Ben Morgan, partner, Carey Olsen Guernsey
David Gorman, director, portfolio management, Standard Bank Jersey
Brian Donegan, business development manager, funds, Isle of Man
What is your jurisdiction doing to attract alternative funds to your centre?
Morgan: Guernsey has posted its best results so far, following year-on-year growth of 20 to 30 per cent. It is expected that 2006 will break all previous records in the number of new funds and the size of the funds being attracted into the island. Where Guernsey has seen its greatest growth has been in the domiciliation of alternative funds. Property funds have continued to be attracted to the island, as have private equity funds and funds of hedge funds.There have been a number of reasons for Guernsey being attractive for launching alternative funds. Its flexibility makes it attractive to launch a multitude of structures for alternative funds. Further reform is anticipated over the next year to make it even faster and easier to launch funds so that Guernsey is able to compete on a level playing field with other less regulated jurisdictions, without impacting on its reputational integrity. Gorman: Over the past few years, Jersey has put in place a highly respected and regulated financial market. It has been recognised in a recent UK survey as the domicile of choice for many fund professionals. This is an endorsement of Jersey’s decision to introduce streamlined regulatory measures that have proved a success in making the island a major commercial centre for alternative fund business. The introduction of the Expert Fund Guide in Jersey in 2004 has encouraged a range of specialist fund business while generating huge interest among international fund managers. Donegan: Following a review in 2003 by a team of industry professionals, government officials and regulators, a number of measures were introduced to attract fund administration to the Isle of Man. These included the removal of VAT for fund managers and administrators, a zero tax rate for managers and administrators, the creation of the experienced investor fund regime (no regulatory pre-approval and no prescriptive underlying asset regulation) and removal of dual regulation where a fund domiciled in, say, Cayman and administered in the Isle of Man is no longer subject to Isle of Man regulation. What incentives is your centre offering to attract fund managers to relocate to your jurisdiction? Morgan: Guernsey is reviewing its tax policy for 2008, in particular in relation to tax-capping for high-income earners. This is intended to attract fund managers to the island. Guernsey has a number of high-profile fund managers that have moved to the island and it is expected that the offer of a cap on tax paid in Guernsey is likely to increase the flow of fund managers moving here. External pressure on fund managers to demonstrate offshore management and control in relation to offshore funds managed by onshore fund managers has resulted in a general move offshore in relation to certain sectors of the onshore fund management industry. Guernsey’s proximity to the UK and Europe and existing infrastructure make it a popular choice for fund managers. Gorman: Jersey is making consistent strides to attract expert funds, which are a suitable vehicle for private investment and are being used increasingly by professionals to manage private family wealth. Numerous enquiries from fund promoters and managers located outside the island have been made and they are now considering whether to use Jersey as a base for their international fund management activities. Donegan: The Isle of Man government is working to attract new fund managers to the island. In the 2006 budget, a zero rate of corporate tax on all businesses, with the exception of certain licensed entities, was introduced which applies to fund management and investment advisory companies. The government also offers a grant of up to 50 per cent on capital expenditure in year one and capital allowances to business start-ups. There is a close relationship between industry, government and regulators which enables a highly flexible approach to developing the industry within an AAA-rated jurisdiction. What are the attractions of your jurisdiction for funds and fund managers? Morgan: Attractions include the flexible regulatory regime but also the administrative infrastructure in place in Guernsey. It has a wealth of knowledge within its fund industry. The finance industry numbers over 7,000 people and funds have been administered in the island for well over 30 years. It is fiscally independent and over 40 fund administrators compete for new fund business introduced to the island. All this results in a favourable jurisdiction in which to domicile investment funds. Gorman: Jersey has adopted a flexible approach to fund management capabilities. Cooperation between industry, professionals and government is enabling a rapid response to meet the demanding and urgent needs of fund managers. The ease with which meetings between top island officials to discuss individual requirements can be arranged is clearly an advantage. Jersey is recognised as having a high-quality regulatory environment and that strength is supported by the size of the island which, although significant in terms of assets under management, can provide a personalised and highly professional service. The depth and breadth of experience in the island, particularly in accountancy and legal expertise, is a prominent feature. All the big four accountancy firms in the island are providing outstanding professional expertise and the infrastructure is geared towards the financial sector, with its close proximity to London. Donegan: Fund managers find the speed, ease and value for money when incorporating, domiciling and administering funds, together with the relative ease in which qualified personnel can be located to the Isle of Man, make for an attractive jurisdiction. There is little restriction on space, which caters for expanding a business as it grows. It is politically stable, well regulated and AAA-rated by Standard & Poor’s and Moody’s. It is centrally located within the British Isles and benefits from a well established and experienced infrastructure of lawyers, accountants, banks and custodians. What success has your jurisdiction had in attracting funds and fund managers? Morgan: A number of fund managers have relocated their offices to Guernsey, including FRM, Atlas Capital and De Putron Fund Managers. A number of new promoters have also come and established funds in Guernsey. Records continue to be broken in terms of the number of funds and size of funds coming to the island. The latest influx comes from America as a result of the KKR, Apollo, Doughty Hanson and the Partners Group listed private equity structures but there has also been an influx of big property funds. Growth has also come from the continued popularity of Guernsey’s protected cell company regime, which originated in Guernsey and has been copied in over 40 jurisdictions. Additional reform was introduced to permit incorporated cell companies, which are proving to be extremely popular. Further reform is anticipated in the new year to make it possible to domicile Guernsey funds which are merely registered here and for which no other form of regulatory process will need to be followed, save for the promoter being signed off by the fund administrator. Gorman: Following the introduction of the streamlined expert fund regulations in early 2004, Jersey has grasped the opportunity to attract additional specialist fund providers or family office professionals. Since the new regulations, 200 expert funds have been structured and net total assets under administration in the island have reached £160bn. During the first quarter of the year, 46 expert funds were launched and the momentum has continued throughout the year, with Jersey property unit trusts able to take advantage of UK stamp duty issues. The government is actively pursuing a growth mandate which has to come from the core finance industry. Donegan: The measures taken three years ago have produced significant results. Assets under administration have doubled, the number of fund administration licences issued has increased by over 60 per cent, with six new licences applied for this year, and the average growth rate for administration companies in terms of assets under administration in 2006 is running at over 40 per cent. From a start of $12bn in 2003, assets under administration are around $35bn and predicted to grow to over $100bn by 2010. From a zero base in 2003, over 3 per cent of all Alternative Investment Market flotations are incorporated in the Isle of Man. What are the reasons for funds and fund managers in relocating and the reasons for them deciding against moving to your jurisdiction? Morgan: The reasons for not moving to the jurisdiction are largely because of the herd mentality which prevails in relation to the domiciliation of certain types of funds which are established offshore in other jurisdictions such as the Cayman Islands and British Virgin Islands. What is possible structurally in those jurisdictions has always been possible in Guernsey, save that Guernsey has not promoted its regulatory flexibility to attract the same business. Furthermore, Guernsey has maintained its reputation by putting additional barriers in place to prevent managers with no relevant track records from establishing Guernsey funds. Guernsey has strived to maintain a robust regulatory reputation and will become more popular for reputable promoters when it introduces the new registered fund regime and when and if it relaxes its requirements in relation to custodial responsibilities so custody can be discharged elsewhere. Gorman: Jersey’s agreed strategic plan is to stimulate the economy by 2 per cent a year, which is now having an important influence in attracting funds. Furthermore, Jersey Finance has worked closely with the Jersey Funds Association in developing the brochure entitled, Jersey – A Centre for Niche Fund Management and Family Offices. The successful positioning of the fund industry has enabled fast-track authorisation of funds. This has enabled companies such as GAM and Altis Partners to relocate a small number of principals and their families. Jersey has been grappling with one issue relating to the Expert Fund Guide which has meant that, due to listing requirements under Aim. only sophisticated investors could effectively hold the fund. The launch on October 3 of a new listed fund guide will enable closed-ended funds and unsophisticated investors to take advantage of Aim and the listed vehicle. Donegan: The Isle of Man is an established financial centre with a strong base built on political stability, low taxation and an established fiscal, legislative and flexible regulatory environment. Coupled with relatively low costs, this makes it an attractive jurisdiction for administration and management services. Closed-ended funds are outside the scope of fund regulation and this, coupled with speed and value for money, has made the island a preferred jurisdiction with lawyers and nominated advisers. Increasing overall awareness of the benefits of the Isle of Man will increase relocation to the jurisdiction. How has your jurisdiction altered the fund regime to attract alternative funds? How successful has this been? Morgan: Guernsey has made minor alternations to its regulatory regime almost every year to ensure that it is able to operate competitively alongside other offshore jurisdictions. It introduced a fast-track regime over a year ago to enable fund administrators to sign off on regulatory submissions, reducing the regulatory approval process in terms of the Guernsey Financial Services Commission signoff to a mere 72 hours. It has enhanced its limited partnership law and continues to push through enhancements making Guernsey limited partnerships attractive for private equity funds. It has reformed its protected cell company laws and introduced incorporated cell companies. It has been successful in negotiating recognition by onshore jurisdictions, including the Dutch Monetary Authority enabling Euronext listings without the Dutch regulatory requirement to obtain a licence. This success is reflected in a number of funds established in Guernsey, the vast majority of which in the last two to four years have been alternative funds. The non-alternative fund sector has played a very small part in its success. Most of the reforms being considered are targeted at attracting more alternative funds to the island. Gorman: The success of Jersey policy can be best illustrated by the fact that in 2004 there were only 50 specialist funds and this had doubled by the end of 2005. This momentum continues as, by the middle of 2006, there were 200 such funds and the projection is for a total of 250 funds by the year end. Another feature has been the speed of authorisation for specialist funds, which can be just 72 hours. This is an outstanding achievement and advantage for interested parties to use alternative funds in Jersey. Donegan: The Isle of Man pioneered the experienced investor fund which has been fundamental to attracting alternative investment funds to the island due to its no regulatory pre-approval status and the ability to operate quickly, efficiently and cost-effectively. The island continues to keep pace with regulatory changes, for example, admitting prime brokers to act as custodians for hedge funds, removing prescriptive investment restrictions for concentration of assets within funds of funds and the removing dual regulation on funds domiciled in other jurisdictions to take full advantage of European time-zone servicing. What incentives are in place to attract wealthy private clients to move to your jurisdiction? Morgan: Tax-capping is planned in 2008 for wealthy individuals. The stock of high-quality housing also continues to increase in number, with designer flats attracting a large number of high-net-worth individuals. Good connections with London make Guernsey a popular destination for individuals with businesses in the City.
It is possible to buy and live in Guernsey without the licensing burden which applies in other jurisdictions with which it competes if a house is bought on Guernsey’s open market. Gorman: There is a highly favourable tax regime whereby Jersey income is taxed at 20 per cent and, provided that the state receives at least £100,000 in tax revenue, there are extra incentives for international income. This new high-net-worth individual legislation has made it easier for wealthy private clients to move to Jersey. The favourable tax regime, pleasant lifestyle and acknowledged and respected fund regulation has made it easier for fund managers to move to the island. The forthcoming merger of the Financial Services (Jersey) Law 1998, with the Collective Investment Funds (Jersey) Law 1988 will also remove some of the difficulties previously faced by the industry. Donegan: As well as having no inheritance or wealth taxes, the Isle of Man government has encouraged wealthy entrepreneurs to establish businesses by simultaneously introducing in the 2006 budget a zero-rate tax on corporate profits and a cap of £100,000 annual tax liability on individuals, irrespective of their worldwide wealth and/or income. These innovative steps make the island an extremely attractive destination when considered together with the quality of life that is on offer here and the freedom with which individuals can relocate, buy property and create flourishing businesses.