hedge fund managers such as BlueCrest and Unigestion and private equity houses such as Apax, BC Partners, Mid Europa, and Permira have Guernsey-domiciled funds as well as offices and staff based here. There are also administrators ranging from major international names such as Northern Trust and State Street to specialist independent administrators as well as a significant pool of experienced non-executive directors. There are also a number of global custodians based REGISTERED FUNDS IN GUERNSEY QUALITY OF SERVICE IS EVIDENCED BY THE FACT THAT GUERNSEY PROVIDERS NOW SERVICE OPEN-ENDED FUNDS THAT ARE DOMICILED IN OTHER JURISDICTIONS Registered Funds Growth 1yr: +18% There are 824 Guernsey-domiciled funds; 192 have been established using Guernsey s fast track registered regime this is up 18% year on year. in Guernsey and they are soon to be supplemented by those specialist administrators who are applying to establish Guernsey-based depositaries. These are being particularly established to service private equity and real estate funds which have not previously had the requirement for a depositary but who can take advantage of a depositary-lite regime for non-financial assets. Quality of service is evidenced by the fact that Guernsey providers now service open-ended funds that are domiciled in other jurisdictions, typically the Cayman Islands, where there may be local substance challenges. CONCLUSION Until recently, awareness among fund managers of the requirements imposed by the AIFMD was extremely mixed, with some on top of the situation and others more uncertain. Ironically, this wait and see attitude has been perpetuated by the fact that several jurisdictions, such as the UK, have had a transitory year for implementation. However, this is now coming to an end and so managers need to know what they are doing by the end of July. That said, manager attitudes have been driven by where they stand in the fundraising process and so those with funds that have already closed or are below the minimum threshold to be caught by the AIFMD have been less engaged than those who are currently fundraising. It is important for managers to realise that an EU AIFMD compliant platform is not the only answer and that in particular, Guernsey offers a dual regulatory regime for the continued distribution of funds into both EU and non-eu countries. Guernsey offers optionality which allows clients to be serviced in the manner most appropriate to their specific circumstances. These remain early days but the initial indications are positive, with Guernsey s funds industry busy domiciling, re-domiciling and servicing more new funds in HFMWEEK.COM

9 PIONEERING &CO We ve built our reputation on firsts. If something hasn t been done before, that s all the more reason to do it. At Carey Olsen we like a challenge. We prize innovative thinking. After all, why would you follow, when you can lead? Offshore law specialists BRITISH VIRGIN ISLANDS CAYMAN ISLANDS GUERNSEY JERSEY

10 GUERNSEY 2014 HIGH DEMAND VIGNESH VIJAYAKUMAR, SENIOR MANAGER, CORPORATE & INSTITUTIONAL SERVICES, RBC WEALTH MANAGEMENT, DISCUSSES THE MAIN TRENDS IN THE FUNDS INDUSTRY IN GUERNSEY Vignesh Vijayakumar is an alternative investment funds specialist with over nine years relevant experience. Based in London and having worked for organisations in North America, the Caribbean, Western Europe and the Middle East, he has been with RBC since 2011, focusing on new business opportunities HFMWeek (HFM): What are the main trends you are currently seeing in the market in Guernsey? Vignesh Vijayakumar (VV): We generally see a positive uptrend in the private equity sector, but an interesting shift of late has been the appetite for separate managed account structures. Investors who are contemplating establishing these managed account structures are normally looking to deploy substantial commitments to asset managers and accordingly these are highly customised based on the individual requirements. While we see that fund raising in general has been quite challenging, those asset managers with an established track record are able to successfully launch funds with a much shorter lead time. Despite this, it is imperative that the asset managers allow themselves plenty of time, given that investors are placing a greater emphasis on due diligence matters. Another interesting trend we are seeing at the moment is funds raised to invest in a specific investment, which could be in both a traditional private equity strategy as well as in the real estate/infrastructure segment. HFM: What sort of activity has Guernsey seen recently in the private equity segment? VV: We have seen interest returning in all the major private equity strategies, with appetite slowly returning to the buy out market. We are also seeing increased interest in credit funds, and some asset managers have moved from a blind pool capital approach to operating on a deal-by-deal basis due to investor preference. HFM: What makes Guernsey s private equity market an attractive location to asset managers? VV: Guernsey has a very well-established regulatory framework which demonstrates a good mix of flexibility and pragmatism. It boasts a highly-regarded financial regime that has attracted asset managers and investors across the globe looking to build on their existing fund relationships. Asset managers are particularly appreciative of the fast track regulatory options available in Guernsey. HFM: What services does RBC offer to private equity funds in Guernsey? VV: We provide a full suite of services necessary for asset managers looking to establish fund structures in Guernsey. Most private equity fund structures are established as closed-ended limited partnerships with a Guernsey company acting as the general partner. There are also carried interest and co-investment structures often included in the relationship. Our services include administration and fiduciary services to the fund, general partner and the related carriedinterest structures along with custody and banking services necessary to fund structures. We offer a highly customised approach and work with all types of asset managers - be it a start-up manager or an established asset manager raising their follow-on funds - and can assist right from the inception stage working with the legal advisers and other key stakeholders. Aside from the core fund administration service, our institutional reach means that we are able to provide more value-added services such as bridge financing options, wealth management solutions to the key investment professionals and other stakeholders with the asset manager, and also custody options when the portfolio companies decide to go for a listing. We work closely with colleagues 10 HFMWEEK.COM

11 FINANCIAL SERVICES in our capital markets division to fully leverage this institutional reach in order to provide the best value-added service to our clients. HFM: What are the main trends you see in the administration sector in Guernsey? VV: Private equity fund administration has always been a highly customised service offering for us and increasingly each client adopts a slightly different approach either with the fund structures, economic terms or investor reporting with more tailored capital account statements etc. Though managers have generally adopted the EVCA reporting guidelines, we are seeing many managers now considering some of the ILPA guidelines towards reporting. It is important that service providers are well-equipped to handle more complex fund structures and flexible reporting requirements for the asset managers. We are also seeing an increasing number of side letters with investors and often many of the side letter terms provide for an enhanced reporting frequency or additional information. We assist the asset managers in meeting the requirements and ensure that the fund complies with the obligations assumed in the side letters. HFM: What are the typical challenges faced by fund managers when establishing a private equity fund? VV: Be it a start-up asset manager or an asset manager with a track record, it is beneficial to engage key service providers from a very early stage of the discussions. It is important to discuss with the legal advisers establishing a well thought out fund structure with carried interest, co-investment and holding companies for the relevant investments. It is also important to consider the target investor market and adequately provide for any feeder structures, if necessary. Aside from the structure aspect, there are challenges relating to the economic terms and particularly investors requesting preferential fee arrangements for seed capital. Investors are also often quite keen to understand the deal flow of the asset managers and seem to focus both on the investment and operational due diligence aspect prior to committing. HFM: How does RBC help asset managers meet the requirements of the changing regulations such as Fatca and the AIFMD? VV: There have been lots of regulatory changes within the asset management industry. We follow regulatory updates closely and work with legal advisers in all the jurisdictions to ensure that we remain well-positioned to assist our clients in meeting the relevant obligations. Our clients often look to us to guide them through the ever-changing regulatory landscape and being part of a larger institution puts us in a favourable position in having these conversations. We have dedicated teams looking at the regulatory changes and receive frequent updates about how the changes impact the industry. HFM: What are your predictions for the market in Guernsey over the next year? VV: Guernsey has always been an attractive domicile and this will continue to be the case. Private equity and real estate structures are quite popular and we anticipate increasing activity levels in the market. Guernsey s robust regulatory regime will continue to remain attractive for asset managers. HFMWEEK.COM 11

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13 GUERNSEY 2014 LEGAL GUERNSEY: THE BEST OFFSHORE SOLUTIONS TOM CAREY AND BEN MORGAN OF CAREY OLSEN TELL HFMWEEK HOW GUERNSEY HAS MAINTAINED ITS SOLID REPUTATION FOLLOWING THE IMPLEMENTATION OF THE AIFMD Tom Carey is a partner in the corporate and finance group at Carey Olsen. He qualified as a solicitor in 2000 before joining the corporate finance team at Norton Rose. He was in-house counsel at Morgan Stanley Investment Management from 2002 to He joined Carey Olsen in August 2004 and was made partner in The real impact of the EU Alternative Investment Fund Managers Directive is beginning to be felt globally. Some jurisdictions (and fund managers) are positioned more favourably than others to ensure they are ready to make the most of the opportunities available while avoiding the pitfalls that usually accompany more regulation. Carey Olsen investment fund partners in Guernsey, Tom Carey and Ben Morgan, proffer the view that Guernsey is ideally placed, and has sensibly addressed the AIFMD, to be the jurisdiction of choice for European funds. There are few of those working in the funds sector, and particularly European hedge funds, who have not gone some way to getting to grips with the tenet of the AIFMD. However, where there has been a shortage of detail has been in just exactly what jurisdictions are doing practically on the ground to provide solutions that will not vex the fund management industry unduly. Guernsey is certainly the first, GUERNSEY HAS ALWAYS HAD A LARGE COMMUNITY OF AUDITORS, INCLUDING THE BIG FOUR, LAWYERS, ADMINISTRATORS AND BANKERS if not the only, non-eu jurisdiction to adopt a dual regulatory regime for Guernsey structures where fund managers have the ability to opt in to the AIFMD equivalent Guernsey rules or to operate entirely outside the AIFMD regime. If fund marketing is wholly conducted outside the EU, and management of a fund is not being conducted in the EU, the AIFMD will have no bearing on the operation of the manager s business or the fund it manages. Indeed, several hedge fund managers have, or are establishing, a sizeable presence in Guernsey; in most cases to ensure that no part of their business is subject to the AIFMD although there are some who are actively looking at opting in to Guernsey s equivalent rules. The reputation and size of some hedge fund managers means that they will attract European investors without needing to actively market in the EU and therefore avoid being subject to the AIFMD under reverse solicitation arrangements. Alternatively, where marketing by a Guernsey manager takes place, the limited reporting and disclosure requirements under the AIFMD are not regarded as unduly onerous and, crucially, the manager is not subject to the other provisions of the AIFMD. Guernsey s own regulatory regime, which captures all fund managers, is regarded by its 200bn plus industry as a better fit for alternative fund managers The real ace in the hole for Guernsey has been its ability to service heavily regulated and, often, complex structures and is home to a very large number of London listed funds. Guernsey has never been regarded as the jurisdiction of choice for letterbox fund managers. Guernsey s regulatory requirements, and other issues relevant to its offering as a funds jurisdiction, have meant that a fund manager has always needed to be fully engaged in discharging its functions in Guernsey. The same goes for all service providers. Consequently Guernsey has always had a large community of auditors, including the Big Four, lawyers, administrators and bankers. There are also big depositary operations in Guernsey with a growing number of non-financial asset depositaries also looking to service AIFMD structures. This means that Guernsey is well positioned to look after structures which may need to adapt to regulatory challenges and prepare for passporting under the AIFMD which is due to be extended to Guernsey and other third countries in 2015/16. Guernsey s proximity to Mayfair has meant that there has been a steady growth of intellectual capital into Guernsey over the three decades it has been home to hedge fund managers. More recently there has been a noticeable influx of individuals with portfolio and risk management expertise which means Guernsey will be able to expand its offering to non-eu managers. It is anticipated that there will be an increased demand for individuals with risk management expertise in Guernsey in order to HFMWEEK.COM 13

14 GUERNSEY 2014 LEGAL ensure that Guernsey managers can avail themselves of investment advice and support from EU managers without their entire operations being dragged into scope for AIFMD purposes. The Commerce and Employment Department of the States of Guernsey is also very supportive of fund managers looking to build a permanent establishment on the island and policies have been put in place to facilitate the establishment of these businesses. A growing market is also developing in serviced and commercial office space and landlords are investing in properties to service that demand. The government has also been focused on improving key infrastructure for business and has recently tasked the competition authority with a review of broadband connectivity. By way of example of this political support in response to increasing demand for limited liability partnership structures in Guernsey, and following the successful adoption of such structures in other jurisdictions, the States of Guernsey have recently approved draft legislation which introduces limited liability partnerships (LLPs) to Guernsey. The draft law is expected to receive Royal Assent and come into force prior to July 2014 and Carey Olsen has already begun to advise fund management clients in particular on the potential uses and benefits of such structures to their business. Ben Morgan is a partner in the corporate and finance group at Carey Olsen. Ben qualified as an English solicitor in 1992 and practised with Norton Rose before joining Carey Olsen in Ben has been a partner since In contrast to other jurisdictions an LLP in Guernsey will be able to be formed for any lawful purpose. Their inherent flexibility means that LLPs are likely to prove a popular choice in a number of different commercial scenarios. Professional services firms that have historically structured themselves as partnerships or limited companies will be attracted by the limited liability and flexible management arrangements afforded to members of an LLP, and it is for such firms that LLPs have proved particularly popular in the UK. In addition to such staffed businesses, LLPs are likely to be ideally suited to special purpose ManCos and general partner vehicles, particularly in light of the recently introduced changes to the UK s Partnership Accounts Regulations. Similarly LLPs are likely to prove popular for real estate joint ventures and other investment clubs where participants will be attracted by the ability to take an active part in the management of the LLP and its investments without giving up their limited liability. Indeed, the ability to tailor the economics of LLPs will also make them attractive as simple asset holding vehicles even in the absence of any active investment management. Guernsey will continue to offer the best offshore solutions for fund managers both through proportionate and internationally-compliant regulation and a political environment which supports and encourages the industry. 14 HFMWEEK.COM

15 A FORWARD-THINKING A P P R O A C H I N A W A I T- A N D -S E E WORLD. SEE HOW CLIENTS ARE BENEFITTING FROM OUR GLOBAL INSIGHTS IN TODAY S MARKET AT RBCWEALTHMANAGEMENT.COM/CIS There s Wealth in Our Approach ṬM BANKING CREDIT CUSTODY CUSTODIAN TRUSTEE FUND ADMINISTRATION The value of investments may fall as well as rise. You may not get back the full amount that you originally invested. This advertisement is issued by Royal Bank of Canada (Channel Islands) Limited ( the Bank ) on behalf of RBC companies that comprise RBC Wealth Management in the British Isles The Bank is regulated by the Guernsey Financial Services Commission in the conduct of deposit taking and investment business and to act as a custodian/trustee of collective investment schemes in Guernsey and is also regulated by the Jersey Financial Services Commission in the conduct of deposit taking, fund services and investment business in Jersey. The Bank s General Terms and Conditions are updated from time to time and can be found at Registered Office: Canada Court, St Peter Port, Guernsey, Channel Islands, GY1 3BQ, registered company number Deposits made with the offices of the Bank in Guernsey and Jersey are not covered by the UK Financial Services Compensation Scheme; however, the Bank is a participant in the respective Deposit Compensation Schemes in Jersey and Guernsey ( the CI Schemes ). Links to the official websites which provide details of the respective CI Schemes are available on the Jersey and Guernsey pages of our website Copies of the latest audited accounts are available upon request from either the registered office or the Jersey Branch: Broad St, St. Helier, Jersey JE1 8PB. / TM Trademark(s) of Royal Bank of Canada. Used under licence CA/Dec15/1480

16 If you want a more enterprising approach to fund business, there s one place you should look... here. Guernsey offers the experience, the infrastructure and the intellectual capital to deliver innnovative fund solutions for any market, in any asset class. We combine a breadth and depth in management, administration, custody and structural innovation that is second to none, with a wide non-executive director resource, as well as a first class, well regulated professional infrastructure. Make Guernsey your first port of call. Telephone: +44 (0) funds@guernseyfinance.com BANKING FUNDS INSURANCE PRIVATE WEALTH guernseyfinance.com