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7 reasons why private market funds are domiciled in Guernsey

7 reasons why private market funds are domiciled in Guernsey

23 October, 2024
Guernsey Funds Fund Administration Private Equity Venture Capital Listed Funds

Nestled just off the coast of France, Guernsey is not a part of the United Kingdom but operates under the sovereignty of the Crown as a self-governing dependency. This unique political status affords Guernsey a degree of legislative and fiscal autonomy that is particularly appealing to the finance sector, especially for those interested in setting up funds.

In this article, Luke Jager and Mark Symons from Ocorian’s Guernsey Fund Administration Team delve into the unique advantages and opportunities that Guernsey can offer to asset managers and investors.

 

What are the benefits of using Guernsey as a funds domicile?

 

  • International recognition: Guernsey's regulations align with those of other sophisticated jurisdictions like the UK, US, and Europe.
  • Flexibility: The Guernsey regulator, Guernsey Financial Services Commission (GFSC), is responsive to the needs of fund promoters and clients, offering fast approval times for new funds and a diverse range of fund types.
  • Accessibility: Unlike some larger jurisdictions, Guernsey's regulator is easily accessible, allowing for direct communication and efficient problem-solving.
  • Tax neutrality: Guernsey benefits from a tax-neutral environment, meaning no capital gains, inheritance taxes, or value-added taxes are imposed. Specifically for Guernsey funds, the vehicles are tax transparent, so there is no drag on performance from any Guernsey taxes levied on the fund. Guernsey structures allow for capital to be deployed around the world without unnecessary tax burdens, and its tax regime is relatively straightforward and easy to comply with. Guernsey is fully compliant with the international requirements of FATCA and CRS reporting.
  • Political and economic stability: Guernsey’s stable political climate and strong economic policies make it a secure base for investors.
  • Professional infrastructure: The island boasts a sophisticated financial services industry supported by expert legal and accounting services.
  • Investor familiarity: Guernsey’s well-recognised structuring and long-standing relationship with investors globally contribute to a high degree of comfort and trust among fund managers and investors alike. This familiarity can facilitate fundraising and investor relations. The familiarity and comfort that investors have with Guernsey’s fund structures contribute to its reputation as a secure and reliable place to invest.

 

What are the differences between Guernsey and Jersey?

While Guernsey and Jersey may seem similar, both offer competitive and supportive environments for fund promoters, but there are subtle differences in their historical development and the types of funds they traditionally attract.

Guernsey was a pioneer in the private equity space, with the first such funds being established there in the 1980s.  Jersey has historically been more popular for real estate funds, likely due to its more favourable unit trust structures.  As such, Guernsey has a stronger reputation for private equity fund administration, and Jersey for real estate administration.

While costs can vary slightly between the two jurisdictions, both Guernsey and Jersey offer favourable tax regimes for investment funds that are generally comparable.  When deciding between the two jurisdictions, consider:

  • Historical specialisation: Consider the type of fund you're planning to launch and the historical strengths of each jurisdiction.
  • Legal and regulatory framework: Both jurisdictions offer similar legal and regulatory frameworks, but there may be minor differences in specific areas.
  • Service providers: Many service providers, such as fund administrators and law firms, have offices in both Guernsey and Jersey, making it easy to choose a location that suits your needs.

Ultimately, the choice between Guernsey and Jersey often comes down to personal preference and the specific needs of the fund.

 

What type of private fund structures are available in Guernsey?

Guernsey's fund structures are highly flexible, allowing for a wide range of investment strategies and investor types. This flexibility, combined with the jurisdiction's speed to market and supportive regulatory environment, makes it an attractive choice for fund promoters.

  • Limited partnerships: A popular structure for private equity and venture capital funds, offering flexibility and tax advantages.
  • Companies: Corporate entities can be used to establish funds, providing a more traditional structure.
  • Limited liability partnerships (LLPs): LLPs offer a hybrid structure that combines elements of both partnerships and companies.
  • Private investment funds (PIFs): A specialised regime for very private funds with lighter-touch regulation, suitable for promoters with well-known investors.

 

What are Guernsey PIFs?

Private Investment Funds known as PIFs, are a type of investment fund structure available in Guernsey designed specifically for private investment scenarios. This structure is tailored for use by a small number of well-informed investors, such as professional investors, family offices, or close groups who wish to invest collectively.

The key features of PIFs include a streamlined regulatory approach, which simplifies the process of fund launch and reduces the time and cost involved. This is achieved by reducing the regulatory burden typically associated with fund approvals while still maintaining robust oversight.

PIFs are not required to have their prospectus approved by the Guernsey Financial Services Commission (GFSC) and there is fewer ongoing disclosure requirements compared to other fund types. However, they must still operate within a framework that ensures proper governance and investor protection.

To qualify as a PIF, the fund must meet certain criteria, such as having a licensed manager who is responsible for ensuring that investors are suitably qualified and that they understand the risks involved. The fund is also limited to a maximum of 50 investors, and there is no minimum investment requirement, providing flexibility in terms of fund size and investor commitment.

Overall, PIFs offer a flexible and efficient fund structure that is attractive to sophisticated investors looking for private investment opportunities without the regulatory complexities of other fund types.

 

How long does it take to set up a fund in Guernsey?

While the overall time to launch a fund can vary depending on factors such as the complexity of the fund structure and the amount of due diligence required, Guernsey's regulator is known for its speed and efficiency.  The most significant time delay often comes from conducting due diligence on the fund promoter and investors.

  • Registered funds: The regulator can typically approve a registered fund within three days.
  • New licensees: The approval process for a new fund promoter can take around 10 days.
  • Private investment funds (PIFs): PIFs can be established particularly quickly, with approval times as short as a few days.

Luke Jager: "We recently launched a new licensee in Guernsey and obtained approval within a week of the entity being incorporated. This demonstrates the speed and efficiency of the regulatory process, and furthermore, the streamlined nature of required supporting documentation. While the regulator is fast, the time it takes to conduct thorough due diligence on the promoter and investors can be the biggest factor in the overall launch timeline."

 

What sustainable funds are available in Guernsey?

Guernsey, a leading financial centre, has been at the forefront of developing a specific regulatory regime called the Guernsey Sustainable Funds Framework to support sustainable funds.

The Guernsey Green Fund

One of the most well-known sustainable structures in Guernsey is the Guernsey Green Fund. This certification process ensures that funds meet rigorous standards for sustainability, mitigating the risk of "greenwashing." 

The Guernsey Natural Capital Fund

Guernsey has recently introduced another significant sustainable fund structure: the Natural Capital Fund. This fund is specifically designed to support investments that make a positive contribution to the natural world. International environmental regulation continues to increase the requirements of companies to support the natural world, for example the increasing emphasis on biodiversity in the UK, where the construction industry is required to set aside a portion of developments for this purpose. The Natural Capital Fund gives investors access to a transparent product, investing in companies that support such requirements and provide solutions to reduce natural capital loss.

 

Do you need a Guernsey fund administrator?

Collaboration with local law firms and Guernsey fund service providers is essential for facilitating the smooth establishment, management, and operation of funds. 

Guernsey has a strong, international standard Substance requirement. For a regulated fund, it is mandatory to have a Guernsey-based fund administrator. This regulation ensures that administrators like Ocorian are an integral part of the fund's operation, as the fund cannot opt for an administrator outside the island. This enhances our responsibility in the fund's management and compliance, making our services indispensable and positioning us more favourably within the financial ecosystem here in Guernsey.

Once established, the fund must adhere to ongoing regulatory requirements set by the Guernsey Financial Services Commission (GFSC). This includes regular reporting and adherence to anti-money laundering (AML) standards.

Engaging with a local Guernsey fund administrator such as Ocorian can help manage these obligations efficiently.

 

Guernsey fund administration

Ocorian Guernsey has a strong focus on funds, including private equity, venture capital, real assets and listed fund services. The firm's team of experts is well-versed in the intricacies of these fund structures, providing tailored solutions to meet the specific needs of its clients.

For asset managers with a wider pool of funds and assets across international jurisdictions, it can be beneficial to use a fund service provider with the power of global reach combined with local Guernsey staff and knowledge. This strategic positioning is important when seeking to optimise operations across global jurisdictions, such as in Cayman, BVI, UK, Ireland, and Luxembourg.

Ocorian Guernsey boasts a team of approximately 140 professionals. As a global fund administrator, Ocorian leverages its extensive reach across 10 fund jurisdictions and employs a technology platform designed to seamlessly integrate diverse regulatory environments. 

Contact our Guernsey fund team for more information.