FEATURING Carey Olsen // Guernsey Finance // Ogier // RBC Wealth Management

G U E R N S E Y 2 0 1 4WEEKHFM

S P E C I A L R E P O R T

LOCATIONWhy Guernsey is well-suited geographically for the establishment of hedge funds

EXPERTISEHow the island boasts a wealth of knowledge and know-how

DIVERSITYThe wide range of fund structures that the jurisdiction provides

British Virgin Islands | Cayman Islands

Guernsey | Hong Kong | Jersey

Luxembourg | Shanghai | Tokyoogier.com/legal

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 01481 752215 or email gsy@ogier.com

H F M W E E K . CO M 3

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 TrueloveVice chairman, Guernsey Investment Fund Association (GIFA)

WG U E R N S E Y 2 0 1 4

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REPORT EDITOR Karolina Kaminska T: +44 (0) 20 7832 6654 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) 20 7832 6623 g.roberts@pageantmedia.com CEO Charlie Kerr GROUP COMMERCIAL MANAGER Lucy Churchill T: +44 (0) 20 7832 6615 l.churchill@hfmweek.com SENIOR PUBLISHING ACCOUNT MANAGER Tara Nolan +44 (0) 20 7832 6612, t.nolan@hfmweek.com PUBLISHING ACCOUNT MANAGER Rebecca Wheeler, +44(0) 20 7832 6613 r.wheeler@hfmweek.com CONTENT SALES Tel: +44 (0) 20 7832 6511 sales@hfmweek.com CIRCULATION MANAGER Fay Muddle T: +44 (0) 20 7832 6524 f.muddle@pageantmedia.com

HFMWeek is published weekly by Pageant Media Ltd ISSN 1748-5894 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

Published by Pageant Media Ltd LONDONThird Floor, Thavies Inn House, 3-4 Holborn Circus, London, EC1N 2HAT +44 (0) 20 7832 6500 NEW YORK 1441 Broadway, Suite 3024, New York , NY 10018 T +1 (212) 268 4919

WEALTH MANAGEMENT

HIGH DEMANDVignesh Vijayakumar, senior manager, Corporate & Institutional Services, RBC Wealth Management, discusses the main trends in the funds industry in Guernsey

LEGAL

GUERNSEY: THE BEST OFFSHORE SOLUTIONSTom Carey and Ben Morgan of Carey Olsen tell HFMWeek how Guernsey has maintained its solid reputation following the implementation of the AIFMD

FUND SERVICES

CHANGES TO THE CLASS B RULES IN GUERNSEYCaroline 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

FINANCIAL SERVICES

GUERNSEY PROVES AN ATTRACTIVE OPTION UNDER AIFMDFiona Le Poidevin of Guernsey Finance explains why Guernsey is a great place for funds in light of the implementation of the AIFMD

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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.

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G U E R N S E Y 2 0 1 4

The vast majority of open-ended funds in Guernsey tend to be established as Class B schemes because of the fl exibility of the re-gime, which has operated successfully since 1990. It has only recently been updated for the fi rst time. Th e Authorised Collective In-

vestment Schemes (Class B) Rules, 2013 (Class B Rules) came into operation on 2 January 2014 and this article dis-cusses 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 particu-lars 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 docu-ments require updating, this must be carried out by no lat-er than 2 January 2016. Th e 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 declara-tion will be valid for one year and may be revoked if the new cell or class is inactive.

NOTIFICATIONS AND APPROVALSA change of designated administrator or trustee continues to require prior notifi cation and the Guernsey Financial Services Commission’s approval in practice because of the need for the scheme’s Class B declaration of authorisa-tion to be varied. Th ere are also new requirements relat-ing 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 notifi cation only.

In particular, there is no longer any need to obtain prior writt en approval from the Commission for a change to a scheme’s investment, borrowing and hedging powers, al-though it is still necessary to notify the Commission in ad-vance and give suffi cient notice to holders to allow them to redeem their shares before the change takes place.

Th e requirement to obtain prior approval from the Commission for payment out of scheme property of previ-ously unauthorised or undisclosed fees, expenses or charg-es has also been replaced with a requirement to notify the trustee and to give notice to holders.

Other notifi cation 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 notifi ed, to-gether with reasons, “forthwith”.

SERVICE PROVIDER ROLES AND DUTIESTh e designated manager for the purposes of the Protection of Investors (Bailiwick of Guernsey) Law, 1987 as amended is now redefi ned in the Class B Rules as the “designated administrator” to bett er refl ect its role. It is also now made clear that the term “principal manager” means the Guern-sey-based principal manager (if any), who would normally delegate some or all of its administration functions to the designated administrator.

New guidance clarifi es that the Commission expects the duties of a designated administrator normally to be limited to administering the scheme and monitoring the constitu-ents 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 des-ignated 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 unjustifi able failure to per-form its obligations or its improper performance of them”.

Th e Class B Rules now recognise that the function of reg-istrar will oft en 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 trus-tee’s oversight role.

Respective roles and responsibilities of service providers under the Class B Rules are not necessarily the same as pre-viously. 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 matt er of contractual arrangement and that, in assessing compliance with the Class B Rules, it will take into account those con-tractual arrangements.

As a result of these changes, Class B scheme service pro-viders should consider carrying out a full review of their roles under the Class B Rules in conjunction with the con-tractual arrangements under which they are appointed and take advice as appropriate.

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

CHANGES TO THE CLASS B RULES IN GUERNSEY

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 1994. 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.

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H F M W E E K . CO M 5

FEES AND EXPENSESOne 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 ad-viser or persons in the same group, double charging of any charge payable by a target scheme is prohibited. The Com-mission 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 previ-ous 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 struc-ture is fully disclosed.

It is no longer necessary for 90 days’ notice to be given to holders of any increase in the man-ager’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 man-ager’s and investment adviser’s charges.

MEETINGS OF HOLDERSThe 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

period that is normally allowed for deemed service and the position may need to be checked and advice taken, as ap-propriate.

In relation to the powers of a meeting of holders, a reso-lution 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 inter-im 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, arrange-ments for the removal of service providers and the notice required to be given to increase prin-cipal 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 reg-istered 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.

EACH NEW CLASS OR CELL OF A CLASS B AUTHORISED

SCHEME WILL NOW BE DECLARED APPROVED BY

THE COMMISSION, VALID FOR ONE YEAR

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G U E R N S E Y 2 0 1 4

Latest fi gures from Guernsey’s fi nancial servic-es 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 addi-tions during 2013.

However, while asset values have proved sluggish, large-ly due to external factors at play during 2013, the GFSC has been kept busy with new fund applications. Th e 103 new funds launched are investing across a wide range of asset classes and markets and include two notable listed renewable energy funds, Bluefi eld Solar Income Fund and Th e Renewables Infrastructure Group, with city sources quoting the latt er as the largest IPO of a clean energy fi rm in London, with an initial raising of £300m in July 2013.

Th ere 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 fi nal 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 off ering 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 Cay-man incorporated but are opting to have some element of management or administration (or both) undertaken in Guernsey. Th is is a testament to the quality infrastructure available and is increasingly sett ing us apart from other competitor territories. In fact, the NAV of non-Guernsey domiciled funds having some element of servicing pro-vided in Guernsey is in excess of £88bn.

More recent new funds launched from Guernsey in-clude commercial property investment company Summit

Germany and Nimrod Sea Assets Limited, both of which have listed on the London Stock Exchange (LSE) in early 2014.

PRE-EMINENCEGuernsey’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. Th e experience and expertise Guernsey has in investment funds, particularly in private equity, is proving att ractive to family offi ces and other private inves-tors who are seeking not just asset protection but invest-ment returns for their private wealth. Th ese investors and their advisers are turning to Guernsey investment struc-tures 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 Sui-sse Asset Management’s ILS team. Dexion Capital Guern-sey 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 Guern-sey-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 jurisdic-tion globally aside from the UK. Th e fact that Guernsey entities can be listed on not just the LSE but also a num-

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.

CO-OPERATION AGREEMENTS

THE NAV OF NON-GUERNSEY DOMICILED FUNDS HAVING SOME ELEMENT OF SERVICING PROVIDED IN GUERNSEY IS IN EXCESS OF £88BN ”

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FIONA LE POIDEVIN OF GUERNSEY FINANCE EXPLAINS WHY GUERNSEY IS A GREAT PLACE FOR FUNDS IN LIGHT OF THE IMPLEMENTATION OF THE AIFMD

GUERNSEY PROVES AN ATTRACTIVE OPTION UNDER

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.

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H F M W E E K . CO M 7

ber of exchanges around the world, including Euronext Amsterdam, Frankfurt, Ireland, Toronto, Johannesburg, Hong Kong and Australia, as well as the local Channel Is-lands 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 Alterna-tive Investment Fund Managers Directive (AIFMD).

DUAL REGULATORY REGIMEGuernsey 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 increas-ing amount of funds business which originates outside of Europe.

As such, Guernsey has introduced a dual regulatory re-gime so that it is possible to continue to distribute Guern-sey 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

order to obtain authorisation under the AIFMD, a man-ager will need to comply with various organisational, op-erational 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 con-tinue to be able to use NPP regimes, which are expected to remain in place until at least 2018. Guernsey’s regula-tor 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 Euro-pean countries through their NPP regimes.

Third, it is expected that a full passporting regime for non-EU AIFMs will be implemented from July 2015. 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 pass-porting is currently envisaged to operate. Indeed, Guern-sey 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.

OPTIONALITY The attraction of Guernsey for fund managers wishing to market into Europe is that it can provide a European plat-form 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 full-blown AIFMD compliance will only be sought if there are particular commercial reasons to do so.

For example, it makes commercial sense for a fund man-ager marketing almost exclusively to Europe to have a fully AIFMD compliant platform. However, this does not have

TOTAL NAV OF GUERNSEY FUNDS BUSINESS

£266bnGrowth 5yr: +33%

Total NAV of Guernsey funds business reached £266bn at end of December 2013.

Total NAV of Guernsey funds business increased 33% year on year to the end of December 2013.

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.

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G U E R N S E Y 2 0 1 4

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 plat-form which suits all. European directives – such as the AIFMD but also the Undertakings for Collective Invest-ment 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 busi-ness away into a parallel or feeder structure for which AIFMD compliance would neither be required nor nec-essary. The potentially onerous administration burden and costly compliance with the AIFMD will mean that parallel structures are likely to be given serious consid-eration.

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 of-fer the ability to separate the reporting obligations away from non-EU investors, as with a Guernsey platform.

SUBSTANCEOne 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 direc-tors.

There are also a number of global custodians based

in Guernsey and they are soon to be supplemented by those specialist administrators who are applying to es-tablish Guernsey-based depositaries. These are being particularly established to service private equity and real estate funds which have not previously had the require-ment 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 Guern-sey providers now service open-ended funds that are domiciled in other jurisdictions, typically the Cayman Islands, where there may be local substance challenges.

CONCLUSIONUntil recently, awareness among fund managers of the re-quirements imposed by the AIFMD was extremely mixed, with some on top of the situation and others more uncer-tain. Ironically, this ‘wait and see’ attitude has been perpet-uated 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 thresh-old 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 al-lows 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 2014.

REGISTERED FUNDS IN GUERNSEY

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.

QUALITY OF SERVICE IS EVIDENCED BY THE FACT THAT GUERNSEY PROVIDERS NOW SERVICE OPEN-ENDED FUNDS THAT ARE DOMICILED IN OTHER JURISDICTIONS ”

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BRIT I SH V IRGIN I SL ANDS

CAYMAN I SL ANDS

GUERNSE Y

JERSE Y

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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.

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G U E R N S E Y 2 0 1 4

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 es-tablishing these managed account structures are normally looking to deploy substantial commitments to asset man-agers 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 dili-gence matt ers. Another interesting trend we are seeing at the moment is funds raised to invest in a specifi c invest-ment, which could be in both a traditional private equity strategy as well as in the real estate/infrastructure seg-ment.

HFM: What sort of activity has Guernsey seen recently in the private equity segment?VV: We have seen interest returning in all the major pri-vate 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 att ractive location to asset managers?

VV: Guernsey has a very well-established regulatory framework which demonstrates a good mix of fl exibil-ity and pragmatism. It boasts a highly-regarded fi nancial regime that has att racted 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 off er to private equity funds in Guernsey?VV: We provide a full suite of services necessary for asset managers looking to establish fund structures in Guern-sey. Most private equity fund structures are established as closed-ended limited partnerships with a Guernsey com-pany acting as the general partner. Th ere are also carried interest and co-investment structures oft en included in the relationship.

Our services include administration and fi duciary ser-vices to the fund, general partner and the related carried-interest structures along with custody and banking services necessary to fund structures. We off er 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 incep-tion stage working with the legal advisers and other key stakeholders.

Aside from the core fund administration service, our in-stitutional reach means that we are able to provide more value-added services such as bridge fi nancing options, wealth management solutions to the key investment pro-fessionals 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

HIGH DEMAND

Vignesh Vijayakumaris 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

VIGNESH VIJAYAKUMAR, SENIOR MANAGER, CORPORATE & INSTITUTIONAL SERVICES, RBC WEALTH MANAGEMENT, DISCUSSES THE MAIN TRENDS IN THE FUNDS INDUSTRY IN GUERNSEY

H F M W E E K . CO M 11

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in our capital markets division to fully leverage this insti-tutional reach in order to provide the best value-added service to our clients.

HFM: What are the main trends you see in the admin-istration 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 re-porting requirements for the asset managers. We are also seeing an increasing number of side letters with inves-tors and often many of the side letter terms provide for an enhanced reporting frequency or additional informa-tion. We assist the asset managers in meeting the require-ments and ensure that the fund complies with the obliga-tions 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 Fat-ca 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 cli-ents in meeting the relevant obligations. Our clients often look to us to guide them through the ever-changing regu-latory 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 chang-es 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 in-creasing activity levels in the market. Guernsey’s robust regulatory regime will continue to remain attractive for asset managers.

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L E G A L

H F M W E E K . CO M 13

G U E R N S E Y 2 0 1 4

The real impact of the EU Alternative Invest-ment Fund Managers Directive is begin-ning 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 opportu-

nities available while avoiding the pitfalls that usually accompany more regulation. Carey Olsen investment fund partners in Guernsey, Tom Carey and Ben Morgan, proff er the view that Guernsey is ideally placed, and has sensibly addressed the AIFMD, to be the jurisdiction of choice for European funds.

Th ere are few of those working in the funds sector, and particularly European hedge funds, who have not gone some way to gett ing 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 solu-tions that will not vex the fund management industry unduly.

Guernsey is certainly the fi rst, if not the only, non-EU jurisdic-tion 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 market-ing 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 es-tablishing, 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 look-ing at opting in to Guernsey’s equivalent rules.

Th e reputation and size of some hedge fund manag-ers means that they will att ract European investors with-out needing to actively market in the EU and therefore avoid being subject to the AIFMD under reverse solici-

tation 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 bett er fi t for alternative fund managers

Th e real ace in the hole for Guernsey has been its ability to service heavily regulated and, oft en, 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 lett erbox fund managers. Guernsey’s regulato-ry requirements, and other issues relevant to its off ering as a funds jurisdiction, have meant that a fund manager has always needed to be fully engaged in discharging its func-tions in Guernsey. Th e same goes for all service providers.

Consequently Guernsey has always had a large commu-nity of auditors, including the Big Four, lawyers, administra-tors and bankers. Th ere are also big depositary operations in Guernsey with a growing number of non-fi nancial as-set depositaries also looking to service AIFMD structures. Th is means that Guernsey is well positioned to look aft er structures which may need to adapt to regulatory challenges and prepare for passporting under the AIFMD which is due to be extended to Guern-sey 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 no-ticeable infl ux of individuals with portfolio and risk man-agement expertise which means Guernsey will be able to expand its off ering 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

GUERNSEY HAS ALWAYS HAD A LARGE COMMUNITY OF AUDITORS, INCLUDING THE BIG FOUR, LAWYERS,

ADMINISTRATORS AND BANKERS

”

”

TOM CAREY AND BEN MORGAN OF CAREY OLSEN TELL HFMWEEK HOW GUERNSEY HAS MAINTAINED ITS SOLID REPUTATION FOLLOWING THE IMPLEMENTATION OF THE AIFMD

GUERNSEY: THE BEST OFFSHORE

SOLUTIONS

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 2004. He joined Carey Olsen in August 2004 and was made partner in 2008.

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1 4 H F M W E E K . CO M

G U E R N S E Y 2 0 1 4

ensure that Guernsey managers can avail themselves of investment advice and support from EU managers with-out their entire operations being dragged into scope for AIFMD purposes.

Th e Commerce and Employment Department of the States of Guernsey is also very supportive of fund man-agers 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 offi ce space and landlords are investing in properties to service that demand. Th e government has also been focused on im-proving key infrastructure for business and has recently tasked the competition authority with a review of broad-band 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 legis-lation which introduces limited liability partnerships (LLPs) to Guernsey. Th e 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 manage-ment clients in particular on the potential uses and ben-efi ts of such structures to their business.

In contrast to other jurisdictions an LLP in Guernsey will be able to be formed for any lawful purpose. Th eir inherent fl exibility means that LLPs are likely to prove a popular choice in a number of diff erent commercial sce-narios. Professional services fi rms that have historically structured themselves as partnerships or limited compa-nies will be att racted by the limited liability and fl exible management arrangements aff orded to members of an LLP, and it is for such fi rms that LLPs have proved par-ticularly popular in the UK. In addition to such staff ed businesses, LLPs are likely to be ideally suited to special purpose “ManCos” and general partner vehicles, particu-larly in light of the recently introduced changes to the UK’s Partnership Accounts Regulations.

Similarly LLPs are likely to prove popular for real es-tate joint ventures and other investment “clubs” where participants will be att racted by the ability to take an ac-tive part in the management of the LLP and its invest-ments without giving up their limited liability. Indeed, the ability to tailor the economics of LLPs will also make them att ractive as simple asset holding vehicles even in the absence of any active investment management.

Guernsey will continue to off er the best off shore solu-tions for fund managers both through proportionate and internationally-compliant regulation and a political envi-ronment which supports and encourages the industry.

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 1999. Ben has been a partner since 2003.

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