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Across many alternative asset classes, high-profile managers, such as Altis Partners, EQT, Nordic Capital and Terra Firma, have chosen to set up shop in the Channel Islands.
It has been well-documented that alternative asset managers face an increasingly hostile environment within the UK. As the threat of a double-dip UK recession looms and the effect of the UK Government’s spending review bites, there may be limited sympathy for the sector and its professionals, but one effect of increased regulation and fiscal strain is that alternative asset managers are seeking new shores on which to base their teams.
The popular view is that jurisdictions such as Switzerland will benefit from this migration - but the reality is very different. PricewaterhouseCoopers sees the future ’offshore international financial centre’ (OIFC) model as being able to meet internationally accepted standards covering regulation, transparency and cooperation on tax matters; and since both Guernsey and Jersey continue to exceed these standards, there is now a compelling case to be made that the Channel Islands should attract their fair share of manager teams.
The legal regime of a jurisdiction is very influential in the decision to move. The legislatures in Guernsey and Jersey have shown consistently a willingness to review and develop initiatives to adapt to market needs, and the islands’ service providers now have many structuring tools that can benefit fund management teams. For instance, the ’incorporated limited partnership’ and ’separate limited partnership’ vehicles, set to be rolled out in Jersey soon, are expected to provide new and exciting features for general partner and fund-side structures, in the same way that Guernsey’s long-established ’protected and incorporated cell companies’ have provided solutions to fund and securitisation issues.
The financial regulators in both Guernsey and Jersey are experienced and understand the alternative asset class sector very well. This has been demonstrated by averting high-profile regulatory fallouts experienced by some of their European peers. First-hand experience of the regulators shows them to have a responsive and ’open for business’ attitude, while maintaining a balanced and fairminded approach to risk and regulation. For example, from a regulatory perspective, establishing a fund can be completed within three days.
The islands both have robust supporting infrastructures with platforms such as back-office, compliance, custody, risk management and accounting controls in place to support sophisticated regulated investment manager businesses. Furthermore, the professional services culture shock that can accompany a move to a new jurisdiction does not apply to the Channel Islands. The intermediaries and professional services firms are London-centric and possess the same high standards of client delivery and solution-driven focus found in the City.
Leaders in investment management, such as BNP Paribas, JPMorgan, Northern Trust and State Street Corporation, have all recently invested heavily in the islands despite the global downturn, as they view favourably the opportunity to support the growth of on-island teams and funds.
Jenny Swan, JPMorgan executive director of worldwide security services for Jersey, says that, following the acquisition of Schroders’ Guernsey fund administration business, JPMorgan is now fully committed to the islands. “Clients value our ability to service pan-island clients by leveraging our scale, leading technology and deep industry expertise across our global centres of excellence,” she comments.
According to a survey on European private equity fund administration published by Ernst & Young, more than a quarter of administrators contemplating expansion included Jersey, Guernsey or both on their wish lists - a testament to the strength of the islands’ professional services infrastructures. This survey also names the Channel Islands as one of the top three jurisdictions best placed to tackle the challenges that lie ahead over the next 18 months.
While Switzerland could sometimes be viewed as the default relocation destination, the respective governments of the Channel Islands are committed to attracting the sector’s intellectual capital and talent that have decided to leave the UK and have resourced teams in London to support this initiative.
Martin De Forest-Brown, States of Jersey director of international finance, whose remit includes taking responsibility for inward investment, highlights that “Jersey’s continued success is that it’s remained open for business during the financial storms, and the States of Jersey is committed to ensuring we continue to provide a leading-edge environment for fund management businesses to flourish”.
As the final twists and turns of the Alternative Investment Fund Managers (AIFMs) directive negotiations play out, it is looking clear that there will be some distinct advantages to domiciling the fund manager and/or the alternative investment fund (AIF) outside the EU. There will certainly be greater flexibility to access global investor markets, including the US (and avoid any US regulatory backlash against EU-based AIFs and AIFMs), while gaining access to the EU through passporting and the private placement regimes.
There is no doubt that softer lifestyle factors are also influential. The Channel Islands have first-rate schools that follow the UK curriculum, shorter commutes to work, accessible private healthcare, stunning scenery, an abundance of short flights to the UK and Europe and an embarrassment of fine restaurants and high-quality hotels (alongside a manageable cost of living). These factors all contribute to a strong supporting message to the sector that the islands should be viewed as the primary relocation venue should teams decide to take the decision to move away from the UK.
Natasha Reeve-Gray, a principal at top 20-performing hedge fund manager Altis Partners, sums up the reasons for moving to the islands. “We moved to Jersey at the end of 2005 and it was definitely the best decision we’ve made as a business,” she says. “We chose Jersey because of the excellent financial infrastructure, proximity to London, Geneva and Zurich and sensible financial regulations.
“But it’s also the lifestyle in Jersey that’s made this move so easy - shorter commutes and a more relaxed and enjoyable everyday life.”
James Mulholland is a corporate partner at Carey Olsen