ISSUE 18 WINTER 2009/2010

spotlightspotlight on on trading trading & & settlementsettlement services services CISX becomes the first exchange to provide settlement with Euroclear UK & Ireland for traded OEICS Plus... Historic Channel Islands Supplement

Global Hedge

www.cisx.com Fund Survey: Weathering the storm

Directors What have we learnt from this global economic crisis?

Economic Insights Prospects for 2010 At the helm of Channel Island law

GUERNSEY JERSEY LONDON PO Box 98 Carey House 47 Esplanade 8-10 Throgmorton Avenue Les Banques St Peter Port St Helier London Guernsey GY1 4BZ Jersey JE1 0BD EC2N 2DL

Telephone: +44 (0)1481 727272 Telephone: +44 (0)1534 888900 Telephone: +44 (0)20 7614 5610

Email: [email protected] www.careyolsen.com welcome

Winter 2009/2010

he G20 Summit in April 2009 heightened awareness of the Channel TIslands as international finance centres providing world-class business, professional and financial services. With the White List status and enhanced profile, the CISX seized the opportunity to open its doors Global Hedge Fund Survey...... p2 investor insights to those who wanted a close-up view of its facilities and, more importantly in the context of improving perceptions, its operating CISX Becomes First Exchange To environment. Provide Settlement With Euroclear spotlight on trading & UK & Ireland For Traded OEICS p5 The CISX International Business Summit was settlement services Processing Priorities ...... p6 the chosen format with which to showcase Liquidity, Liquidity, Liquidity ..... p8 the CISX. The “four corners of the world” theme emphasised the international outlook of the CISX and the global reach of the A Golden Opportunity ...... p10 Channel Islands’ finance centres. At the same Leading The Way time, there was a good exchange of opinions Structured Products...... p12 funds focus and ideas with discussion on business Regulation & Acceleration ...... p14 opportunities, market trends and investment AIFM Directive - A Law Of strategies – not to mention a fulsome debate Unintended Consequences ...... p17 on perceived threats and economic indicators for the future.

Leicester Tigers Rugby Club...... p19 issuer profile Creating a forum for debate is a necessary and an enormously healthy way to assure the continued development of any leading finance Economic Prospects For 2010..... p20 centre. Equally important is the need to Can We Borrow Our Way Out economic insight ensure that there is an understanding of what Of The Credit Crunch?...... p22 is on offer. It is in the spirit of openness that we provide a special insight into the operating environment of the Exchange’s Firm Foundations For place of business and the financial Islamic Finance ...... p26 Islamic finance communities it serves within this edition of Sukuk...... p28 Bulletin Board. Jonathan Hooley Chairman The New UK Offshore tax matters Channel Islands Stock Exchange Fund Regime ...... p30

Publisher: Channel Islands Stock Exchange LBG, Directors - What Have We One Lefebvre Street, Learned From This Global corporate governance St Peter Port, Guernsey, GY1 4PJ Economic Crisis? ...... p32 Registered Number: 33770

Tel: 01481 713831 (Guernsey) Whitmill Trust Company Ltd...... p34 01534 737151 (Jersey) Zurich Fund Management Fax: 01481 714856 Services Ltd...... p35 BNP Paribas Securities new member profiles CISX Bulletin Board is published bi-annually and is available direct from CISX or for download via Services Ltd...... p35 www.cisx.com. No part of this publication may be Dixcart Trust Corporation Ltd ... p36 reproduced without the written permission of the EFG Fund Administration Ltd .... p36 publisher. All copyrights reserved. ©

A special thank you to Fay Warrilow for her contribution to the Historic Channel Islands CISX Sponsors Young Sailor/ supplement. Guernsey Touch ...... p37 CISX homepage International Business Summit.... p38 The CISX Bulletin Board is published on behalf of the Channel Islands Stock Exchange by MSP Channel Islands, PO Box 582, Jersey, JE4 8XQ. Design and production by The Studio. PLUS historic channel islands supplement

1 Investorinsights

Global Hedge Fund Survey: Weathering the storm

By Michael Bane Ernst & Young’s Partner and Channel Islands Asset Management Leader

resigned to the fact that there will be been running. Sharing information about t Ernst & Young, we have significant regulatory oversight and are risk concentrations, leverage, governance recently completed our ready for it. and volatility is near universal and the annual global survey of frequency of demands has increased. In a the hedge fund industry. Fee structures have responded to investor post-Lehman era it is slightly surprising 100 funds with US$680 pressure with clear linkages being that counterparty risk has a fairly low Abillion of equity, representing about half established with liquidity and redemption ranking: less unsurprisingly, questions of the industry, were surveyed with a terms. This is set to continue – few about bankruptcy laws in different deliberate bias towards some smaller respondents felt that there was pressure jurisdictions and how customer funds, particularly in Asia. Respondents' to simply reduce fees, unlinked to protections operate features more highly. views are summarised below. structural changes. Interestingly the pressure has been largely on reducing There are likely to be very few funds that There is a significant belief that the management fees, rather than incentive become tax refugees from the US. response forced by the market has been fees. Respondents believe, perhaps radical, rapid and productive for Despite endless talk about the naively, that limiting redemptions, investors who are benefiting from greater redomiciling of fund operations due to imposing gates or suspensions and the transparency, improved governance and impending US tax legislation, few are like, will have limited impact in the long more clarity about valuations and seriously considering doing so. However, run. valuation processes. Increased regulatory nearly a quarter of US and UK oversight on the other hand is perceived Investors are now acutely focused on respondents say that management to be expensive, imprecise, and of less risk. Performance cannot be the panacea businesses, however organised, are benefit to investors. This is not the for the entire industry – even those who considering moving because of tax and consistent resistance of the regulated but performed well through the crisis have other burdens. People, unsurprisingly, the unemotional, matter-of-fact view of suffered redemptions and been subject to remain more fleet-footed than the senior industry executives who are far greater scrutiny on the risks they have infrastructure they have set up.

2 Investorinsights

many more said they would not venture territory and distinctions become blurred. in. Although there is a general belief that Fee structures, liquidity and redemption it is unlikely that AIFM will be approved terms and investor demands for in its current form there is widespread transparency and governance are likely to concern as to its motivation and exacerbate the trend. directional thrust coupled with a sense of In conclusion, the industry has weathered disbelief that business legislation could be the storm but is far from unscathed. so politicized, under-consulted and Some changes have been profound and restrictive. permanent, others perhaps more Changes to the industry have been ephemeral. There remains more to come, profound. Funds widely expect the not least from legislators, regulators and industry to continue to consolidate with tax authorities. Although the industry increasing costs and greater barriers to appears resigned to accepting some such entry both playing a part in the process. impositions there remains a real fear of Start-ups will be fewer and generally the authorities overreaching and some of smaller than pre-crisis levels. Despite the the actions being fundamentally The draft EU AIFM Directive will have a obvious structural difficulties for M&A misguided resulting in costs far dramatic impact. Many of those affected, activity in the hedge fund space, the outweighing any benefits to investors. particularly in the US, remain inexorable convergence in the wider asset Our full report can be read at www.ey.com uninformed about it. Approximately a management industry will take its toll as sixth of respondents who had considered private equity firms, hedge fund it said they would stop operating in the managers and traditional long-only EU if it was passed in its current form: managers encroach on each others’

3 Never settle for the ordinary

Offering highly personalised exchange services, with a pragmatic approach & swift, expert response.

DISCOVER THE DIFFERENCE

P.O. Box 623, One Lefebvre Street, St Peter Port, Guernsey GY1 4PJ Guernsey T +44 (0) 1481 713831 Jersey T +44 (0) 1534 737151 F +44 (0) 1481 714856 www.cisx.com

Registered Number: 33770 Emma Ferbrache Concept by spotlight on trading & settlement services

CISX becomes the first exchange to provide settlement with Euroclear UK & Ireland for traded OEICS

he Market Authority of the “Extending settlement of OEIC Robin Newbould, Director of CISX Channel Islands Stock transactions to the proven capabilities of member-firm Cenkos Channel Islands, Exchange (CISX) is pleased Euroclear UK & Ireland will revolutionise said: “Representing the latest example of to announce the availability the open-ended funds sector by enabling the Exchange’s innovative approach to of transaction settlement at investors to redeem and subscribe to services, the introduction of Euroclear UK TEuroclear UK & Ireland for CISXtraded shares electronically on or outside normal & Ireland settlement will have particular Open Ended Investment Companies dealing days. The move enhances the significance for securities with monthly, or (OEICs) with effect from 30 November efficiency of the settlement process for less frequent, dealing days such as open- 2009. The CISX has been trading OEICs investors and brings new opportunities, ended property funds. Being able to settle since March 2005, and will now be able both for the Exchange and the investment with other Euroclear UK & Ireland to offer listed issuers in UK-domiciled business sector within the Channel participants so easily will almost certainly (including Guernsey and Jersey) OEICs Islands. It will have particular significance make them think of using the secondary transaction settlement at Euroclear UK & for securities with monthly or less market more often, which in turn will lead Ireland for transactions on or outside frequent dealing days, such as in the open- to improved liquidity.” dealing days. ended property funds market. It is a Andrew Howat, Managing Director of further example of the Exchange’s Euroclear UK & Ireland is the central Capita Financial Group in the Channel innovative approach to exchange securities depository for UK, Irish and Islands, added: “As one of the sponsors of services.” Channel Island securities and already the CISX, we are very encouraged to see provides settlement and related services Yannic Weber, Chief Executive Officer of another extension of the capabilities of the for a wide range of securities traded on Euroclear UK & Ireland, stated: exchange. Through offering additional the CISX. Its extended coverage to include “Bringing automation and standardisation dealing flexibility of this nature coupled open ended investment companies is to the processing of Investment Fund with the already well recognised services hugely significant, according to the Chief transactions is a high priority for provided, this can only further enhance Executive of the CISX, Tamara Euroclear UK & Ireland. CISX clients will the attractiveness for companies seeking a Menteshvili. see their processing costs decline, and the listing. We have followed this risks and errors associated with manual development very closely and are The CISX is the first exchange to make transaction processing will be reduced delighted to see it come to fruition.” OEIC transactions available for settlement substantially as a result of electronic at Euroclear UK & Ireland, which will settlement of OEIC transactions at add immeasurably to the Exchange’s Euroclear UK & Ireland. We are delighted appeal to fund managers and investors for CISX that it is the first exchange to alike. Tamara Menteshvili commented: offer this service to its clients.”

5 Processing Priorities

Dr. Tim May, Chairman of Euroclear UK & Ireland

to automate end-to-end processing of to-end fund-processing service we are he UK fund industry is fund orders, from routing through to providing will meet the needs of the Europe’s fourth largest and, cash and unit settlement, and onward market. Firms active in OEICs and other in spite of the economic safekeeping. In so doing, we are putting UK funds are already testing the new downturn, is growing at a an end to the onerous, inefficient and processing arrangements. We are eager to healthy rate. EFAMA unnecessarily expensive process of share with them the advantages of Treports the UK experienced net UCITS settling fund transactions. It is estimated substantial operational cost savings and inflows of GBP 8.5 billion (EUR 9.1 by the Better Regulation Executive (part protection from counterparty and billion) in Q2 2009. While this is of the Department of Business Innovation settlement risks. encouraging, at some point in the near and Skills) that the UK fund management future, this trend will be curtailed by the Moreover, fund unit settlement can now industry will save GBP 115 million a year back-office not being able to keep up. occur much more quickly (with the FLG by switching to the paperless Euroclear Future growth depends on integrating favouring four business days), as process. This saving is becoming a reality, and automating fund transaction order compared with as many as ten days when as EUI and EMXCo have very recently routing, settlement and safekeeping operating manually. The fact that fund integrated order routing and unit processes. units can be sold and cash recouped settlement to automate this back-office within four business days is an attractive Across Europe, the cross-border fund function. proposition for investors who may not industry has come a long way: 50% of all Furthermore, Euroclear is working with have considered buying into funds due to fund orders are processed along established exchanges to spread the the cumbersome and timely exit periods. automated channels. Domestic fund benefits of standardised electronic Professional intermediaries may now processing in the UK and the Channel operations. Recently, the Channel Islands invest in funds with as much operational Islands pale by comparison, so there is Stock Exchange (CISX) announced that certainty as with equities and bonds. considerable room for improvement. Euroclear UK & Ireland will provide Industry bodies like the Investment settlement services for CISX-listed OEIC Management Association (IMA) and transactions, on or outside dealing days. APCIMS are pushing for greater levels of Centralising activities automation and the standardisation of Post Lehman Brothers, there is a renewed file and data formats, such as the sense of urgency across markets to know The winning combination introduction of ISO-compliant precise levels of exposure, their duration, messaging. Having worked closely with 26 members and how to protect against the event of a When central securities depository of the UK Fund Liaison Group (FLG), counterparty defaulting. By having access Euroclear UK & Ireland (EUI) purchased representing all segments of the fund to all settled and pending fund unit EMXCo in 2007, our common goal was industry, we are confident that the end- transactions, via its own or a third-party

6 spotlight on trading & settlement services

infrastructure hub, an asset management settlement means that we will be able to has bought what and held it for how firm can perform its own risk evaluations settle our trades in a standard four-day long. Parameters like these dictate the and controls much more easily. Equally period, only one day more than for commission due to the distributor. vital is to understand how open equities. It’s a guarantee for us. Everyone Furthermore, as investment strategies transactions and pledged cash/securities knows when they will be paid and we increasingly go beyond domestic market are managed. Used correctly, automation won’t have any problems with cheques funds, distributors often need to manage can play a major role in helping asset getting lost in the post.” complex client arrangements across managers safeguard against unpleasant She continued: “Even better, different markets and time zones for market events. implementing the service is not going to commission calculation. Using an As a result, firms are able to free up change the processes we use here at all. automated infrastructure, TAs can back-office resources and leverage The only thing that’s different is that we accurately calculate commissions due and efficiency gains by settling their fund won’t have to wait for a piece of paper to payments can be credited electronically transactions where they already settle arrive. We’ve had to make no and expeditiously to distributors in a their UK share and fixed-income enhancements – just a slight bit of matter of days. This is in contrast to transactions, i.e. at Euroclear UK & training. In addition, we will be able to delays of weeks, or sometimes months, Ireland. do our reconciliation with Euroclear UK where TAs manually collect and calculate & Ireland automatically, as we do for commissions on a spread sheet. Some Shirley Mansour, Head of IT and equities. So, rather than waiting a month processing hubs enable TAs that are Settlements at Cardale Asset to receive reconciliations from fund linked into the hub to precisely see the Management Limited, explains the managers, we will simply receive an portion of activity that has emanated benefits of centralising operations across exceptions report at the end of each day.” from individual distributors for each and asset classes: “Cardale is a private client every fund for which the TA runs the asset management firm based in books. Harrogate and Hull. The majority of our business is discretionary management, Clever calculations From Hull to St. Helier, firms active in and we trade mainly in FTSE 250 shares One of the biggest headaches that the UK investment funds industry are and UK funds. We currently use distributors face in not being automated ridding themselves of the operational Euroclear UK & Ireland to settle our is receiving correct commission payments nightmares that are commonplace with equity and gilt transactions within the - their raison d’être. When done manual processing. In these spartan standard three-day period, but currently manually, this is a painstaking rigmarole, economic times, tolerance is low for we don’t have the same settlement as at any point in time, distributors, fund unnecessary costs in the back office. Our efficiencies for unit trusts. However, promoters and others involved in the processing priorities have shifted Euroclear UK & Ireland’s funds transaction need to know exactly who irreversibly for the better.

7 spotlight on trading & settlement services

A former colleague once told me that there were only three things to remember when it came to investing: ‘funds of hedge funds’) and b) that a market-maker, or market makers, hilst there may be reduction in investor confidence of global providing a two-way, bid and offer, price some truth in the financial systems and instruments (and size) for investors to use, should maxim it certainly is brought a glut of redemption requests, to they so wish, outside of a fund’s ‘normal’ not necessarily, in the extent that fund managers were subscription and redemption dealing my opinion, the be- forced to limit the amount of schedule. Wall and end-all to achieving great withdrawals, activating gate provisions performance (private equity investment, The market maker will make this price and the like. for example, can be notoriously difficult, based, primarily, on the most recent and opaque, but can bring fantastic Given that it seems unlikely, unnecessary NAV, or estimated NAV (the more returns). and un-called for to ‘regress the progress’ frequently both of these are published, of open-ended collectives, which will the better, of course) and can, I hope it I argued recently, at a CISX Seminar in continue to gather like-minded investors goes without saying, only use London, that liquidity worked in together to seek out investment information freely available to the rest of virtuous and vicious circles: that liquid opportunities of all shapes, sizes and the public. In between NAVs and stocks become more liquid as investors types, managers will continue to have estimated NAVs, he may move his price place them on their trading radars and very good reason to create funds which for a whole multitude of reasons, inter that illiquid stocks become more illiquid require infrequent dealing dates, even alia: supply and demand, his own as investors steer clear of them, worried under perfectly normal market thoughts of how the fund is performing they might not be able to sell and put off conditions. So how might such a with reference to relevant competitors, by wide bid to offer spreads often manager try and soothe investors’, or, indices and ‘known’ underlying prevalent. There are occasions on which perhaps even more worryingly, potential investments of the fund. some investors will actively seek a bit of investors’, fears over getting ‘trapped’ in illiquidity if they think it will reap Now in practice, based on experience, his fund? (My father once remarked that rewards: looking to buy investment trusts investors are more likely to be looking to he’d “rather miss a good ‘un than get trading at large discounts to Net Asset redeem early rather than subscribe early involved in a bad un’”). Values (NAVs), for example, if they and so, more often than not, the market- believe that market inactivity is at the maker will be buying stock as principal source of the discount; but the instances (using the firm’s own capital). He will are more rare than common. Location, Location, Location normally, not known for his altruism, be so doing at what he believes is a discount What is true to say is that, until recently, At the afore-mentioned seminar I also to the prevailing NAV; and at a price open ended investment collectives were argued that the dealing location (and by lower than he hopes he will be able to considered a safe-haven of liquidity – that, I meant not only the exchange the either a) redeem at via the normal after all, so the theory went, irrespective investment is listed on, but also the redemption schedule in due course or b) of what was happening to the underlying platform used for dealing, be it an ‘order sell on at. This latter scenario calls for a investments within the collective, at least book’ or ‘quote-driven’ system, for decent sales team within the firm to get the investor ‘knew’ that they could example) could help liquidity: if there to work to find a new home for the book redeem, at NAV, on the next available exists an accessible market place for position … often offering good dealing date. A number of relatively new transactions, they are more likely to investment opportunities at a discount to factors, however, made this no longer occur. NAV. In such circumstances, ‘everyone’s a absolutely true, not least: a) that the The CISX offers, via its trading members, winner’ and it is the sort of trading that, I complexity of open-ended collectives had the opportunity for its listed open-ended am sure, the CISX hopes will become increased to allow for more interesting collectives to be traded on the exchange more commonplace. investment opportunities to be explored in a ‘quote-driven’ market place (a (the most notable being the growth of To help matters further, the CISX, ever an institution to dream up, develop and then deliver something new, recently Robin Newbould became the first exchange to provide OEIC settlement via Euroclear UK & Director of Cenkos Ireland (more commonly referred to as Channel Islands ‘Crest’) which can only help buyers and sellers consider the opportunity of dealing outside normal schedules more often. In all circumstances, it is most important to realise that no-one is obliged to deal with a market-maker (they can always follow the normal redemption / subscription schedule themselves, of course) … they are only there trying to provide a little extra liquidity, liquidity, liquidity!

9 fundsfocus

Golden Prospect Precious Metals Ltd A Golden Opportunity

Gold prices ran up to $1,032.70 per oz in March 2008, following fears of inflation as oil prices ran up to $147 per barrel. Following the credit crunch, gold subsequently fell to a low of $682.41 in October 2008. It has currently rebounded and is trading around $1,200.00 per oz.

10 New City Investment Managers was set The pair also like the promising smaller ith the current up by Richard Lockwood in 2003 with a juniors with significant sized projects but global economic view of taking advantage of the bull admits that they are only dipping their uncertainty, Central market in commodities. Richard has toes into them at present. “As the gold Banks around the freely admitted that he is a gold bull. bull markets develop and when risk world have co- “All this printing of money will appetite returns, then some of these Wordinated their efforts in combating eventually lead to a debasement of smaller names will be the place to be as deflation. Deflation is very difficult to currency; this is definitely bullish for they will get re-rated.” The pair are bear, especially when their countries are gold”. keeping a long list of these promising heavily indebted. As a result, Central plays in their back pocket, waiting for Banks are using all their policy tools at The fund is managed by John Wong and the right time to buy them. their disposal to prevent deflation. So Will Smith. John worked at Ruffer far, a number of them have effectively Investment Management before joining One of the biggest advantages of the fund brought their interest rates to zero and New City, while Will has extensive is their ability to change their portfolio to hence do not have any more ability to experience at UBS; together they have take advantage of market opportunities influence monetary policy. Some significant experience of gold – the metal, as a function of their size. “We can move countries have also eased fiscal policy. A equities, convertibles and warrants. into some of these smaller names without number of them have also started using moving the price of these stocks Over the first few months of taking over more unconventional methods, such as ourselves, which can be an issue for big the fund, they have re-structured the fund quantitative easing. Amongst them are gold funds like Blackrock”. away from small cap explorers into the US, UK, Swiss and European Central stronger large and mid cap producers. New City Investment Managers is a Banks. In time, the tide of currency “Over the medium term, with capital wholly owned subsidiary of CQS devaluation will show itself up in the being extremely scarce, we need to ensure Management, the global asset gold price. that the companies that we invest in have management firm with over $6bn assets Golden Prospect Precious Metals Ltd was strong balance sheets and are able to take under management and offices in Jersey, set up in November 2008 with the advantage of the opportunities which London, Hong Kong, New York and express mandate of participating in the might arise”. Smaller explorers with Geneva. rise of gold. New City Investment good projects but running short of cash Managers took over the investment are finding themselves in tough positions management mandate of Golden and end up being taken over by larger Prospect from Ambrian Asset players often at a discount to their true Management in September 2008. value.

Golden Prospect is listed on the Channel Islands Stock Exchange and is also traded on the London Stock Exchange.

Adam Cooke Adam Cooke of New City comments: “We are extremely pleased with this structure which serves the shareholders well. Apart from the usual excellence from the CISX team, we are proud of our advisers in Nick Gamble, Tanya Richards-Pugh and Edward Scott at Ogiers, Jeffrey Elway at Lawrence Graham and Tim Cockroft, Joss Trusted, Robert Taylor, Michael Bellamy, Alan Geeves and James Waterlow at Singers Capital Markets. Richard Lockwood Golden Prospect has a strong Board - Chairman Malcolm Burne has many years’ gold experience, Kaare Foy is a leading Canadian resources and silver specialist, while Rob King is one of the leading experts in the Channel Islands. We anticipate growing interest in Golden Prospect as gold and silver attract further investment interest”. John Wong

11 fundsfocus

Leading the way Structured Products By Jason Bingham Mourant

Many of the most sophisticated structured products in issuance are currently listed on the CISX. Mourant currently administers and acts as listing sponsor to a number of structured product preference share platforms established in the Channel Islands for some of the leading major investment banks and financial institutions.

12 fundsfocus

investment, then the capital protection no his article examines a What does the future hold for longer applies and the redemption typical structured structured products? amount of the preference shares will be investment product – the equal to the index performance over the In a challenging market environment, auto-callable, and looks at life of the investment. investors are seeking greater capital the reasons why the CISX security as well as returns. The financial Thas become the exchange of choice for crisis has certainly changed the landscape issuers of such securities. Simultaneous protection of for structured products in Europe and capital and income returns elsewhere. Pressure from the regulators on financial institutions to implement Product Focus: Auto-callable Auto-call structured investment products comprehensive and efficient processes structured investment product offer investors the opportunity for a high and systems for the management of such coupon linked to the performance of the An auto-callable (or ‘auto-call’) product structured products will surely mean underlying index. The coupon is usually is a market-linked security, usually issued changes regarding distribution, product higher than the auto-call trigger, so that in the form of a preference share, which quality and investor education. investors can achieve attractive returns can automatically mature prior to the From a personal perspective, I think it’s for small movements in the underlying scheduled maturity date if certain unlikely that the structured products index. predetermined market conditions have business is going to get smaller. As a been met. If a coupon is not paid, because the auto- market leader in structured product call trigger has not been achieved by the The criteria for deciding whether the platforms, in terms of listings, underlying index on an auto-call date, product is automatically matured ('auto- administration and legal advice, Mourant then the investor gets the opportunity to called') is whether the underlying is still seeing a healthy volume of recoup the missed coupon on the next reference index is above a predetermined transactions and we expect this trend to auto-call date. trigger level ('the auto-call trigger'). The continue, as well as the addition of new issuers into the market. Our clients have auto-call test is usually carried out on a In addition, the protection level ensures high expectations and we work closely set of predetermined dates (e.g. annually, that the investments are conditionally with the CISX to deliver a professional quarterly, etc) specific to the particular protected. If the underlying index does service to them – that’s why they keep investment product, so that the product not fall below the protection level, returning. (i.e. the preference shares) can only investors will receive at least the full mature on one of these 'observation principal amount back at maturity. As a founder member of the CISX and dates'. The underlying reference index having sponsored over 300 listings, will typically be an equity index (e.g. Mourant is the premier choice for all FTSE 100), but it can also be linked to Why use the CISX? your CISX listing requirements. Our stocks, interest rates, foreign exchange dedicated listing team offers expert In order to qualify for inclusion within a markets, commodities and funds. The guidance whilst providing a flexible and UK stocks and shares ISA, the shares of cost of achieving exposure to such personal service throughout the listing structured product issuers must be listed underlying investments would be far process. greater if the investor decided to on an exchange recognised by HM assemble a similar portfolio of stocks. Revenue & Customs. Not surprisingly, the recognition achieved If a product is auto-called, the investor by the CISX has led to a significant For a comprehensive and efficient normally receives a predetermined growth in structured product listings listing service provider who can coupon along with the capital on the Official List. combine seamlessly with your redemption on the auto-call date. That organisation, please contact: coupon is usually proportional to the UK tax resident shareholders who length of time from the start date to the acquire their investment in Jason Bingham auto-call date. preference shares through an ISA and who satisfy the requirements for tax Associate Director Most auto-call products incorporate a exemption in the ISA Regulations Mourant protection feature, so that if the auto-call will not be subject to either UK T +44 (0) 207 469 8180 trigger has not occurred before the income tax or UK capital gains tax [email protected] scheduled maturity date, capital is fully on income and gains realised from protected provided the underlying their investment and any losses on reference index has not fallen below a their investment will be disregarded certain level ('the protection level') for the purposes of UK capital gains during the term of the investment. If the tax. underlying index ever trades below the protection level during the term of the

Jason Bingham

13 historyoffunds

Consultant Nigel Carey and Senior Associate Rob Milner of Carey Olsen review the history of the funds sector in the Channel Islands and see an industry that has been helped along by key legislative changes and strong, proportionate regulation Regulation and Acceleration

these funds was primarily created by the industry in he funds sector in the presence of exchange control, meaning that particular, an Channel Islands has the large British expat community was entity separate developed significantly in the looking for a place to invest that was tax from last few decades. From

friendly, but still within the sterling zone. government CareyNigel relatively humble beginnings Guernsey fitted the bill nicely. was required, Tin both islands, the industry has grown to that could become the lynchpin of the islands’ finance The sector was growing, but at this time license and sector, particularly in Guernsey. It has not law firms were creating one or two funds regulate the happened slowly and gradually over time per year, a far cry from the two to three funds sector however. In both islands key changes to funds per month being established at the quickly and legislation, either here or in other height of the global financial markets. efficiently. In jurisdictions such as the UK, have led to an 1986 therefore, explosion in activity in the markets as new

the States Rob Milner structures or new clients have flooded the Regulators resolved to sector with investment. As these funds began to increase in number, establish the The funds sector remains responsive to so did the number of professionals engaged Guernsey regulation and legislation change, and the in the process of developing and Financial Services Commission and the then future of the industry can be seen as very establishing them. Advocates were required Commercial Relations Adviser, John Roper, dependent on outside forces: the islands’ for the formation of corporate entities, and was appointed as its first Director General regulatory authorities for example, or the regulation was required, although at this with the task of establishing the new body imminent EU directive on Alternative time this took the form of the Control of as an effective and credible regulator. Investment Fund Managers (AIFM). Borrowing Ordinance and required Whilst Jersey has a similar financial services Whether success will continue will rely as ‘permission’ from the politicians of the time regulator, the two jurisdictions retain heavily on these influences as it will on the in order to form a company and raise different methods of working. The principal skills and expertise of the fund professionals money through the issue of shares or other difference is reflected in the way fund in the Channel Islands. securities. administrators are licensed. In Guernsey, The politicians came to realise that it was each fund being established is required to Early Days not appropriate for them to assess the undergo a process of authorisation or merits or otherwise of particular registration, whilst in Jersey, a functionary In the late sixties early fund pioneers like commercial propositions and initially the applies for what essentially amounts to a Kleinwort Benson or Hambros began to States of Guernsey appointed an individual licence to practise. A company with this look at Guernsey as a place with potential with the title of "Commercial Relations licence is thus normally entitled to act in for a fund sector. Early funds were almost Adviser" to undertake this task on their respect of an unlimited number of funds in entirely retail focused, their purpose to behalf but by the early 1980s it became Jersey, removing an administrative cost funnel investments into unit trusts in the apparent that in order to support effectively when establishing funds. UK. The market of investors for many of the finance industry generally and the funds

14 historyoffunds

Branching Out regulator established until the late nineties boon for both islands and is a key selling it would be easy to see the island playing point for the fund companies based here. Initially the funds being created in both ‘catch up’ with its neighbour. Recent law islands were relatively simple affairs. The streamlined approach to regulation changes however have created a very Investment focused on equities and bonds has enabled both Guernsey and Jersey to different landscape and one that is now and not much of anything else. This be ultimately competitive on the global growing as fast, if not faster, than across enabled the sector to build, but real stage. A combination of low tax and the water. momentum did not appear until new proportionate regulation has attracted types of funds began to emerge. The introduction of the Jersey expert fund many funds to the islands and as a result regime in 2004 in particular led to a they are well placed to spot trends in the The UK’s Financial Services Act came into marked increase in fund establishments in sector and to look at the future of the force in the mid-eighties and proceeded to the island. The regime enabled Jersey to industry with some confidence. shake up the market. The Act made it diversify away from open ended retail more difficult for Guernsey funds to funds that required strong regulation, and attract investment from the UK and so the recognised that 'expert' investors do not What is Next? island reacted with the ‘Protection of require the same level of protection as Investors’ legislation, the ‘A’ scheme of Both Guernsey and Jersey expect their retail. This enlightened approach, using which enabled Guernsey funds to once fund sectors to continue to grow. As the proportionate regulation from the Jersey again market themselves to UK investors. world begins to manoeuvre its way out of Financial Services Commission, gave the the economic downturn, the regulatory At the time, some market commentators Island’s fund professionals a strong regimes that are in place and the types of surmised that this legislation had sounded business edge, and with a three day funds being established in the islands both the death knell of funds in Guernsey, but regulatory turnaround time and point to a bright future. the changes served to trigger remarkable applications based on self-certification, growth in the sector in the eighties and Jersey became a popular place to establish Global trends indicate that funds are nineties, with private equity funds being structures aimed at institutions and high embracing new technologies; the islands seen in the island for the first time, net worth individuals. have seen an increase in funds specialising moving the focus away from retail and in green energy and green technology In 2008, Jersey passed new legislation to towards more expert investors, a trend investments, with wind farms and solar allow two types of 'unregulated' funds to that was also seen in Jersey some years energy plants being recent examples. be formed on the island. The 'unregulated later. Jersey remains a strong performer in eligible investor funds' regime is a logical property investment. Funds established in Tighter legislation and better regulation step onward from the 'expert' regime and the island are responsible for investments led the Guernsey sector to a position enables a fund structure which has all over the world as well as a significant where compliance and good practise were sufficient barriers to entry that only very amount of UK property. This is set to promoted, and business boomed as a sophisticated or wealthy investors may continue being a cornerstone of the Jersey result. Some providers moved away, but invest to be established and operate funds market, even as the island attracts those that stayed found that these entirely free of regulation. Meanwhile, the more private equity investors to its qualities were valuable selling points and 'unregulated exchange traded fund' shores. prospered significantly. regime is available to closed ended funds which are listed on any one of a number Outside factors need to be taken into of identified stock exchanges (including consideration when viewing the future Accelerated Growth the Channel Islands Stock Exchange) and prospects of the market. The AIFM removes the potential element of 'double directive will bring changes to the way the A further boost to the Guernsey sector regulation' inherent in many fund sector works. At the current time it is came in 1995, when the Limited structures. difficult to predict exactly how the Partnerships Law was enacted in the directive will look. It could certainly have island. Previously it had been necessary to an adverse effect on the islands, and structure Guernsey private equity as unit Listing create the need for new ways to do trusts, a vehicle which was largely business in order to fit around the new unknown outside the United Kingdom, The founding of the Channel Islands rules. Equally, there is the possibility that particularly in the United States where Stock Exchange has added a further level the directive will be beneficial to the fund private equity funds have from the of attraction to investors. Listed funds, sector here, and would usher in another beginning been set up as limited having already met the requirements to be period of rapid growth to the industry, partnerships. The enactment therefore of a listed vehicle, are spared the majority of further cementing the Channel Islands’ the Limited Partnership Law made the burden of regulation and a listed, reputation as a leading centre for the Guernsey a more attractive proposition to closed ended fund is practically ‘no-touch’ establishment and administration of American and other non British investors. when it comes to regulation. investment funds. Whilst the initial pace of growth was The attraction of being able to list funds slower in Jersey, and with no dedicated on a recognised exchange has been a

15 “Communicating with your board members made easier and quicker”

Virtualboardroom® provides real time access to board information wherever you are through a secure and reliable web portal. Our Boardpack® tool allows administrators to create packs at a click and online storage means that all previous packs are archived and searchable.

For more information contact us at [email protected] or look us up at www.virtualboardroom.co.uk

A DIVISION OF PERIVAN

With roots that go back 120 years and an innovative spirit that has helped our clients through good times and bad, Northern Trust has a track record few can match. And we’re not the only ones who think so. • Ranked as Guernsey’s largest fund administrator and custodian by total net assets in the 2009/2010 Lipper Guernsey Fund Encyclopaedia • Awarded Best Fund of Hedge Funds Administrator by HFM Week in 2009 • Named European Private Equity Fund Administrator of the Year at the European Venture Capital Journal Awards in 2009 • Top-tier credit quality, outstanding capital strength and strong, liquid balance sheet To learn more about our financial services in the Channel Islands, call Kate Stallard at +44(0) 1481 745618 or visit northerntrust.com

Fund Administration | Global Custody | Banking | Fiduciary Services

Northern Trust (Guernsey) Limited, Northern Trust Fiduciary Services (Guernsey) Limited, Northern Trust Fiduciary Company (Guernsey) Limited and Northern Trust International Fund Administration Services (Guernsey) Limited are licensed by the Guernsey Financial Services Commission. Northern Trust (Guernsey) Limited is a participant in the Guernsey Banking Deposit Compensation Scheme. The Scheme offers protection for 'qualifying deposits' up to £ 50,000, subject to certain limitations. The maximum total amount of compensation is capped at £100,000,000 in any 5 year period. Full details are available on the Scheme’s website www.dcs.gg or on request. Northern Trust (Guernsey) Limited, PO Box 71, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3DA. Telephone: +44(0)1481 745000. AIFM DIRECTIVE: A law of unintended consequences

Adam Levin Dechert LLP

from global capital markets if it is statement is made about these matters, if he headline from the Wall implemented unchanged. circumstances change there could be Street Journal Europe on liabilities attached to the fund manager in Monday 27th July 2009 What are some of these consequences? relation to such statements if they do not declared: “US Enters Fund Let’s compare what the US is proposing appear to be true. Was it intended to Debate” and states that by way of regulation for the funds prejudice and disadvantage EU fund TWashington has joined the UK in management industry and the AIFM managers? Let’s hope this is just an lobbying the EU for less stringent Directive. Whilst there is a common “unintended consequence”. regulations contained in the EU’s draft thread in some respects, for example, the directive on Alternative Investment Fund requirements for the fund manager to Similarly, the idea of “fortress Europe” Manager (“AIFM”). Oddly, the WSJ register with the authorities and having where the EU thinks it can build its own article refers to a “little – noticed speech to report to them certain information, walls to keep everything nicely and safely last month” and quotes from a member there are glaring differences. inside by preventing non-EU approved of the US Department of Treasury. managers from raising capital is at odds A proposed EU requirement would, for Someone must have given the WSJ a prod with the EU’s stated aim of the free example, place an obligation on the part about this as the speech itself was movement of capital. Preventing non-EU of the manager of an EU fund to make delivered on 29 June 2009 i.e. one month funds from raising money in the EU will certain information available to a target before the WSJ reported on it, and as the simply mean that EU professional company’s shareholders and employee speech was to the European Forum of investors will not have access to the representatives about its “development Deposit Insurers in Paris, might still be opportunities which those funds can plan” for the business and its policy for unnoticed today without that prod. provide to the detriment of the very “external and internal” communication What’s more, the text of the speech itself people that the EU was seeking to protect as regards employees. The disclosure is so couched in diplomatic language that in the first place, namely everyone within requirements will apply just to EU funds it’s hard to discern that the US is joining the EU. Surely, another “unintended and do not appear to be limited to target the debate at all, rather than going consequence”. companies just in Europe. So, if an EU through the usual platitudes about fund wants to make an acquisition of a This brings to mind a twist on the cry: international cooperation on regulatory target company anywhere it will have to “The British are coming!” mythically affairs. provide the relevant information, attributed to Paul Revere for his However, the tide does seem to be whereas neither non-EU funds nor, in legendary “Midnight Ride” during the turning on the AIFM Directive. Indeed, fact, any other acquirer, will have to American Revolution. To parody that, if Sharon Bowles, a British MEP and the provide that information. Similarly, a the AIFM Directive is implemented in its new head of the European Parliament’s non-EU fund making an acquisition in current state it seems that there’s a Economic and Monetary Affairs the EU will not have to provide this growing recognition by the regulators Committee, has told the Financial Times information putting it at a competitive that the investors of Europe can cry: that the AIFM Directive is at risk of advantage to EU funds making the same “The Americans, and everyone else, are having “unintended consequences” with acquisition. Information is generally coming, but we’re going nowhere!”. investors facing “excommunication” jealously guarded and, of course, once a As seen in Unquote Magazine.

17 SelSelectingecting the rrightight lilistingsting option for your next next deal deal can can be tricktricky.y. YouYou need a sponsorsponsor that is abablele toto delivdeliverer innoinnovative,vative, sstreamlinedtreamlined and pragmaticpragmatic solutions with unrivalledunrivalled ccoverageoveerage of the keykey offshoreoffshoree exchanges.xchanges. ExperiencedExperienced lawyerslawyers acting as listinglisting sponsorssponsors toto the ChanneChannell Islands, CaCaymanyman and BermudiaBermudianne exchanges.xchanges. AAppleby.ppleby.

applebyglobal.comapplebyglobal.com

THE RIGHT PEOPLE. THE RIGHT PLACES. THE RIGHT SOLUTIONS.

BahrBahrainain Bermuda British ViVirrgin IIslandsslands Cayman IslanIslandsds HonHongg KonKongg Isle of ManMan JerseyJersey London MauritiusMauritius SeychellesSeychelles Zurich

OOffshoreffshoreL Legal,egal, FFiduciaryiduciary & Administrationdministration ServicesServices issuerprofile

Listing of Unsecured Convertible Loan Notes by Ingleby (1821) Limited, a wholly-owned subsidiary of Leicester Tigers Rugby Club.

involved the setting up of a wholly-owned Paul Oliver, Cenkos eicester Football Club Plc, special purpose vehicle (“SPV”), called better known as Leicester Ingleby (1821) Limited, which issued a Tigers Rugby Club (aka the convertible loan note that is listed on the Tigers) was founded in 1880 Channel Islands Stock Exchange. and is one of the most Lrecognised names in club rugby today. The principal reasons for the fundraising Leicester Tigers is widely recognized as were to help meet the additional costs of being the best supported club in the upgrading and fitting out the new stand’s country, and many commentators on the facilities for match day corporate game have made the analogy of Tigers hospitality, conferences and special events being the Manchester United of rugby. and to assist with the Club’s cash The Club’s vision is for Tigers to become management. The Club was very mindful Paul Oliver, Associate Director of Cenkos, the most successful and best supported of the uncertain economic climate and felt added that the issue had been structured club rugby team in the world and its it prudent to ensure they have sufficient to ensure it was tax efficient to both Mission Statement states, cash resources to both meet their day to onshore and offshore investors and the listing on the CISX “Our central mission is to build and sustain a successful and means that the loan notes are profitable rugby football club, competing and winning honours eligible from a UK SIPP and each season at the highest levels of British and European rugby.” ISA perspective, an added advantage of listing on the CISX as a recognized Stock day business needs as well as being able The Club first became a PLC in 1997 and Exchange. Cenkos was glad of the to fund their development plans for was advised by Tigers season ticket support and advice given by Caroline continuing business growth. The terms of holder Sir Digby Jones, later to become Chan, Partner at Ogier, Cenkos’ lawyers the note included a 7% coupon payable Lord Jones of Birmingham. Sir Digby in Guernsey for this project, and from twice a year and convertible into the was later appointed as a non-executive Baljit Chohan, Partner at Wragge & Co. ordinary shares of Leicester Tigers at a director at the club, along with Sir Clive LLP, the Club’s lawyers in the UK, price of £2.25 per share at anytime over Woodward and Rory Underwood, MBE. together with the flexible approach and the life of the ten year note. A potential stock market listing of the swift turnaround of the CISX. Cenkos Channel Islands acted as Sponsor Tigers was an embryonic idea discussed Cenkos Channel Islands is excited to be to the SPV of the Club and aided the between Jon Ravenscroft, CEO of Cenkos supporting and assisting the Club with successful fundraising and listing of the Channel Islands and Peter Tom, their plans for the future and hope to be subordinated unsecured convertible loan Chairman of Leicester Tigers, given their involved with a full market listing in the notes issued on the Exchange. close working relationship which includes not too distant future. acting as investment committee members Jon Ravenscroft stated, “It was an Peter Tom, Chairman of the Club and a of Bailiwick Investments Limited. As exciting time for the Club given the Guernsey resident, was delighted with the discussions evolved it was evident that the completion of the fantastic new Grand listing and stated that the Club is looking Club had aspirations of being fully listed Stand, named the Caterpillar Stand, at forward to a promising season in the and was conducting itself as a fully- Welford Road, the home of the Tigers. Premiership with the ability to offer fans fledged plc so this was a logical step, The loan note issue will aid the extra capacity at Welford Road with the especially with approximately 13,000 completion of the Conference Suite completion of the 10,000 seater existing shareholders! Facilities, the biggest in the East Caterpillar Stand. He added that this Midlands, and will enable the Club to As a stepping stone to a full listing, takes the overall capacity of Welford offer a variety of functions all year round. Cenkos Channel Islands worked on a Road to 24,000, retaining its stance as the Cenkos is pleased to be involved with the structure for the Club that meant that it largest dedicated club rugby stadium in issue of the loan notes, which are could achieve some short term liquidity to England. The stadium is due to play host convertible into the ordinary shares of the continue with their ground development, to Rugby World Cup matches in 2015. Club at a specified price.” gain some publicity and reduce the costs involved with a full listing. The structure

19 Economic Prospects for 2010

he events during the fourth quarter of 2008 and first quarter of 2009 proved so traumatic that many wondered if the wheels had indeed “come off the bus” – both Tin terms of the efficacy of economic policy and also the ability of economists to understand the current situation and predict what might happen next. But, looking back at our initial 2009 projections and analysis, made a year ago, we can see that they provided a useful framework for considering the future – allowing us to see beyond the immediate turmoil, and work out what might lie ahead.

2 economicinsight

Barclays Wealth

As we start 2010, it makes sense to GDP may have grown rather more economic revival supported also by summarise the current state of some of strongly in the third quarter than the growth overseas. the key developed economies, and our 0.1% expansion recorded in the second Consumer prices overall have continued forecasts for them for next year. quarter. We think that GDP will expand to fall, year on year. But, excluding food again in the fourth quarter, and that Closest to home, third-quarter GDP and energy prices from the calculation, recovery is here to stay. However, there figures in the UK proved disappointing. “core inflation” is small but positive. We are two factors that we believe could put Output fell by 0.4% on the previous think that a still weak labour market will a brake on euro-area GDP, namely rising quarter, suggesting that the UK remained put downwards pressure on wages, unemployment and a rebound in imports. mired in the longest recession on record. probably pushing down core inflation However, the GDP data have been Headline inflation in the euro area, in even lower, to only around 1% by early questioned – as most economists had year-on-year terms, has now been 2010. been expecting a small rise in output, and negative for five months – an So, in our opinion, the Federal Reserve it is accepted that GDP data can be unprecedentedly long period. This fall (Fed) won’t have to worry too much unreliable around economic turning has been largely due to high energy and about inflation. However, while the Fed points. Separate business activity surveys food prices last year providing an has indicated that interest rates will have also been suggesting a resumption elevated point of comparison. But the remain low for some time, it has begun of growth. So, we suspect that the third- effects are waning, and we expect that to consider how to move away for this quarter GDP data may be revised to inflation could turn positive – and we commitment. Our view, however, from show a smaller contraction, and expect think that it will remain positive, if that is it won’t act precipitately: it will growth to resume in the fourth quarter. subdued, throughout 2010. prefer to wait, until the economic data Consumer price inflation in the UK has The European Central Bank (ECB) is not are less distorted by economic stimulus fallen from its recent peak of 5.2% in September 2008 to just 1.1% this September. “Consumer price inflation in the UK has fallen from A number of factors will now conspire to start easing its recent peak of 5.2% in September 2008 to just it up again. Tax changes – notably, the return of VAT 1.1% this September.” to its pre-crunch level – will be one. High “base effects” – the fact rushing to act on these positive measures, and thus easier to base that year-on-year rates will now be macroeconomic indicators. Its caution is decisions on. calculated against low year earlier levels being encouraged, we think, by weak Even Japan appears to be turning the – will also tend to push up the rate of bank lending to firms, itself signalling corner, if only slowly. Monthly data inflation, as will the fall in the value of little confidence (by the banks, or their suggests that the Japanese economy sterling. But sub-trend growth will result corporate clients) in the future. So we started to grow again in the third quarter, in increasing spare capacity in the don’t expect the ECB to start raising rates bringing to an end the worst recession for economy, offsetting some of these before the second half of 2010, although more than sixty years. Monthly data upward pressures on inflation. So, a we think that some economic stimulus suggest that industrial production and persistently sharp rise in prices looks programmes could be allowed to expire. retail sales increased strongly in the third unlikely. Like several other central banks, the ECB quarter and, although exports have been will be keen to remind investors and Where next for the policymakers? In hurt by the appreciation of the yen, they consumers alike that accommodative November, the Bank of England are continuing to recover in real terms. monetary policies will not last forever. announced that it would extend asset Core consumer prices fell by 2.3% year- purchases under its quantitative easing Across the Atlantic, the US economy on-year in September. This was a slightly (QE) scheme by a further £25 billion. expanded by 3.5% in the third quarter, at smaller fall than in August, but we This was a rather smaller amount than an annualised rate. The underlying trend believe that prices will keep falling until many had expected. All the remaining in consumption and residential at least mid-2011, due to high spare purchases will be spread out over the investment looks robust, even after capacity and continued downward next three months, meaning that average allowing for the effects of direct policy pressure on wages. As a result, we don’t weekly rate of purchases will fall to £2 intervention. And, with separate surveys expect the Bank of Japan to start raising billion. We don’t expect the Bank of indicating that there’s plenty of interest rates for a long time – probably England to extend the scheme further momentum behind recent manufacturing not before 2011. and indeed think that it could start to growth, the scene is set for similarly raise interest rates in August 2010. strong GDP growth in the fourth quarter. This should allow for a modest growth in Looking in the other direction, monthly employment levels next year, with data and surveys suggest that euro area

21 economicinsight

Can we borrow our way out of the credit crunch?

Leigh Skene, Lombard Street Research

appreciation, which should then raise trying to prevent default by guaranteeing he two factors that turned spending and income even though the some private sector liabilities and the 1930s into the worst private sector is paying off debt. absorbing others, saddling taxpayers depression since the Quantitative easing is a short term with the losses. A growing number of Industrial Revolution were palliative. It can smooth the transition nations can’t meet all these commitments the collapse of the from high private debt accumulation but, and now exist on supranational agency Tpayments system and the global run on in the long term, only saving and handouts. How many nations the banks. Neither is likely this time. The US investment can create wealth. The supranational agencies can support is has failed to maintain the dollar as a function of credit is to transfer savings unknown, but we’ll probably find out. store of value, abrogating its from savers to the people with the responsibility as the agent of the reserve Defaults are vaporising equity, so banks optimum ability to invest the savings in currency. However, the international retained most of the funds that useful assets. payments system has already adjusted quantitative easing provided in their and so won’t collapse as it did in the It’s important to distinguish between reserves. People generally presume the 1930s. In addition, fiat money eliminated sustainable credit and unsustainable excess reserves will be loaned at the first the ability to withdraw reserves from credit. Sustainable credit transfers savings opportunity, but that is unlikely. Banks banks and deposit insurance has from the savers to borrowers who can are close to loaned out, they must ensure guaranteed the safety of the deposits of use that saving to create long-lasting they remain liquid as loan losses rise and individuals in most advanced nations so, tangible assets. Repaying the debt as the their liquid assets (including excess the Northern Rock fiasco assets depreciate ensures claims on reserves) are at a normal level. Leaving notwithstanding, runs on banks have tangible assets back all credit. Monetary excess reserves on deposit at the Fed is become an anomaly. stimulation increases credit faster than the most convenient and profitable way saving and so creates unsustainable to invest day-to-day funds. Excess Comparing the recent credit crisis with credit. All creditors believe they have reserves should remain high until the Fed the 1930s is risible, but both the 1930s claims to real assets, but the credit in tightens, which won’t be for a long time and the current difficulties resulted from excess of saving has no real foundation, as developed nation economies are the end of a period of credit rising faster so asset prices must rise as fast as the structurally weak. than GDP. The ends of credit cycles alter claims on them or some claims will be economic and financial responses to Real GDP growth is trending down and abrogated. various stimuli, so the future will differ credit liquidation is deflating demand, greatly from the past. Claims won’t be abrogated while GDP is rising protectionism will impair world rising as fast as asset prices, but incomes trade, sated consumers and aging become insufficient to service the rising populations are reducing growth, rising Debt liquidation is deflationary debts when asset prices rise faster than relative costs of food and energy are GDP. Then defaults rise as lowering discretionary income, excess Excess credit creation always ended in creditworthiness falls, the ability to keep capacity is at record levels and bigger credit liquidation and deflation in the borrowing disappears and asset prices fiscal deficits and anti-business legislation past. However, the fiscal multiplier has fall. The private sector in borrow-and- will seriously impair productivity. The made governments the biggest spend nations ran out of the ability to population available for and the beneficiaries of inflation and they are service its debts in 2007, so the participation rate in the labour force are doing everything in their power to stave unsustainable part of the debt will be falling, multifactor productivity is rising off deflation. Governments’ two most liquidated. This liquidation has barely slowly and tax increases will hold growth effective tools against deflation are begun and will accelerate. below potential. Thus, the fear quantitative easing and fiscal stimulation. quantitative easing will cause inflation is Debt liquidation is deflationary because Quantitative easing is intended to create misplaced. it destroys money. Governments are enough money to stimulate asset price

22 economicinsight

Taxes and fiscal deficits will government fiscal deficit is forecast to be trading partners, which may lag US reduce investment and 11.9% of GDP in 2009, so private and growth, so the recent improvement in US productivity foreign sector financial balances must trade deficits should reverse. Government add up to about 11.9% of GDP. dissaving was two-thirds greater than The Congressional Budget Office estimates federal revenues will rise by 3.4% of GDP by 2013 – before the cost Table 2. US Financial Balances % of GDP of either the cap-and-trade carbon bill that would effectively be a tax of about Q1 2008 Q2 2009 2009 2010 2011 Government -3.9 -10.6 -11.9 -10.3 -8.0 1½% of income or the health care bill Personal -3.6 1.4 1.5 1.5 1.5 that would raise the top marginal income Business 2.2 5.0 6.0 4.6 2.3 tax rate from 35% to 48%. In addition, Foreign 4.9 2.7 4.2 4.2 4.2 higher energy costs will have the effect of an additional tax increase. private saving in Q2 2009. That Studies show a specific tax rise of 1% of Inadequate American savings make this a differential may well diminish, but GDP reduces cumulative output over the gigantic hurdle. Gross domestic saving business and foreign financial balances next three years by 2-3% of GDP due to has seldom covered investment, so will have to provide something like 10%, the big impact of tax hikes on saving and America has imported foreign saving 9% and 6½% of GDP to fund investment. Gross US investment fell since 1975. Personal savings rose from government deficits in 2009, 2010 and 28% in the year ending in Q2 2009 to 0.9% of GDP in early 2008 to 3.9% in thereafter respectively. 11.5% of GDP – below current capital Q2 2009. The desire to save will remain consumption allowances, which are strong, but government accounted for a Business saving has averaged just under 13.2% of GDP. The US is now record one-fifth of personal income in the 2% of GDP recently. The big rise in consuming capital for the first time since quarter. Reduced income transfers over business financial balances has resulted WWII and net private investment in Q2 and above the automatic stabilizers, from the drop in business investment due 2009 was 3.4 percentage points of GDP unemployment and deflation will to capacity utilization falling far below lower than the previous all-time low in probably prevent personal saving from the previous record low in 1982. Slow 1982. Capital replacement increases growing much above the Q2 level. growth, unemployment and deflation will productive capacity by about 2% a year. impede saving from rising much, so net Investment in housing fell to a post war America has been growing at 2% a year investment will become more negative. low of 2.4% of GDP in Q2 2009 and is and US business net investment over the Non-residential investment continuing to unlikely to rise much for a considerable last seven years totalled only 0.1% of fall at the same rate as in the past year period giving a personal financial balance GDP. 3rd quarter productivity has fallen should raise business financial balances of 3.9% – 2.4% = 1.5% of GDP. from 3.8% to 2.2% a year in the last five by 1% to 6% of GDP in 2009, leaving Mortgage problems are far from solved years due to lack of net investment. 4.2% to be funded by trade deficits. However, investment to increase productivity will be required if the US Table 1. Government Deficits % of GDP wants to stay at the top of the competitiveness table and maintain 2009 2010 growth near its potential. Budget Structural Budget Structural US 13.6 6.0 9.7 6.5 Business net investment totalled -$500 UK 9.8 6.7 10.9 6.1 billion in the last two quarters, dragging Japan 9.9 6.5 9.8 6.5 national net investment down from 4.6% Major Advanced 10.4 5.1 8.7 5.3 of GDP in Q4 2008 to 1.7% in Q2 2009. Raising the business financial balances to 6% of GDP in the next two quarters Table 1 shows US budgetary problems and will probably escalate in the next would turn national net investment are far from unique. Efforts to combat two to three years, so investment in negative, the hallmark of depression. the continuing below trend growth housing shouldn’t rise much for some Business net investment should return to probably will push structural deficits up time. Personal financial balances will around zero if the trade deficit remains after 2010 and cyclical deficits will often fluctuate from quarter to quarter, but stable. National net investment for the add to them. Budget deficits are likely to neither a rising nor a falling trend looks decade to 2019 would then be miniscule. average 7% to 9% of GDP in the US, the likely. An error on the downside would mean UK, Japan and other developed nations the impact of big fiscal deficits on saving US imports are levered to the domestic for a long time. The financial balances of and investment would cause the growth rate, which should rise and the private, government and foreign depression the authorities are trying to exports move with growth rates in its sectors must add up to zero. The avoid.

23 You either get it or you don’t.

A special report from Lombard Street Research  $SULO 

Credit and 0RQWKO\5HYLHZ credibility $SULOWK

  6LFNPHQVKDFNOHG*HUPDQ\,WDO\

How the sub-prime mortgage fiasco WKHHXUR trashed the credit market and turned agency ratings into waste paper

Leigh Skene

6XPPDU\ 7KHWLWOH³VLFNPDQRI(XURSH´DSSHDUHGGHFLVLYHO\,WDO\¶VE\EXWFRP SODFHQW*HUPDQSROLFLHVLQWKHFULVLVKDYHEHTXHDWKHGLWWKHZRUVWUHFHV VLRQRIWKHPDMRUHFRQRPLHV*HUPDQ\DQG,WDO\VKDFNOHGWRJHWKHULQWKH HXURDUHLQPXWXDOO\UHLQIRUFLQJGHFOLQH,Q,WDO\JURVVO\H[FHVVLYHFRVWV FDQQRWEHFRUUHFWHGE\GHYDOXDWLRQVRDOUHDG\GLVPDOJURZWKSURVSHFWV ZLWKSURGXFWLYLW\LQDFWXDOORQJUXQGHFOLQHDUHZRUVHQHGE\GUDVWLFORVVRI ZRUOGPDUNHWVKDUH*HUPDQ\¶VFRPSHWLWLYHQHVVLVEOXQWHGE\VDSSHGFRQ WLQHQWDOPDUNHWVDQGLWFDQRQO\UHFRYHUZKHQ86DQG8.EXGJHWGHILFLW VWLPXOLUHYLYHLWVH[SRUWV/RQJUXQJURZWKIRU*HUPDQ\DQG,WDO\FRXOGEH SDIRU*'3OHVVIRUUHDOGLVSRVDEOHLQFRPH ,QDZRUOGRIGHILFLHQWGHPDQGFRXQWULHVVWUXFWXUDOO\VKRUWRIGHPDQG±LH VDYLQJWRRPXFK±VXIIHUPRVW)RXUILIWKVRI*HUPDQHFRQRPLFJURZWKLQ FDPHIURPH[SRUWVZKLFKDUHQRZKDOI*'3DQGVOXPSHG ODVWZLQWHU,QGXVWULDOXQLWODERXUFRVWVVRDUHGLQWKHWKUHHPRQWKVWR 'HFHPEHUPRUHLQHDUO\MREVLQYHQWRULHVDQGFDSLWDOVSHQGLQJDUH EHLQJVODVKHG3HDNWRWURXJK*HUPDQ*'3ZLOOIDOOWZLFHDVPXFKDV %ULWDLQ¶V%XWDPDMRUGHFOLQHLQWKHHXURFRXOGSDUWO\UHPHG\,WDO\¶VFRVW SUREOHPVDQGHYHQOHW*HUPDQ\SULFHLWVZD\LQWRH[SRUWOHGUHFRYHU\DJDLQ

&KDUOHV'XPDV

ZZZORPEDUGVWUHHWUHVHDUFKFRP

THE WORLD ON THE CUSP THE ABC OF 21ST CENTURY RISK CREDIT AND CREDIBILITY THE TURNING POINT MONTHLY REVIEW 2007 World Economic Forum March 2007: Warning of the The true cost and consequences Witness seminar Overview of the world financial Special Edition supplement impending credit crunch of the sub-prime mortgage fiasco on the ERM scene, with in-depth analysis and comment on key economic trends

A special report from Lombard Street Research

$VVHW$OORFDWLRQ$VLD $VVHW$OORFDWLRQ$PHULFDV $VVHW$OORFDWLRQ(XURSH 3DFLILF$VLDEXVWDQGPRGHVWUHFRYHU\ *HLWKQHU¶VKDOIIXOOJODVVLVKDOIHPSW\ (XURVXUSOXVFRXQWULHVLQWURXEOHWRR

$SULO 0DUFK )HEUXDU\ Credit and    0DLQ3RLQWV 0DLQ3RLQWV 0DLQ3RLQWV    Credulity Redux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ow likely is deflation in America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¶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eigh Skene ,QGLDKDVH[FHVVLYHO\ORRVHPRQHWDU\DQGILVFDOSROLF\WKDWZLOOEHUHYHUVHGDIWHUFXUUHQWHOHFWLRQV ,QFXUUHQFLHVZHVWLOOH[SHFWWKH86GROODUWRDSSUHFLDWHDJDLQVWWKHHXURDQG\HQEXWVWDELOLW\ 7KH&((HFRQRPLHVORRNZHDNHVWLQWKHFXUUHQWJOREDOFRQWH[W±PRVWDUHKHDYLO\UHOLDQWRQ KHQFHZHUHPDLQXQGHUZHLJKWERQGVDQGQHXWUDORQHTXLWLHV DJDLQVWWKH&KLQHVHFXUUHQF\QRZVHHPVOLNHO\6WHUOLQJ¶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

ZZZORPEDUGVWUHHWUHVHDUFKFRP ZZZORPEDUGVWUHHWUHVHDUFKFRP ZZZORPEDUGVWUHHWUHVHDUFKFRP

OIL FEVER ASSET ALLOCATION: ASSET ALLOCATION: ASSET ALLOCATION: DEFLATION IN AMERICA? The oil boom and why ASIA AMERICAS EUROPE it would bust

 *OREDO/HDGLQJ,QGLFDWRUV *OREDO/HDGLQJ,QGLFDWRUV *OREDO/HDGLQJ,QGLFDWRUV 3URSHUW\(FRQRPLFV $VLD $PHULFDV (XURSH

$SULO $SULO 0D\ $SULO

    .H\3RLQWV .H\3RLQWV .H\3RLQWV .H\3RLQWV

7XUQLQJQHXWUDORQ8.FRPPHUFLDOSURSHUW\RYHUQH[WWZHOYHPRQWKV &KLQHVHVWLOORQGRZQVLGHRIVKDUS9VKDSHLQ4 $UH86KRXVHKROGVGHOHYHUDJLQJ" (XURDUHDHFRQRPLFVHQWLPHQWLPSURYHVPD\EH 6WURQJDEVROXWHDQGUHODWLYH\LHOGDUJXPHQWVQRZPHDQZHDUHQHXWUDORQFRPPHUFLDOSURSHUW\ 7KHSUREDEOHULVH QRWIDOO LQWKH*'3GHIODWRULQWKHILUVWTXDUWHUPDNHVWKHSXEOLVKHGUHDO 7KHGHOHYHUDJLQJRI86KRXVHKROGVLVFUXFLDOWRWKHXQZLQGLQJRIILQDQFLDOLPEDODQFHV)URPWKLV 7KH(XURSHDQ&RPPLVVLRQ¶VHFRQRPLFVHQWLPHQWLQGH[IRUWKHHXURDUHDURVHLQ$SULO7KLVZDV RYHUWKHQH[WWZHOYHPRQWKV

ZZZORPEDUGVWUHHWUHVHDUFKFRP ZZZORPEDUGVWUHHWUHVHDUFKFRP ZZZORPEDUGVWUHHWUHVHDUFKFRP ZZZORPEDUGVWUHHWUHVHDUFKFRP

PROPERTY ECONOMICS NEW WORLD DISORDER GLI: ASIA GLI: AMERICAS GLI: EUROPE Analysis for the UK 2008 World Economic Forum Leading indicators for Leading indicators for the Leading indicators for commercial property investor Special Edition supplement Asian economic prospects Americas’ economic prospects European economic prospects analysed and reviewed analysed and reviewed analysed and reviewed

8.%XOOHWLQ 4XDUWHUO\8.(FRQRPLF 'DLO\QRWH    0D\ )RUHFDVW 0D\      $SULO      03&FUDQNVXSSULQWLQJSUHVVHVSDUW  $*HUPDQJUHHQVKRRW .H\3RLQWV :(68**(67 ORRNVFKHDSYV¼ :(68**(67(XURJDLQVOLNHO\WRSURYHHSKHPHUDO 8.UHFRYHU\KHOSHGE\ILVFDOPRQHWDU\VWLPXOXV86&KLQHVHSROLFLHV 6800$5<7KHODWHVWHYLGHQFHIURPWKH%DQNRI(QJODQGFRQILUPVWKDWJURZWKLQEURDG 7KHLQYHQWRU\OHGGURSLQ8.DFWLYLW\KDVEHHQVHYHUHEXWFRPSDUDEO\OHVVWKDQLQWKHµVDYHU¶ 6800$5<7KHUHZDVJRRGQHZVIURP*HUPDQ\ERWK\HVWHUGD\±ULVLQJRUGHUVWR PRQH\ZDVVOXJJLVKLQ4GHVSLWHWKHRSHUDWLRQRIWKH$VVHW3XUFKDVH)DFLOLW\2QWKLV HFRQRPLHVRI*HUPDQ\DQG-DSDQ6LJQLILFDQWPRQHWDU\DQGILVFDOSROLF\VWLPXOXVFRPELQHGZLWK PDQXIDFWXULQJ±DQGWRGD\±ULVLQJH[SRUWV%XWLWLVIDUWRRHDUO\WRFDOODFKDQJHLQWUHQG D&KLQHVHOHGPLQLUHYLYDOLQZRUOGWUDGHLQ+OHDYHXVUHODWLYHO\RSWLPLVWLFRQ8.SURVSHFWV EDVLVLWLVQRWVXUSULVLQJWKDWWKH03&KDVGHFLGHGWRH[SDQGWKHVFDOHRILWVDVVHW IRUWKH*HUPDQHFRQRP\$WWKHPRPHQWWKHEHVWWKDWFDQEHVDLGLVWKDWWKH\LPSO\D SXUFKDVHVWR EQ0RUHPD\ZHOOEHQHHGHGIXUWKHUGRZQWKHOLQH 4RXWSXWGHFOLQHODUJHUWKDQH[SHFWHG«EXWIXWXUHJURZWKSURILOHOLWWOHFKDQJHG ERWWRPLQJRXWLQODWH 7KHVFDOHRIFRUSRUDWHUHWUHQFKPHQWLQWKHILUVWTXDUWHUZDVELJJHUWKDQZHKDGDQWLFLSDWHGVXFK 2XUODWHVW8.TXDUWHUO\IRUHFDVWSXEOLVKHGRQ)ULGD\VLWVYHU\PXFKDWWKHEXOOLVKHQGRIWKH WKDWWKHHFRQRP\LVIRUHFDVWWRVKULQNE\WKLV\HDU%XWUHODWLYHWRWKH-DQXDU\4()RXU 7KHUHKDVEHHQVRPHVXUSULVLQJO\SRVLWLYHGDWDRXWIURP*HUPDQ\LQUHFHQWGD\V

  ,VLWSHUKDSVWLPHWRFKDQJHRXUSHVVLPLVWLFYLHZRQ*HUPDQ\"3RVVLEO\QRWMXVW\HW:HOFRPH WKRXJKWKHGDWDDUHZHKDYH\HWWRVHHDFKDQJHLQWUHQG/DVW6HSWHPEHU*HUPDQH[SRUWV URVHE\EUHDNLQJWZRPRQWKVRIIDOORQO\WREHJLQIDOOLQJE\ZKDWLVVRIDUDFXPXODWLYH 2QDWKUHHPRQWKPRYLQJDYHUDJHERWKH[SRUWVDQGLPSRUWVDUHVWLOOGRZQ6LPLODUO\ RUGHUVVHHPHGWRFKDQJHDIDOOLQJWUHQGLQODWHE\ULVLQJYHU\VWURQJO\IRUWZRPRQWKV  

ZZZORPEDUGVWUHHWUHVHDUFKFRP

UK BULLETIN QUARTERLY ECONOMIC THE MONETARY MERRY-GO-ROUND DAILY NOTES GLOBAL INVESTMENT Immediate reaction and FORECAST Witness seminar with Topical analysis of important OPPORTUNITIES analysis of the most Paul Volcker, Jacques de Larosière issues - over 250 times a year Concise investment analysis important UK data and Lord Lawson with a 3-6 month time horizon

Insightful forecasting from independent minds - now more valuable than ever.

30 Watling Street London EC4M 9BR +44 (0) 20 7382 5900 [email protected] www.lombardstreetresearch.com

Offices in London, New York and Hong Kong economicinsight

A similar analysis applies to other the fiscal deficits would raise the US debt Conclusion nations. For example, business in 2019 to about 200% of GDP. The Excess monetary stimulation raised asset investment in Britain fell low enough to debt-to-GDP ratio tripling in 10 years prices faster than GDP growth until the raise the business financial balance to 9% would be worrisome and also crowd out private sector could no longer borrow of GDP in Q1 2009. This offset most of new private sector borrowing – lowering enough to maintain the rise in asset the government financial balance of 10% growth in output, productivity and living prices. Asset prices then collapsed, of GDP. Business investment is unlikely standards. Unfortunately, the story causing a credit squeeze. Many think to recover any time soon as government doesn’t end here as these figures don’t today’s quantitative easing is just a turbo- financial deficits will rise in fiscal 2010. include the potential losses from the charged version of the ‘Greenspan put.’ coming bulge in debt maturities that will In addition, major financial institutions be hard to refinance. Debt to GDP ratios will soar now take their huge risks with taxpayer guarantees. Can moral hazard possibly A recent paper to the American Five serious credit rise from here? Economic Association showed public Repayment is deflationary and OECD debt rises an average of 86% above its problems remain economies are structurally weak, so pre crisis level in real terms in the three The sub-prime mortgage crisis is behind growth will be very slow. Fiscal policy in years following a banking crisis. The us, but trashed household balance sheets many nations resembles American fiscal recent banking crisis was the worst and still present problems 1-3 below, and policy in the 1930s – and will result in remedial measures by far the greatest trashed business balance sheets present the same poor outcome. Big deficits are since the Great Depression, so we can be problems 4 and 5 and problem 6 is the hoovering up saving and so driving down sure real public debt will rise much more inevitable result of the other five. investment, productivity and living than 86% over its pre crisis levels in 1. Monthly mortgage resets are rising standards. many OECD nations. from a low this summer to a peak in 2011 Sovereign debt to GDP ratios will soar Japanese government debt soared from higher than the 2008 peak. Probable before governments even begin to tackle 50% of GDP in 1989 to over 180% defaults mean we may be half way the above-mentioned credit problems. before the government began a program through residential mortgage defaults and Political solutions may defer pain, but of debt reduction in 2003. US Treasury foreclosures. any longer term benefits accrue to the debt was 72½% of GDP at the end of 2. Household liabilities in delinquency elite. That is truer now than ever before. fiscal 2008 – including the notional $4½ and default rose to $1.15 trillion in June, The bailouts, blanket guarantees and trillion of debt in the social security 10% of total liabilities. Rising money printing are raising the values of funds. Extending the figures in Table 2 unemployment is raising the default rate, financial assets and thereby redistributing produces about $25 trillion of debt and a so relief won’t be visible for some time. wealth from the poor to the rich. That’s debt-to-GDP ratio of 146% in 2019. not only creating significant ill will, but 3. Federal Housing Administration That would only lower the rating on also digging us ever deeper into the hole. guaranteed mortgages are rising Treasury debt to AA, but the credit cycle We can’t borrow our way out. geometrically and many have the ended because the additional GDP per characteristics of sub-prime loans: high- unit of debt became too small for private risk borrowers, low down payments and sector borrowers to service their debts. Leigh Skene is an independent economic shady mortgage originators. Blanket guarantees, bailouts and moving consultant specialising in financial private sector loans onto public balance 4. High loan to value ratios, falling real markets. He is the author of four books, sheets shifted the cost of bad loans to estate prices and losses will make and since becoming a Lombard Street taxpayers. These contingent liabilities refinancing the $3 trillion of US Associate in 2005 he has published a and investments will add to the fiscal commercial real estate debt maturing in significant body of work on the credit deficits enumerated above. Guarantees the next three years difficult. crisis, predicting its impact and progress. don’t involve an outlay of funds unless a 5. Most of the $1.3 trillion US leveraged His latest work, The Impoverishment of default occurs, and the others aren’t loans outstanding will need refinancing Nations, has been published by Profile current expenditures, but governments by 2012. Most are very low grade and Books. It prescribes a radically different must borrow to the funds required for were securitized, creating a big refunding solution to the challenges created by the these activities, so they will raise the problem. credit crisis, outlining a plan to overcome debt-to-GDP ratio. the inherent flaws in the global monetary 6. The Federal Deposit Insurance Default rates quadrupled in 2008 and are system as we prepare for a very different Corporation (FDIC) insurance premiums expected to quadruple again in 2009. economic future. are woefully inadequate, so Congress has Soaring default rates are causing given it $500 billion, but taxpayers have plummeting recovery rates, so taxpayer no guarantee $500 billion will be enough. losses will be substantial. Adding the losses on guarantees and investments to

25 Islamicfinance

Firm Foundations for Islamic Finance

Toby Birch Managing Director Birch Assets Ltd

fallen into the trap of mimicking failed financial markets who can also speak ollowing the admirable article western products. English. It soon becomes clear why they by Trevor Norman in the are worked to the bone and expect to be Spring Edition of Bulletin Some design flaws for Islamic funds stem paid well for their efforts. Big banks and Board, this editorial highlights from a lack of diversity in distribution. A institutions are the only ones who can some of the shortfalls in the banking network is a pre-requisite and afford not just an individual expert but a Ffield of Islamic Finance. There is a good these are concentrated in the Gulf region. whole Board of Scholars consisting of deal of flag-waving with oft-quoted Inevitably they offer regional investments between 3 and 7 members. It is a double-digit growth rates. Service which their local clients are familiar with. substantial barrier to entry for innovative providers are falling over themselves to This was fine when GCC markets were start-ups and a bottleneck that belies the offer legal and consulting advice; albeit at booming but not so good when they refreshing simplicity of Islamic finance. a premium. However, there appears to be slumped. Likewise, they are unattractive more talk than action as much of the for Muslim investors spread across the While bemoaning the pitfalls we should growth stems from simple cash world who want diversification. also highlight the benefits that make the accumulation from oil revenues. Most Committee-driven products are effort worthwhile, which as a non- investment activity has a heavy corporate predictably bland or follow whatever Muslim should add credence to this focus on infrastructure and mega-deals happens to be hot. While hedge funds statement. At the risk of sounding via special purpose vehicles. Perhaps this may be the antithesis of Islamic finance oxymoronic, Islamic finance offers a is to be expected in a region where a great they were at least interesting and communal approach to capitalism. It deal of development is still required and academically challenging. The other provides an inspirational model for where glossy buildings are the exception reason banks dominate product managing money and conducting rather than the rule outside of Dubai. development is that they can afford business but is no safe haven and was Funds for retail or mass affluent investors Islamic scholars who can command six- never intended to be. Instead it promotes are thin on the ground and tend to be too figure retainers for the simple reason of the anchor of risk-sharing rather than regional or too heavily weighted in real scarcity. It stems from the rare risk-transferral; the very process that got estate and equities. In cases where combination of finding an Islamic us into this mess. While trade and offerings are innovative they have sadly religious authority with knowledge of commerce are encouraged as a beneficial human activity, money is simply regarded ‘The deadly facts herein lead me to money, get a fixed rate of return and if as a lubricant for transactions. It cannot wonder that this monster interest has not the venture fails the bank cuts its risk by be used as a means to speculate or devoured the whole human race. It would claiming the collateral. True Islamic accumulate without a genuine economic have done so long ago if bankruptcy and banking requires hard work and outcome. This is why money must not revolution had not been counter poisons’. nurturing because it entails sharing risk replicate itself through interest or be and reward with the borrower with no Islamic finance is at a crossroads in terms mass-produced in the form of credit, with fixed or guaranteed rates of return. of offering an alternative, if not a all its inflationary implications. This is However, it is potentially more profitable complementary approach. However, the not to say that capital is free or can be and reduces systemic hazard because risk end-result of its current banking practices irresponsibly wasted. Those that put is transparent and manageable. Our appear to mimic their conventional capital at risk must be rewarded but so current financial system is escalating counterparts where the borrower pays must those that work to generate a profit. disparity and volatility; that’s neither back more than was lent; interest in all The coalition that combines capital, capitalism nor common sense. One can but name. Creating loans via a chain of labour and risk makes the perfect whole. only hope that Islamic finance can stick to instantaneous commodity transactions This of course forms the basis of pure its traditions and offer the firm may look like trade but they lack private equity and venture capital that foundation that we all so desperately substance. The bottom line is this; launched the most successful companies need. western banking is easy because you lend in American history. We are not talking here about the modern variety that dumps debt on its target and decimates tax revenues when interest is deducted as an expense.

Islamic scholars use the analogy of blood and water where money is concerned; both are only of use when they are news flowing and otherwise clot or stagnate if motionless. In other words, hoarding CISX employee gains wealth is seen as unhealthy because capital is not being recycled or put to use Islamic Finance Qualification in the economy or community. This is why there is an annual charity tax of Michelle Ferguson, Listings Compliance Manager at the Channel Islands Stock roughly 2.5% known as Zakat which is Exchange (“CISX”) has passed the Islamic Finance Qualification, the first usually paid during Ramadan. If wealth is employee at the CISX to do so. hoarded then it has a half life and will eventually disappear; a case of use it or Mrs. Ferguson has worked at the CISX since 2006 and is a qualified English solicitor. lose it. While the Islamic approach to Her decision to study for the Islamic Finance Qualification, which is issued by the usury may seem superstitious to the Securities & Investment Institute, came from an increased number of Sharia’a uninitiated, on further investigation one compliant funds listed on the CISX. comes to understand its wisdom. Interest Tamara Menteshvili, Chief Executive of the CISX, congratulated Michelle on passing is the bad cholesterol of finance that the qualification. She commented: ultimately hardens the arteries of the “Michelle’s qualification is an asset to the work of the Exchange and adds to the experience economy and limits the flow of capital. of the team. Islamic Finance has become an increasingly influential part of the global This will soon become clear to the British economy and it is important that the Exchange has a firm understanding of the Sharia’a tax payer who in 2010 will be spending investments currently listed on the Exchange.” more on interest than on defence. It forms Mrs. Ferguson is a Member of the Securities Institute, Law Society and the Guernsey a large component cost of any project so International Legal Association. it is little wonder that today’s products and properties provide such poor longevity. Research from Société Générale shows that 80% of the US population is 10% worse off over the last 40 years when adjusted for inflation; hardly the stuff of progress. History also teaches us that when wealth disparity reaches extremes there is a reversion to mean in the form of a revolt. Napoleon Bonaparte summarised it succinctly when looking at an interest table, declaring Islamicfinance

Sukuk By Trevor Norman, Volaw Trust

y article in the Sukuk AAOIFI resolution on Sukuk Spring Edition of Many readers will be familiar with the In late 2007 Sheikh Muhammad Taqi Bulletin Board gave general concept of Sukuk, but it is Usmani, as Chairman of AAOIFI, issued a brief introduction important to reflect on the basic a statement (that was subsequently to the topic of principles in order to appreciate how the heavily misquoted) in which it was MShari’a-compliant (or Islamic) funds. market for Sukuk may develop. claimed that many of the Sukuk This article will deal with the parallel structures in existence at that time would Sukuk are “certificates of equal value topic of Sukuk, commonly, but somewhat fall foul of basic Sharia'a principles, in representing undivided shares in incorrectly, referred to as Islamic bonds, particular, many appeared to violate the ownership of tangible assets” as defined and look at the increasing trend to list principle of risk and profit-sharing by in Sharia'a Standard No.17 of the these instruments. promising to pay back capital. Accounting and Auditing Organization Subsequently, in February 2008, AAOIFI In recent years Sukuk have become the for Islamic Financial Institutions, issued a statement setting out six core primary method by which countries in (AAOIFI). The standard makes it clear principles for structuring and the GCC have raised funds, and several that Sukuk must be backed by assets that implementing Sukuk transactions, noting European governments have announced are subject to a Sharia'a compliant that it was these principles that were that they are seeking to emulate this by contract, e.g. an Ijara contract (Islamic often being disregarded in the larger or issuing Sukuk. The UK Treasury has lease), sets out 14 examples of Sukuk volume-based Sukuk structures. The final made several announcements on this over structures and distinguishes investment paragraph of the statement called for the past four years, but seem to have Sukuk from shares, notes and bonds. become bogged down by various Islamic financial institutions to: Thus a large part of the conventional stumbling blocks, in particular the “decrease their exposure to debt-related securitisation market – for example, taxation treatment of the return paid on operations and to increase their mortgage-backed securities – would be the Sukuk and in finding appropriate operations based on true partnerships prohibited because the income element assets to underpin the Sukuk, see below. and the sharing of risk and reward” More controversially, in September, the (though not the principal) of the cash National Assembly of France adopted flow would be characterised as riba. Whilst there is still much debate as to measures to allow Sharia'a-compliant Similarly, CDOs and other such whether Sukuk can be used to raise debt financing, but then on 14 October 2009 instruments could not be allowed as an for an institution (i.e. where the the High Court of France struck out a asset class as these represent “Debt” underlying structure is asset-based), it is provision of the new law that would have rather than an allowable commodity or clear that the resolution endorses the use opened up French banking to Islamic activity. However, investment in tangible of Sukuk to finance the acquisition of finance and the issuance of Sukuk. assets, used for productive purposes, and actual assets on behalf of an Islamic reaping the rewards arising from those entity and in particular where the assets is a core principle of Islamic finance financing is structured as a traditional and it is this principle on which Sukuk asset-backed securitisation. securitisation structures are founded.

28 Islamicfinance

The Markets GCC. Historically, the financing for Corporate issues are generally listed on many such projects benefited from direct local rather than international exchanges, The growth of the Sukuk market in the or indirect governmental guarantees, but primarily as these tend to be smaller in 21st century, albeit from a very small this was one of the concerns that led to size and can be targeted at a local market base, seemed unstoppable, with an the original AAOIFI statement as Sukuk where demand far outstrips supply, such approximate cumulative doubling each holders are supposed to bear the risks of that several recent issues have been year from 2002 to reach US$47 billion in ownership and not be immune to affects heavily over subscribed. There are 2007. During 2008 this dropped to some of changes in the profitability of the exceptions with some corporate issues US$15.5 billion, but it is impossible to venture; it remains to be seen as to how being listed on either Luxembourg or determine how much of this decline was such support can be built into a structure London and we see the CISX as offering attributable to global economics and how whilst still giving an element of risk. a very cost effective alternative for future much to restraint arising from concerns structures we are involved in. over the validity of Sukuk structures A recent development in the structuring following the AAOIFI announcements. of Sukuk issuance vehicles has been the listing of the Sukuk on various Similarly, many of the Sukuk issued Summary previously would have had a 3 to 5 year exchanges, with, not surprisingly, the tenure and therefore were repaid in 2008, lead being taken by regional exchanges The resurgence of the Sukuk market is with prevailing market conditions such as the Bursa Malaysia and the DIFX widely forecast, but the AAOIFI ruling preventing these from being rolled over. in Dubai. The Sukuk are normally will require that such structures are more categorized as “debt” instruments by the than a simple rewording of conventional So what are the factors that will drive the exchanges, a matter than can be transaction documentation. Similarly, resurgence of the Sukuk market? First controversial with some investors but investors will demand greater and foremost is a need to finance the generally the benefits of greater transparency and accountability within large number of construction and transparency through a listing will Sukuk structures and listing Sukuk infrastructure projects throughout the outweigh any such considerations. should assist in meeting these demands.

professional . proactive . practical

The logical solution for FRPSOLDQFH LQFXEDWLRQVHUYLFHV IXQGVXSSRUW FRPSDQ\VHFUHWDULDO  +5VXSSRUW

For further information on the services provided by the Active Group, please contact:

(LQIR#DFWLYHRIIVKRUHFRP www.activeoffshore.com

Guernsey Jersey Isle of Man &D\PDQ +44 (0)1481 711822    +44 (0)1624 632800   

29 taxmatters

The new UK Offshore Fund Regime

Neil Oliver, Ernst & Young

they are a distributing fund. If this status is UK investors. A distributing fund is he UK, in common with a obtained for the entire ownership period, limited to having no more than 5% of its number of other tax regimes, an investor will be taxed on the distributed investments in other funds unless those is concerned about residents income but will get capital gains treatment funds are themselves distributing funds. making investments overseas for any gain. This distributing regime has Finally the definition of an in scope fund is in order to change, or delay evolved over the last twenty five years and partly based on a regulatory definition Tthe incidence of tax. UK investors in open was replaced on 1 December 2009 with a which creates possible uncertainty when ended offshore funds which roll up, rather reporting fund regime. deciding if a fund is in the regime. The new than pay out income, are taxed on disposal as if all of a positive return was income and There are many reasons why the regime not capital. With the highest rate of income changed. Approvals are currently tax moving to 50% investors could pay a retrospective so investors have a period of high cost for rolling up income rather than uncertainty. Cash distributions have to be pay the flat 18% capital gains tax. made often requiring separate funds for the Offshore funds that distribute income to investors can seek approval of HMRC that

30 taxmatters

“Reporting Fund regime” is in concept the to ensure that interest income includes an to both investors and HMRC within six same, which is to tax UK investors on appropriate amortisation of purchased months of the end of the accounting period. income as it is earned but the mechanics are discounts or premiums. The amount Provided a fund complies with its ongoing different and do not require the payment of arrived at is then the income that has to be obligations it remains a reporting fund. dividends. reported to investors. A fund can choose to HMRC recognises that on occasion, errors operate equalisation in which case the Reporting fund status provides certainty of will be made or information will be income figure is further adjusted. tax treatment for UK investors by being provided late. Broadly, if these are corrected granted upfront by HMRC. Income is reported to investors on the basis with reasonable speed and in certain of an amount per unit and a UK investor is prescribed ways, a fund continues in the A stand alone definition of an in scope fund required to include his share of the reported regime. Repeated or serious breaches can or “Mutual Fund” is introduced. The fund income in his tax return. Detailed rules lead to a fund being removed from the can be established as a company, trust or by identify the time at which the investor regime. way of similar rights of co-ownership. The recognises reported income. A fund can investor has to participate in the profits or A transitional period applies. Existing still make an actual cash distribution to income from the purchase disposal or distributing funds must apply for investors. In that case investors are taxed holding of assets. Investors do not have day distributor status for an accounting period on their share of the dividend together with to day control (but as shareholders etc. can straddling 1 December 2009. For the any excess of reported income over such be consulted) and a reasonable investor immediately following accounting period, a dividends. would expect to be able to realise his fund can either continue as a distributing investment based entirely or almost entirely Investment in other funds is now allowed fund or seek to be a reporting fund. For by reference to the net asset value of the without limitation although the investing later periods only the reporting regime is fund property or an index of any fund needs to recognise its share of income available. Investors in a fund which is not description. In other words any pooled from underlying funds. If the share of currently distributing but which becomes a fund where an investor knows he can get income is not known or cannot be reporting fund can elect to be treated as his money back at any point no matter how calculated, the investment is marked to realising their existing investment. Any gain far ahead. The current seven year concept market and any gain included as reportable at this point would be taxed as income is removed. There are certain exceptions income. While this seems harsh it is no while future growth would be liable to including constant NAV and transparent different to the treatment which would have capital gains tax. funds. applied to a direct investor in the In conclusion, the new regime is modern underlying fund. In that sense it allows the Income of the fund needs to be calculated but requires detailed procedures to be top fund to choose investments without tax by reference to International Accounting followed. Managers, advisors and limiting that choice. Standards although other GAAPs are administrators have to work together to allowed if they provide for the equivalent Applications to be a reporting fund are ensure procedures are in place to ensure of “total comprehensive income for the made within three months of the start of the compliance. If this is achieved the new period” to be identified. A fund is then relevant accounting period. A prescribed list regime provides a great opportunity for required to adjust for any of information has to be provided to more offshore funds to appeal to UK capital items for example HMRC with the application. Once investors. Existing product ranges should be net gains on approved a fund has ongoing obligations to reviewed to ensure all funds make the right investments and report choices during the transitional phase about specified whether or not to join the regime. information

31 corporategovernance

boards and increased disclosure and t’s fair to say that, never, ever in transparency. There is likely to be a wider recent history, has the role of Directors requirement for companies to declare and directors and strategic leaders report in much more detail and to more within all sectors and size of carefully consider such things as asset What have we organisation been so important. values, liquidity and credit risk and to take INever has it been under so much scrutiny learned from this a closer look at business models. Annual as it is today and never have the pitfalls business reviews and evaluations of ‘going global economic been so treacherous. concern’ status will need to be taken far crisis? Directors have been faced with what has more seriously than in the past. seemed to be an ever-increasing number of The great fear here though, is that board meetings and a far greater time regulators and legislators world-wide will commitment has been required than ever feel the need to introduce a huge mountain before. This is unlikely to end any time of new rules that are more likely to be soon. As the current global financial politically rather than practically driven. uncertainty continues, so will the increased demands on directors. Ticking and checking against new rules won’t produce better company One of the clearest lessons from the events performance, but searching questions by of the last 12-18 months has been that directors about company business models corporate governance by boards and their might. It is critical that boards have a full directors cannot be sidelined. Furthermore, and proper understanding of the business the responsibility for it must be shared by being pursued by the companies they boards, managers and investors. represent. It is also critical that directors Going forward there will need to be far and shareholders are not swamped with greater governance and oversight by detailed information that is so voluminous

NEVER, EVER has so much been demanded of directors since the turmoil of the global economy of the past 18 months started. NEVER, EVER have directors’ skills, knowledge and experience been so highly challenged, and

Carol Goodwin NEVER, EVER have robust procedures and systems of governance been so vital. corporategovernance

they can’t see the wood for the trees. was that directors did not need specific whether in the private, public or third training or qualifications for their role sectors. These programmes have been Another critical area that has been when they reached the board. It was running in the Channel Islands for over 10 exposed by the financial crisis is the need assumed that business experience and years and are supported by a large number for more committed and effective being good at the job was qualification of major and influential organisations – shareholder engagement. Boards need to enough. including the GFSC and JFSC. In short, ask managers to account for how they this type of training has become the Gold exert proper control and discipline over Modern business has changed. There are Standard for directors. their companies; and boards, in turn, now extra demands on directors. You should account in a similar manner to simply cannot afford to stand still... And In conclusion, what have we learned as their shareholders. Encouraging unlimited liability of directors certainly directors from this global economic crisis? shareholder engagement has long been a focuses the mind! • Robust systems of governance should priority for some governments, but how It is vital that as business leaders, directors not be sidelined seriously has it really been taken by are up-to-date with best practice and practitioners? Perhaps our governance • Directors must commit appropriate current business thinking. And most codes need to accord shareholder time and resources to the job and have importantly that they have a means of engagement a higher priority and perhaps the capacity for independent thought demonstrating this to the outside world. they should include active dialogue with Bosses will already recognise that to • Managers must welcome the scrutiny board directors. develop a business, training and of directors and keep them fully For shareholders there is an obvious self- development along with appropriate informed interest in good corporate governance: it professional qualifications are necessary in • Directors and managers must contributes to better company raising the knowledge and expertise of communicate and engage effectively performance by helping the board employees. But development should not with investors and shareholders discharge its duties in the best interests of stop at the boardroom door. shareholders, thereby delivering better • Regulators and legislators must take Training and development of boards of shareholder value over the long term. But great care in handling the needed directors aims to make directors more aren’t these best interests also firmly changes that have been identified aware of best practise in corporate aligned with the duties of every director? governance and the role of the board – • Training and development of directors With an ever-increasing focus on particularly the need to focus on strategic is essential to ensure that boards are professionalism and integrity demanded rather than operational matters – and how fitter for purpose in the future. from the Government, regulators, the board’s effectiveness can be improved. The global financial crisis has shown the investors, the media and other The Institute of Directors has developed a importance of good governance and stakeholders, directors are faced with a suite of training and development created the will for change. The challenge simple choice; improve and raise programmes specifically designed for now is to take the necessary action to standards, or face the consequences. directors, which have become the make a lasting difference. For many years the conventional wisdom benchmark qualifications for all directors newmemberprofiles

Whitmill Trust Company Ltd

Whitmill Trust Company Ltd was providers and has a simple belief at the Don Wijsmuller commented: recently accepted as a Listing Member of heart of its business - we will find a “Whitmill is delighted to become a the Channel Islands Stock Exchange. solution. This focused approach, Listing Member of the CISX. Our combined with our technical expertise Whitmill was established nearly two decision to expand our services and offer means that Whitmill is able to protect decades ago by our Managing Director, CISX Listing Sponsor services was based clients’ assets and plan for their future: Don Wijsmuller, and now provides on requests from existing clients who this is what ‘making it work’ means to us. independent and bespoke services to wanted the opportunity to list their funds clients looking for trust, company and Since being accepted as a Listing Member, on a first class recognised stock exchange fund administration services for onshore Whitmill has been appointed Listing and the CISX satisfies their requirements. and offshore structures, to provide Sponsor to two large investment funds. We look forward to continuing to work flexible wealth-management solutions. The key member of Whitmill staff with the CISX and thank them for their responsible for Listings, Claire Keeney, is efficient service to date.” Whitmill has become one of Jersey's currently working on a number of other leading independent boutique service potential listings.

BNP Paribas Securities Services THE CLOSER WE ARE, THE BETTER YOU PERFORM

With our precise understanding of each market’s internal workings, you maximise your market and investment opportunities.

At BNP Paribas Securities Services, the closer, the better.

For more information about our services, please contact: Jersey, +44 (0)1534 813 880 - Guernsey, +44 (0)1481 750 831

securities.bnpparibas.com

BNP Paribas Securities Services S.A., Jersey Branch is regulated by the Jersey Financial Services Commission. Registered office: 3 Rue d’Antin, 75002, Paris, France. Registered business address: Liberte House, 19-23 La Motte Street, St Helier, Jersey, JE4 5RL. BNP Paribas Securities Services S.A., Guernsey Branch is regulated by the Guernsey Financial Services Commission to carry out deposit taking activity under The Banking Supervision (Bailiwick of Guernsey) Law 1994 and controlled investment business activity under the The Protection of Investors (Bailiwick of Guernsey) Law 1987. Registration number: 552 108 011. Registered office: 3 Rue d’Antin, 75002, Paris, France. Registered business address: BNP Paribas House, St Julian’s Avenue, St Peter Port, Guernsey, GY1 3WE. Calls may be recorded for training and monitoring purposes.

34 newmemberprofiles

Zurich Fund Management Services Ltd

Zurich Fund Management Services Ltd is accounting services giving the client a requirements, achieved through a very a wholly owned subsidiary of the Zurich professional service level within a personal and pro-active service. Our Financial Services Group. regulatory compliant environment. We overall objective is to help ensure that have developed a robust, but flexible clients’ funds are successful by providing Established in 2007, Zurich Fund operational infrastructure including the most appropriate structure and Management Services Ltd has become an highly experienced staff with a wide range administration and then providing independent third party offshore fund of expertise. The funds we administer efficient and cost effective administration. administration service provider in Jersey. include many different classifications To complement our fund formation and Zurich Fund Management Services Ltd across a wide range of jurisdictions and administration services, our sister works with its clients in establishing and cover many investment types. company Zurich Trust Ltd, also offers structuring their investment funds and in The relationships with our clients are complete trustee and corporate obtaining the necessary permits. It founded on the knowledge and administration services. provides complete administration and understanding of their expectations and

BNP Paribas Securities Services Ltd

BNP Paribas Securities Services (BP2S) is BP2S puts great emphasis on being the As a leading securities services provider, a a wholly-owned subsidiary of the BNP partner of choice for its clients, delivering CISX Category 1 sponsor and listing Paribas Group and a leading global value through top quality services and member of the CISX, we are in a unique provider of asset-servicing solutions to client focus. The bank has recently position to bring our clients’ funds to institutional investors and financial appointed Jason Nabi as Head of BP2S market. We aim to make a real difference intermediaries. With operations in 28 Channel Islands and Isle of Man. Mr to the industry, to the Islands and to BNP countries, it is Europe’s top custodian Nabi joins from BNP Paribas in London Paribas itself ’. and ranks number five in the world for where he successfully led the Financial Mr Nabi added: ‘Combining our local assets under custody. Intermediaries business. He comments: expertise and global servicing capabilities BP2S has been present in the Channel ‘I am delighted to join the Channel we are a premier securities services Islands since 2002 and is now the largest Islands and Isle of Man team. We are provider across the Islands. In the custodian across the jurisdictions. now focused on increasing our industry current climate, it is an important Locally, the bank provides global custody leadership in terms of market share and advantage for clients to be able to (including fund distribution support), revenues and being part of the exciting partner with a bank like ours, with an corporate trustee, treasury, fund new developments between the Islands AA credit rating. administration (including transfer and fast-growing economies around the Our focus, drive and ambition is to agency) and listing services for clients world. We are working on a number of understand clients' individual needs at across the alternative investment, private business evolving initiatives, specifically both a local and global level, utilising our wealth and institutional asset new opportunities from China, the own experience to make a difference to management segments. Middle-East and the US, as well as the their business. We are here, physically, in already more established opportunities BP2S has excellent local capabilities and the Islands to make this interaction a from South Africa, Switzerland and the an in-depth knowledge of the Islands’ partnership and turn our clients’ UK. The Islands’ status as a global centre regulations. This, together with the expectations and requirements into of excellence for Private Equity and Real ability to leverage the BNP Paribas winning solutions.’ Estate funds represents a significant network, enables the bank to provide a opportunity and I welcome the chance to comprehensive range of integrated work with leading industry partners to solutions across the entire investment promote the jurisdictions and help drive cycle. business growth.

35 newmemberprofiles

Dixcart Trust Corporation Ltd

Dixcart Trust Corporation Ltd (DTCL) Alasdair Milroy a Senior Manager at processing of applications and became a Category 2 Listing Member of DTCL states: “The investment redemptions, monitoring of the fund, the CISX in August 2009. DTCL is part opportunities presented by the CISX, a maintenance of the fund’s share register of the Dixcart Group, an independent well recognised stock exchange, are self- and preparation of material to be organisation founded nearly forty years evident to many of our clients. The forwarded to investors. In terms of fund ago in the Channel Islands. The Group trading and order book facilities, with full accounting services, Dixcart prepares has eight offices worldwide. CREST settlement, offer additional final and interim accounts, the year end benefits. The regulatory requirements are preparation of schedules reconciling the Dixcart in Guernsey incorporates and well managed and the fee structure is trial balance to the accounts and deals manages companies and provides trustee highly competitive. We have offices and with auditors over disclosures. services. The organisation works directly clients located worldwide and therefore with clients and also with intermediaries, Alasdair concludes: “Dixcart as a Group, the international outlook of the CISX and including accountants, fiduciaries and is very excited that DTCL has become a its flexibility are important factors to lawyers, to help complement and broaden Listing Member of the CISX, it presents Dixcart.” their services. Dixcart provides fund significant potential for our international administration services and also supports The Dixcart Group offers fund clients and contacts and also to those fund administrators by providing administration services in Guernsey and domiciled in the Channel Islands.” outsourced fund accounting services. the Isle of Man. These include the

EFG Fund Administration Ltd

businesses currently operates in EFG Offshore Ltd provides fiduciary 55 locations across more than 30 services from its offices in Jersey, Geneva countries, with in excess of 2,400 and Singapore and private banking employees. services through its parent company EFG Private Bank (Channel Islands) Ltd in The Jersey-based EFG Fund Guernsey and its branch in Jersey. Administration team provide full administration and accounting Ian Henderson, managing director of services to a range of alternative EFG Fund Administration, said: "I have fund structures for third party watched the CISX grow over the past ten clients, particularly in the years and am thrilled that EFG specialist areas of private equity, International, through EFG Fund venture capital and real estate. Administration, now has membership and The services we provide can actively contribute to the further EFG Fund Administration Ltd, a encompass both open and closed-ended growth of the Exchange. I believe that subsidiary of EFG Offshore Ltd, is part of funds, formed as various legal structures, the CISX offers a number of the EFG International group and is and extend from advice and assistance in opportunities to EFG Fund regulated by the Jersey Financial Services structuring a fund, through the full life Administration as well as current and Commission. EFG International is a cycle (subscriptions / redemptions; future clients, and I look forward to global private banking group offering company secretarial; accounting; NAV growing and developing the relationship private banking and asset management calculation; investor communication / between our two dynamic organisations, services, headquartered in Zurich. EFG servicing; etc.) to ultimate wind-up. in a mutually beneficial manner." International's group of private banking

36 CISXhomepage

CISX sponsored young sailor selected for GB National Intermediate Squad

Young Guernsey sailor ranking to 53rd, and as a Clementine Thompson sails consequence has earned a an International Optimist, highly coveted place in the which is the leading class of GB National Intermediate dinghy for young sailors Squad, which comprises six under 16. Last winter girls and 24 boys. She is Clementine was sponsored now ranked 11th girl by CISX to enable her to nationally, and 6th Junior visit the UK for regional girl (under 13). The Squad CHANNEL ISLANDS STOCK EXCHANGE level training. This was will be training at venues all with the RYA’s South West over the UK this winter, TEAMS UP WITH GUERNSEY TOUCH Zone Squad, which trains from Plymouth in Devon to talented young sailors from Pwllheli in North Wales, In June this year, the In the men’s semi-final CISX the South West of England and quite a few places in Channel Islands Stock Anzacs beat Martel-Dunn for progression into the between ! Exchange was the proud Recruits and set themselves RYA National Junior Squad Clementine said “I was sponsor of the Channel up for a final against Isabels Programme. really pleased to get selected Islands Club Championship, who had beaten Specsavers The winter training has for the Squad as that is what organised by Guernsey Stags in the other fixture. really paid off for I was aiming for. Last Touch. CISX Anzacs did the Clementine and she has winter’s training was a real After the success of last tournament sponsors proud gone on to achieve some help and has really taken my year’s inaugural Channel by winning the men’s final 3 excellent results in the sailing up a level. I am Islands Club Championship, – 1 in what was a fast-paced various National regattas looking forward to training a second tournament was and exciting game of touch. that have been held this with the National organised and the CISX That set Touchy Feely up for year. These have included Intermediate Squad this agreed to be the sole sponsor a final against GPG events at the Weymouth and winter, and hopefully this of the event, which was Women’s Touch. GPG Portland National Sailing will put me in a really strong renamed the Channel Islands Women’s Touch, which Academy, which will be the position for next year’s Stock Exchange Touch Club included girls from the venue for the Olympic events.” Championship. Jersey team CO2, won the sailing in 2012. Also events Tamara Menteshvili, Chief After two days of intense game 5 – 0. at Largs in Scotland, and at Executive of the CISX, said competition, which involved In the Mixed Plate, Brotown the major reservoirs at “We were pleased to have mixed, men’s and ladies faced Martel-Dunn Recruits Grafham and Rutland. sponsored Clementine as teams, there were winners and won 5 – 3 and in the Three of these events were part of our programme of from both Guernsey and Mixed Finals, Source “ranking” events, and the support for community and Jersey. Sorcerers came up against results from them are used sporting activities in the the men from CISX Anzacs to calculate the National Channel Islands. We know ‘It was an excellent weekend who had joined together rankings. At the end of she has put a lot of effort of touch and there were with some of the girls from 2008 Clementine was into her sailing. Her success some incredibly tight games. Jersey’s Galaxy team to form ranked 130th out of 275, is well deserved and we wish We had teams from both a mixed team. Despite but this year she has her continued sailing success islands and two teams, players suffering extremely improved her National going forward.” which brought together players from Guernsey and tired legs after playing and Jersey, and it was interesting reffing up to 11 games each to see how the standard had in just two days, it was an improved since last year’s excellent 30 minutes of event,’ said Guernsey Touch touch. Andrew Dunn gave Chair Katrina Bray. Source Sorcerers an early lead but they couldn’t hold The round-robin games on onto it and the game ended the Saturday determined in a 3 – 1 victory for CISX who would play in Sunday’s Anzacs who took their semi-finals and finals. second title.

37 CISXhomepage

Speakers at inaugural Business Summit

38 CISXhomepage

The Channel Islands Stock Exchange hosts first International Business Summit

during the day to highlight economic data was no doubt that the Directive would be he first International and to flag up future prospects for the implemented in some form in 2012. Business Summit hosted by global economy. The Channel Islands Stock Brussels based lawyer Alistair Sutton, from Exchange in September Top of the agenda for many of the White & Case, told delegates that he had attracted many leading delegates was the potential impact of the been informed only recently by a senior Tfinance professionals and lawyers from the proposed EU Directive on Alternative official from the Commission that Jersey UK and elsewhere to Guernsey for the one Investment Fund Managers. Delegates were and Guernsey had probably the highest day event. urged to act soon if standards in the world for fund they wanted to management regulation and supervision Trends, issues and prospects for influence the final but he warned that the Islands needed to contents of the act now if they were to obtain equivalence the global economy analysed in Directive. for its regulations within the EU. The proposed EU Throughout the day, delegates were given a one day event. Directive was an insight into both trends in private equity described by David and the US property investment market, a In a series of insightful presentations from Bennett, chief executive of the Association hard hitting analysis of marketing issues in business leaders and world-class specialists of Private Client Investment Managers & the current financial climate and a review in the investment business sector, the Stockbrokers (APCIMS) as ‘probably one of the Channel Islands’ status and role Summit was able to draw out and debate of the worst pieces of draft legislation we within the global market. many of the most pressing issues to have have seen for a long time’ and although he Speakers on trends in Property and Private arisen in the wake of the unprecedented suspected it would be re-drafted Equity were: Kenneth Munkacy, Senior economic crisis of recent times. A series of substantially before its introduction, there Managing Director of GID International economists were on the podium also

39 CISXhomepage

Group/GID Advisers LLC, Mohamed Hames, Head of Communications & ‘We had two over-riding objectives from Younes, Chairman Concord International, Public Affairs, British Venture Capital hosting this unique summit. The first was and Simon Morgan, Director of Private Association. to bring international delegates to the Equity, Standard Bank in London. The Channel Islands for a thought provoking Jo Huxtable, Director Tax, Deloitte & presence of three practitioners from the day in which high calibre speakers could Touche and David White, from Whites, Middle East, UK and the US ensured there discuss some of the most important issues provided views on the value of the Channel was an international perspective given to affecting the global finance community Islands and the CISX to their work. The the issues. following the aftermath of the financial speaker line-up was completed by leading crisis. Secondly, we wanted to showcase the The Bailiff of Guernsey, Sir Geoffrey marketing academic, Professor Sandra growth of the Exchange within its Rowland, gave the keynote address on Vandermerwe, who was not shy of being operating environment, to introduce Guernsey’s position on the global stage and critical of the marketing strategies of some business leaders within the Channel Islands welcomed delegates to the Island. Jonathan global financial institutions, despite the to a wide audience of finance professionals Hooley, Chairman of the CISX chaired the presence of many finance professionals in so that they may appreciate their strengths event. the audience. Her emphasis was placed on and solid reputation as international the need to be customer focused, rather He thanked the many sponsors and finance centres. I believe we achieved both than product focused. supporters including the Gold Sponsors, objectives and it is our intention to make leading Channel Islands firms of Intertrust, In her presentation, Tamara Menteshvili, the event an annual one alternating Mourant, Ogier and Ozannes. Chief Executive of the CISX, outlined a between the two Islands of Guernsey and series of strategic developments planned for Jersey.’ Sandra Horsfield, Senior Economist, the Exchange including news that the Barclays, George Buckley, Chief UK The Summit also raised more than £17,500 Exchange was about to introduce enhanced Economist, Deutsche Bank and Maya for local charities through a unique features for transaction settlement of CISX Bhandari, Senior Economist, Lombard partnership between community traded open ended investment companies Street Research, discussed the outlook organisations and sponsors on the day. using Euroclear UK & Ireland. following the financial crisis with consideration of the emerging markets and Reflecting on a successful and rewarding where the best opportunities might arise. event, a first for the Channel Islands as well More details can be found at Ms Horsfield and Mr Buckley also took as for the Exchange, Tamara Menteshvili www.cisx.com/summit part in a panel debate hosted by Tim commented:

40

‘The modern world celebrates the information, technology and trade, and the the global economy’s future prospects. diversity of human experience in almost all 21st century will look very different This special extra section of Bulletin its manifestations – with the notable economically to its predecessors. Board, Historic Channel Islands, is exception of national economic policies, presented in that same spirit of thought Change and innovation go hand in glove where the absence of conformity among and innovation. and being innovative is a hallmark of the countries is often thought to be a source of CISX. Whilst remaining attractive to an The Channel Islands, like other small concern.’ ever-increasing number of high quality, International Financial Centres, are an So, rather lyrically, begins Professor James international issuers in tough economic important part of the world debate on R Hines’ analysis of International Finance times, the CISX Market Authority has also what the future could, and should, hold. Centres for the Society of Trust and Estate sought to maintain its pragmatic approach But what are the Crown Dependencies Practitioners. Professor Hines makes a and willingness to innovate to enhance its really about? Transparency and strong case for why – on the contrary – services. A reputation for embracing new compliance with international standards small stable finance centres like Guernsey products and creating market firsts has are vital for all in our global society – but and Jersey should be proud of the positive stood the Exchange well in the compliance does not need to mean lack of differences which they embody. international financial community. At individuality. Historic Channel Islands is September’s International Business about the Channel Islands in every aspect The only thing that is perennially certain in Summit, specialist presenters encouraged of their rich history, culture and society. global economics and politics is change. discussion of thought-provoking, topical With expert contributions and a wealth of And the world is seeing a great deal of that issues affecting the financial markets and interesting facts, it provides a snapshot of at the moment. We live in an era of the Channel Islands. Leading economists why the Channel Islands are unique, and unprecedented global flows of addressed the conference and highlighted why that is a good thing.

Tamara Menteshvili Chief Executive Channel Islands Stock Exchange

MONT ORGUIEL, JERSEY CONSTITUTION GUERNSEY AND JERSEY MARK 800 YEARS OF LOYALTY TO THE CROWN

Before 1204, the Channel Islands were part as English Monarch.) approach has been adopted rather than the of the Duchy of Normandy. They are now a The events of 1204 resulted in the Islands more inquisitorial form adopted by the fully autonomous dependency of the English enjoying a very high level of self- French. With regard to commercial matters Crown. Bulletin Board examines the Crown determination. Over the years, certain in law, the influence again is English, with Dependencies’ varied history. ‘privileges’ were granted to the Islands in substantial similarities in UK corporate law, For England, 1066 was a defining moment return for continuing loyalty to the Crown. in particular as it relates to finance matters. in history. For the Channel Islands, 1204 Jersey and Guernsey each have their own There are, of course, modern pieces of was no less a turning point. The events of parliament, known as the States of legislation – particularly in respect of that year led directly to the Islands’ special Deliberation, with elected representatives financial business – in both jurisdictions. constitutional and political position in the and no party politics. They also have their The uniqueness of the constitutional world. own government and their own judicial position is such that, although new Around the end of the eighth century AD, system. legislation is introduced and approved Vikings (latterly to become known as Although the Islands are self-governing, the through the Islands’ respective parliaments, Normans) began invading what are now UK remains responsible for their defence these are approved by the Queen through England and France. In France, the invaders and foreign affairs. In relation to the Privy Council. There are, however, settled in what is present day Normandy. international affairs, the Channel Islands are enabling provisions (an Order in Council) From 911 to 1035, the fiefdom of outside the European Union. Their special by which some legislation may be made Normandy had a succession of Dukes who relationship with the EU is set out in without reference to the Privy Council. brought intermittent peace, strife and Protocol 3 to the Treaty of Accession of the challenges to the prevailing rule of law. The United Kingdom to the European Economic Taxation law was a mix of indigenous practice and Community. Effectively, the Protocol allows Although it is best to leave the finer points imported Viking law, and since it was based the Islands to export to EU countries of taxation to the experts, there are a few on the customs of the time it was called without tariff barriers but leaves the Islands comments to be made as a result of the ‘customary law’. William the Conqueror out of all other provisions and arrangements Islands’ unusual constitutional position. As (Guillaume le Conquérant 1027-1087) was applicable to EU Member States. However we have established, historically the Channel arguably the greatest of all the Dukes of both Guernsey and Jersey are within the Islands are neither sovereign states nor UK Normandy, and he held this title long before OECD and, as such, OECD conventions colonies. The freedom the Channel Islands he became King William I of England. apply. enjoy today to self-govern is rooted in their history. It extends to fiscal independence, During this period, the islands off the Guernsey and Jersey each have their own whereby both Jersey and Guernsey take French coast, which were part of the Duchy, Governor, appointed as a representative of responsibility for their own finances and were populated by Normans – so they the Queen. The first Royal Charter taxation. This independence results from a eventually became known as the ‘Isles established the Royal Courts in Guernsey series of Royal Charters (most notably those Anglo-Normandes’ or the Channel Islands. and Jersey respectively with the right for of Queen Elizabeth I), which exempt the William the Conqueror’s successful claim of each Island to be governed by its own citizens of the Channel Islands from UK the English Throne in 1066 united system of law under the guidance of the taxes. Normandy, where he was Duke, and Royal Courts. As in medieval times, the England, where he was to be King. The Islands’ judiciary has a Bailiff at its head and In the Channel Islands, there are no taxes Bayeux Tapestry depicts William’s unifying Jurats to hear cases brought before the chargeable upon capital or wealth (i.e. no campaign from his own point of view. Courts. capital gains tax, no inheritance tax and no gift tax). The principal forms of indirect However, the year 1204 marks the Legal System taxation are duties upon alcohol, tobacco separation of the Channel Islands from the and petroleum spirit. Income tax is Duchy of Normandy and the point at which The basis of the law in the Channel Islands chargeable at 20% on income arising in continental Normandy was ceded back to remains unchanged from Norman times – Guernsey, whether the beneficiaries of that France by King John. At that time, the that is to say, the customary law of income are individuals, trusts or companies. Channel Islands elected to retain their own Normandy. Lawyers in both Jersey and laws (based upon the law of Normandy) Guernsey are known as Advocates. To this The fiscal independence of the Channel whilst also keeping a constitutional link day, prospective Advocates in Guernsey Islands has led to economic prosperity with the English Crown. must study at the University of Caen in throughout centuries of commerce, trade Normandy in order to be called to the and, more recently, financial services. This Constitutional Position Island’s Bar. independence appears to be under constant The constitutional position, whereby the Civil law follows French law, from Norman scrutiny. The challenges the Islands face Channel Islands have sworn allegiance to times, through the Napoleonic Code and the today in preserving their right to self- the Crown, remains today. (Incidentally, this current Code Civil. However, the determination in this regard are no less an allegiance is paid to the Queen of England overwhelming influence on criminal law is important issue as the choice their people as representing the Duke of Normandy, not English law, whereby an adversarial made in 1204 to remain loyal to the Crown. GLOBAL POSITIONING In the modern world, whether a jurisdiction is a leading world economy, a small independent nation state or a Crown Dependency, it will have to subscribe to international norms and anticipate those that are being developed. Sir Geoffrey Rowland, Bailiff of Guernsey, offers an insight into how Guernsey and Jersey have done this, and prospered as a result.

The immediate relationship of the Crown armour of criminal and mutual legal 20 years has been that there can be no place Dependencies is essentially a relationship assistance legislation has been enacted to in the globalised economy for non- with the English Crown. It stems from our deter criminals of all types from using the cooperating jurisdictions: no safe home for roots in Normandy in the days of William Islands. I am aware that Government is also tax evasion; no safe haven for organised the Conqueror, our Norman Duke who committed to ensuring that the Guernsey crime; no safe haven for money laundering united the Kingdom of England and the and Jersey Police, Customs and Excise, the and no safe haven for the proceeds of Dukedom of Normandy. We were never Financial Intelligence Services, the Law corruption. There is an excellent future for treated over the ensuing centuries by Officers of the Crown and the Judiciary are small international financial centres which England as foreigners, but rather as subjects staffed adequately to enforce the legislation strive to emulate the Guernsey and Jersey of the King. Guernsey, Jersey, Alderney and as required and to provide expeditiously model and are able to demonstrate that Sark have never been integrated into legal mutual assistance in criminal they: England or the United Kingdom. Our investigations when requested. • maintain first class international autonomy in matters of taxation was It is also Government policy and that of the standards asserted over the centuries and not Law Officers of the Crown to publicise the • engage positively and constructively in challenged. The Guernsey and Jersey existence of the legislation and the way it is international evaluations judiciaries are entirely independent and enforced in order further to deter the use of • recognise and implement new proudly so. The Bailiff of Guernsey, the the Islands by criminals. The Islands’ international standards Deputy Bailiff and Law Officers are financial services and law enforcement • are willing to be selective in the business appointed by the Crown, but we value our infrastructure are the result of persistent they attract, creative in financial services independence from both the United evolution and, particularly in recent legislation and innovative in the Kingdom Government and indeed our decades, clear focused government decisions products that can be developed independence from Guernsey and Jersey’s and Law Officer policies. governments. • robustly resist tax evasion and provide mutual assistance when there are France is visible on a clear day from our Globalisation shores but our trade links are reasonable grounds for investigating predominately with the United Kingdom. Globalisation has brought opportunities for instances. Unsurprisingly the Channel Islands have our Islands – unprecedented opportunities The outcome of objective, non-political recognised the need to constructively for economic growth. Rapid technological evaluations is the best yardstick. engage with the European Community. Our advances, particularly in the area of communications, and the equally rapid Government is in no doubt that this is the Evaluations correct policy. The strength of Guernsey removal of barriers to the free movement of and Jersey’s independent economies and capital acted as catalysts for growth. Yet we In his 1998 Review of the financial hence their financial stability is of great recognised that sadly globalisation would regulation of the Crown Dependencies, importance. also provide opportunities for criminality – conducted at the request of the UK Home fraud, money laundering and tax evasion. It Office, Anthony Edwards, a high-calibre is important to the global economy and to former UK Treasury civil servant, said: ‘I Financial Services Guernsey and Jersey as leading financial have no doubt that the Islands are in the Guernsey and Jersey have developed a centres that action should be taken at an top division of offshore centres. Many of comprehensive body of financial services international level to ensure that the professional people I consulted legislation with supporting Regulations and jurisdictions which are deficient in the commended their standards of regulation, Codes of Conduct administered by regulatory regimes, or in the armoury of the absence of corruption, and their co- independent Financial Services criminal legislation, or which fail to enforce operation with other jurisdictions.’ Commissions. When necessary this body of adequately the regulatory regimes and law Edwards made some constructive legislation is interpreted by an independent enforcement armoury, or encourage tax suggestions for further improvement. The judiciary. This legal infrastructure, in a evasion and do not provide international Crown Dependencies responded positively. community governed by the rule of law, co-operation, should be required – and if That review prepared the Islands well for gives the necessary confidence to those who necessary coerced – to conform to the evaluations which followed. In each entrust institutions in the Island with their international standards. These initiatives subsequent evaluation, the Islands have business and to those who develop their protect and improve the integrity and come out with approbation: own businesses here. fairness of the international financial system • The FATF 40 Recommendations and enable first class jurisdictions like Alongside this comprehensive range of Assessment - 1999 legislation and also stemming from strategic Guernsey and Jersey to flourish. • The FATF non-co-operating jurisdictions government policy, a comprehensive Suffice it to say that our stance for nearly evaluation – 2000 • The Financial Stability Forum – 1999 the States of Jersey), Guernsey came out of customers. I am confident that Guernsey • United States Qualified Intermediary top of a list of 6 small jurisdictions in and Jersey will remain jurisdictions able, Status Approval - 2000 providing cost effective public services – when necessary, to attract innovative the cost was £4,874 per person. energetic professionals who will continually • 1998 OECD Harmful Tax Initiative We are well resourced to ensure that the refresh and energise all sectors of our • 2002/2003 International Monetary Islands can and will remain stable, economy and in particular maintain the Fund Review prosperous, well regulated, co-operative profitability of our Financial Services • The recent OECD White List of co- jurisdictions largely free of crime and institutions. But I assure you that we are operative jurisdictions who have entered governed by a respect for the rule of law not complacent: we perpetually strive to into at least 12 Tax Information with a firm publicised strategy not to improve. In conclusion, I hope that you will Exchange Agreements. In Guernsey’s tolerate criminal activity. We can afford to be as convinced as I am that Guernsey and case the first was executed in 2005 with do what is necessary and do it well and we Jersey are going from strength to strength. the United States. do it well. There is one other reason why international How does Guernsey stand in an scrutiny is beneficial – it ensures that we are The Bailiff of Guernsey, Sir Geoffrey international context, The World Rowland, spent some 20 years in up to date and truly international. Development indicators published by the private legal practice, then 10 years as World Bank put Guernsey at No. 5 in the Solicitor General and Attorney- A Stable Buoyant Economy Gross National Income per capita league, General of Guernsey and as a member ahead of Switzerland at No. 6, the United of the Judiciary. He became Deputy We have noted that the Islands are well States at No. 14 and the United Kingdom at Bailiff of Guernsey in 2002, then regulated and are acknowledged as being No. 18. That does not tell the whole story Bailiff in 2005. He has also held office co-operative by experts acting objectively of the strength of Guernsey’s economy, but as Vice-Chairman of the Guernsey and non-politically. In addition, we should it is yet another piece in the jigsaw which Financial Services Commission, understand the financial strength of the depicts our position in the global world. serving from its inception in 1988 economies. Taking Guernsey as an example, until 1992 when he was appointed to And the strength of our economy is not here are a few of the reasons: the Crown Office. He has been a based solely on financial services. • the absence of several costly tiers of member of the States of Deliberation, Specsavers, with over 1,000 outlets government the Island’s Parliament, since 1992 as worldwide, was born and developed in a Law Officer and subsequently as • the absence of government debt and the Guernsey by the Perkins Family and is Presiding Officer. cost of servicing it – Guernsey has no headquartered here. Nationally-known firm national debt Healthspan was also born and developed in • the benefit of well funded state and civil Guernsey and is also headquartered here. service pension schemes. We are well They are major employers and placed to cope with the difficult contributors to our economy. There is problems which will result from increasing economic diversity. demographic trends and are probably What I see in our Islands is an better placed than any other nation in intensification of the drive Europe for quality value-added • very low unemployment (presently business – services 1.6% of the workforce and soon likely adapted as necessary to decrease) to meet the • no depressed regions to support changing needs • a cheap infrastructure to maintain • the Islands, whilst operating on a low level tax rate since 1960 in Guernsey’s case, (and earlier in Jersey), have been able to accumulate substantial reserves. In Guernsey our Contingency Fund is some £232m. (When making comparisons between Guernsey population and the United Kingdom population the multiplier is 1,000) • Government owns the buildings from which it operates, - its airport, harbours, electricity company, water company and postal services and the realty is not encumbered with borrowings – the rebuild cost is estimated at £1.6 bn This article is based on a speech by the • in an exercise conducted in 2004 (based Bailiff at the CISX International on 2003 figure by KPMG on behalf of Business Summit in September 2009 A THRIVING ECONOMY: INDUSTRIOUS, INNOVATIVE AND WITH A GLOBAL REACH

CHANNEL ISLANDS WINE TRADE Guernsey and Jersey are widely known now as finance centres, but commercial enterprise in the Islands has historically been very varied: marmalade, knitwear and livestock production have been just some of the archipelago’s international industries through the centuries.

A wine trade, in particular, can be traced as Sheltered, central to the group of Channel France). And where there is healthy trade, far back as Roman times. Evidence of Islands and with deep water moorings, it there is increased employment: coopers to Roman settlements has been found made a good stopping off point – and a make the barrels, builders to build St Peter underneath Guernsey’s capital, St Peter safe haven from the pirates who roamed Port’s wine vaults, and porters to move the Port, and a shipwreck was discovered at the perilous sleeve of sea between England goods around. The island received a huge the mouth of St Peter Port harbour in and France for many centuries. By economic boost from wine, and a good 1982. That ship, carbon dated to CE 110, processing goods through Guernsey, many Guernseymen became wealthy. The was carrying terracotta pots used to store traders could avoid the high landing duties surnames De Garis and Falla, common in and mature wine on its way to England levied on English shores in the 18th and Guernsey today, originate from French and from Southern Europe. The wine trade 19th centuries by a government that had Spanish wine merchants who settled in the prospered for centuries, boosted by wars to finance (the American War of Island. Guernsey’s special geographical position. Independence and periodic conflict with

GUERNSEY CLEMATIS NURSERY

Guernsey and Jersey’s warm and sunny dropped to –26 degrees. A third of all standards, and making use of state-of-the- micro-climate makes the Islands a great plants in our nurseries died,’ says Mr art horticultural technology. spot to grow flowers and crops, and they Evison. ‘Guernsey’s climate is much milder ‘The main propagation and production have been known for centuries for their than central England’s – the growing area is 4 acres, and our glasshouses are horticulture. Guernsey tomatoes, Jersey season in the UK is from mid April to mid very high tech, it’s computer-controlled and Royal potatoes and flowers from both July. Here we have a propagation season everything we use is recycled or recyclable. Channel Islands are internationally known. from the end of February to mid October.’ We harvest rainwater and use it for 6 The Guernsey Clematis Nursery (GCN) is Today the GCN has 7 acres of glasshouses months, so even this is recycled. This is maintaining that tradition. Tucked away in and produces 3-4 million plants per year, something we started to do over 10 years one of the Island’s northern parishes, the about 20% of the world market in young ago,’ says Mr Evison. GCN accounts for 20% of the world clematis plants. The nursery sells to North market in young clematis. Its owner, Plants to be shipped internationally are America, the UK and continental Europe, Raymond J Evison, moved his business to pruned down and defoliated, and the New Zealand and Australia, and at the Guernsey 25 years ago after a particularly compost is washed from their root system busiest time of year employs up to 70 fierce English winter. to meet plant health regulations. A people. Flower growing may be an ancient computerised temperature logger checks ‘The English company in which I was a tradition in Guernsey, but the GCN is the condition of the young plants each junior partner suffered severely during the definitely a 21st century business, hour while they are being shipped. winter of 1980 to 1981 when temperatures complying with the ISO 9000 management ‘Logistically, if you are shipping to the mid- West in the US for example, the plants will and most importantly the breeding and camping at 12,000 ft on one trip in 1980 fly out from Guernsey this Friday and will development of new cultivars under a joint Mr Evison developed altitude sickness and be potted in US greenhouses by the venture with Danish rose growers Poulsen had to be evacuated to a Tibetan village – following Friday.’ Roser A/S. but the rewards are high. Mr Evison has found 45 clematis species on one three- Mr Evison is a world expert in clematis. A Over 40% of the clematis varieties sold week visit, including an inter-species hybrid Vice President of the Royal Horticultural from the Guernsey Nursery were created in which was a scientific first. ‘Plant hunting Society, President of the Guernsey Guernsey. ‘The breeding and development these days does not mean digging up plants Botanical Trust and founder of the is done within only a quarter of an acre of in the wild but photographing them and International Clematis Society, he was glasshouse so it’s highly cost efficient but it studying their natural environment,’ he awarded the Royal Society’s Victoria generates a lot of royalties. We call this notes. Medal of Honour (V.M.H.) in 1995 for invisible earnings, and through it we are outstanding service to British horticulture, able to produce a lot of income for the All his efforts, Mr Evison stresses, are and in 2000 was made an Officer of the Island. Our soul’s in the Island. backed up by a top-quality staff: ‘We have Order of The British Empire (O.B.E.) by a very professional management team here. Mr Evison lectures widely throughout the Queen Elizabeth II. The Guernsey Clematis I work on the marketing and development world but his greatest passion is to search Nursery’s sister company, Raymond J side of things but I can only do that for clematis in the wild, especially in China. Evison Limited, works on the marketing effectively because of their excellent work.’ A research trip can require several weeks in and licensing of clematis, public relations, the wilderness and can be tough – after book publishing, lectures and exhibitions,

RAYMOND EVISON

SIR GEOFFREY AND LADY DIANA ROWLAND PICTURED WITH DIANA'S DELIGHT NAMED AFTER BAILIFF'S WIFE

REBECCA VARIETY Gregory Guida ©

MEERKAT YA KWANZA, MALE GORILLA THE DURRELL WILDLIFE CONSERVATION TRUST GERALD DURRELL

Gerald Durrell (b. 1925, d. 1995) was born Durrell was, to use the modern idiom, animals with a humorous and in India, grew up in Corfu and England, “Magic”. You imbibe it in his books, you unpretentious eye. But the underlying and only moved to Jersey when he feel it in his zoo, you see it in the eyes of his message was serious, poignant, and as established the Durrell Conservation Trust trainees, and you hear it in even the most relevant now as when he wrote in 1958 at Les Augrès Manor in 1958. Yet there restrained tones of zoo directors, who may that: ‘Until we consider animal life to be can be few people who have brought so command budgets ten times the size that he worthy of the consideration and reverence much to the Island – and indeed to the rest ever did.’ we bestow upon old books and pictures of the world. With the help of a loyal and and historic monuments, there will always Durrell wrote about as well as practised committed team, and after 1979 his be the animal refugee living a precarious conservation, though his most famous zoologist wife Lee, Durrell revolutionised life on the edge of extermination, work is perhaps ‘My Family and Other conservation. At his memorial celebration dependent for existence on the charity of a Animals’, his memoir of his Corfu in 1995, David Attenborough said, ‘Gerry few human beings.’ childhood. He told of his adventures with Q & A WITH QUENTIN BLOXAM

reduced the threat to. At Durrell in Jersey Quentin Bloxam is Director of we have also created a ‘genetic safety net’ for endangered species. And we have a Conservation Management at Durrell conservation training centre for people Wildlife Conservation Trust, also from all over the world. There are simply called ‘Durrell’. He has worked scholarships for students from developing with the Trust for 45 years, and is countries, and we also have students from featured in Gerald Durrell’s 1992 the UK and sometimes the Channel book, ‘The Aye Aye and I: a Rescue Islands. It has its own building, lecture hall and computer laboratory; it’s what Mission in Madagascar’. Gerry Durrell called a mini-university with several hundred students a year taking courses at different levels. We are also affiliated to Imperial College London and the Director of Conservation Science lectures on the MSc course.

How did you first come to start work at most animals which evolve on islands and Gerald Durrell always said ‘animals first’ Durrell Wildlife Conservation Trust? highlands evolve in isolation – they simply and that’s our philosophy, though visitors don’t recognise threats from species that to Durrell in Jersey are very important to Like a lot of people really – by reading shouldn’t be there, that have been us too because of the funding aspect – we Gerry’s books. A lot of the staff came here introduced, such as cats, dogs, rats and have been hurt by the drop in tourism because they supported his views about mongoose. If we take the Caribbean rock recently. conservation. At the time, zoos were iguana, that’s an example I always use – if considered really as menageries of animals you hatch an egg in captivity and show it for public viewing, but Gerry had a a snake, it will know it’s a predator and What was it like to work with Gerald conservation philosophy. From a personal try to hide, but if you show it a cat or dog Durrell? perspective it was terrific to see that as an it won’t recognise it as a predator. idealistic teenager. It was the only animal In those early days he was very much collection worldwide with that philosophy involved, he was very high profile in the at the time. grounds, supervising and working with us. What does Durrell do? He had extremely high standards, welfare It saves species from extinction. So far we issues were extremely important to him. Durrell opened in 1959 and in 1963 it are able to say that we have saved 6 or 7 He had a major role as spokesman, and he became a charitable trust. What has species from extinction, including the was of course a very charismatic man – I changed since those early days? Mauritius kestrel, the pink pigeon, the don’t think anyone else could have written Majorcan midwife toad, the Grand about animals in the way he did, in a It was a smaller collection then but very Cayman blue iguana, the echo parakeet humorous way but with a serious diverse. Now we have a much bigger area and the pygmy hog. There are also conservation message. He had a very for the animals and we focus on island ‘conservation cliffhangers’ – other strong personality, very strong, and that and highland species. The reason is that vulnerable species which Durrell has came out every time. I read that he could get despondent about curators. There are also a lot of people the moment in the case of climate change. possibilities of conservation – is this right? working in the field. The boundaries Ultimately we all depend on a healthy between Durrell in Jersey and Durrell in environment, if we continue to destroy Despondent about what the human race the countries where the endangered our world then in the end we will destroy has done, and continues to do, to the species are is becoming increasingly ourselves. world. One of the things we did and still blurred with our staff from overseas and do is to take on ‘lost causes’ that other here working closely together both in the conservationists would think were not Among its other attractions, field and with the animal collection in possible to save. The Mauritius kestrel is Durrell’s headquarters in Jersey has Jersey. We work closely with local the classic example, endemic to the island recently unveiled a new exhibit communities – for example in Madagascar of Mauritius it was down to just 3 birds. called the Kirindy Forest, where we have 30 Malagasy staff who provide Now after many years of intense hands-on visitors can see dry forest species of the links to local villagers in sensitive management there are over 200 pairs lemurs, giant jumping rats, narrow- areas of high conservation value. It’s all flying freely around Mauritius. We will striped mongoose and the bizarre pieces of a big jigsaw puzzle, though of take on the less charismatic species. aye aye. There is also a walk- course it’s Jersey where we have our Gerald Durrell believed that there was no through bird aviary with unusual animal collection and our training centre such thing as a lost cause and that it all dry forest birds. The Kirindy Forest and is the hub for our over-arching depends on will and expertise and of is in the Western Dry Forest region operation. course resources. of Madagascar, one of Durrell’s One of the greatest difficulties is major conservation areas since the the competition for funds early 1980’s. More information can What does the future hold for Durrell? against humanitarian be found at www.durrell.org. causes but I would always One of major concerns is the drop in say that there is enough tourism to Jersey – we have to really wealth to be directed increase fundraising for our conservation towards both. programmes. We want to do our best to Conservation, make the wildlife centre a reason in itself environmental concerns to come to Jersey. and humanitarian work are All our animal management team are not mutually exclusive and graduates, which is unique to us. We have they’re important to 3 PhDs working as senior keepers and everyone, as we’re seeing at MAURITIUS

Gregory Guida © THOMAS DE LA RUE

In terms of global reach, there can be few in the Blitz but staunchly relocated and Guernsey-born, invented an envelope- scions of the Channel Islands more maintained all its printing commitments; folding machine that could produce an influential than Thomas de la Rue. Yet and it was listed on the London Stock unprecedented 2,700 envelopes per hour) biographical details about him are Exchange in 1947. In 1958 it was renamed until 1921 when the de la Rue descendants curiously spartan compared to those of the De La Rue Limited to reflect its left the business and it converted to public company he founded. Perhaps that is partly conglomerate status. Today De La Rue ownership. Yet because of the sheer eclipsing size and fame employs 4,000 people in 24 countries, is though Mr de la of the company: you name it, De La Rue involved in the production of more than Rue, master has printed it. Currently the world’s largest 150 national currencies and, reflecting the printer, is gone, he commercial security printer and changing technologies of modern times, is certainly not papermaker, this two-hundred-year-old specialises in holographics and identity forgotten. Several company has produced (among many systems as well as banknote production. books have been other things): playing cards with a Royal written about the But none of this would ever have happened Patent (1831); the very first stamps (1853); business empire were it not for Guernseyman Thomas de la some of the first greetings cards (from 1872 he founded – Rue, who in 1813 embarked on his very to 1885); fountain pens (1881); a banknote and among first commercial venture, the newspaper Le counter (1957); paper money for Mauritius physical Miroir Politique, in his Island home. In (1860), Britain (1914 to the present) and memorials, 1821 he moved to London, and set up a THOMAS DE LA RUE China (1930 to 1948); and an edition of there is a pub business as a printer, stationer and ‘fancy the Sun newspaper with a large golden called the goods manufacturer’. As the examples profile of Queen Victoria on the front (to Thomas De La above illustrate, the business went from celebrate the Queen’s Coronation in 1838). Rue in Guernsey’s capital, St Peter Port (on strength to strength, becoming a private a street called the Pollet, to be precise). Thomas De La Rue Limited saw its company in 1896. It stayed a family affair London offices in Bunhill Row demolished (in 1846 Thomas’ son Warren, also SPECSAVERS

In the early 1980s, Doug and Mary Perkins there aren't many family-run, global billion Liberation Tea Dance for all Islanders who sold a small chain of opticians in England’s pound businesses. There’s a strong belief were evacuated, deported or lived through West Country, then moved to Guernsey, that our customers are our lifeblood and the German Occupation during the Second where Mary’s parents lived. They started we should treat them as we would want to World War. The company is also active in their new venture, Specsavers, ‘on a table- be treated ourselves,’ says John. ‘We’re very charity projects in the UK and abroad: last tennis table in the spare bedroom’. To start proud of our loyal workforce here in year raising £130,000 towards Diabetes with, they had just one shop in Bristol. But Guernsey, who have helped to make us the UK’s research into retinopathy and they also had a pioneering business plan. global brand we are today. Guernsey offers blindness in young people, and £250,000 Doug and Mary ‘realised that for opticians a stable economy, and for a large business, for Vision Aid Overseas to build Zambia’s to really feel a part of their business, they there is a highly-skilled and hardworking first school of optometry, and an eyecare had to have a stake in its ownership and labour pool from which to draw.’ clinic. Specsavers also has its own charity, profits’. They developed a joint venture the Specsavers Children’s Charitable Specsavers remains rooted in local partnership model unprecedented in the Foundation. Guernsey life, sponsoring activities such as world of optometry, in which qualified its biennial Specsavers Guernsey Youth opticians kept the profits from the Games and a Specsavers’ shops they founded, while Specsavers took a management fee.

That business model turned out to be highly successful – perhaps more successful than anyone could have predicted. Last year, Specsavers had a turnover of £1.2 billion, more than 26,000 employees and a presence in 10 countries, from the UK to Norway to New Zealand. It is now the biggest privately-owned optician in the world, yet it remains true to its down-to- earth origins and democratic ethos, says joint managing director (and son of Mary and Doug), John Perkins.

‘The culture here is really unique. After all, THE PERKINS FAMILY

HARRY VARDON

Jersey may not be the very first place one background. Born in 1870 in the parish of Trophy. He is credited with pioneering the thinks of when one thinks of golf, but it Grouville, Jersey, he left school at 12 to plus fours, or long knickerbockers, which was the home of one of the sport's most work on a farm, and became a domestic would become an iconic image for golfers famous sons. The word 'legend' is often servant at 14. He may not have had money, (he wore them because they were more used in sport; less often, perhaps, merited. but the young champion-to-be did have comfortable and practical than the suit and But Harry Vardon bears the title and encouragement: from an employer, Major tie more commonly worn by golfing deserves it. He was one of the 'Great Spofforth, who was captain of the Jersey gentlemen at the time). He was inducted Triumvirate' of late 19th/early 20th century golf club, and from his brother Tom, who into the Golfer's Hall of Fame in 1974. A golfers: Vardon, John Henry Taylor and made golf clubs and wrote to Harry in biography, written his daughter-in-law James Braid were to British golf what W.C. 1890 urging him to take a position as Audrey Howell, was published in 1991, Fields was to British cricket. They won the greenkeeper at Studley Royal Golf Club in and he has been portrayed in two recent oldest international golfing competition, Ripon in Yorkshire. Luckily for the world films – by Aiden Quinn in 2004's Bobby the Open Championship (or British Open) of golf, Vardon took his brother's advice, Jones: A Stroke of Genius, and by Stephen 16 times out of 21 between the years of and played in his first professional match Dillane in 2005's The Greatest Game Ever 1894 and 1914. And in every year they did the following year. Played. Yet in one of his most famous not win, at least one was runner up. Harry quotations, the down-to-earth attitude of Vardon would play professionally for Vardon's record of six Open wins stands to Harry Vardon’s Jersey roots is apparent. another three decades, coming runner-up in this day. His advice to the world's golfers is: 'Don't the US Open at the age of 50. He also play too much golf. Two rounds a day is But Harry Vardon's sporting excellence is wrote several books and gave his name to a plenty.' not the only thing that distinguishes him. grip that is used to this day by the majority He was – very unusually for a famous of golfers, and also to the Professional sportsman at the time – not from a wealthy Golfer's Association of America's Vardon www.harryvardon.com ISLANDS AT WAR: OCCUPATION OF THE CHANNEL ISLANDS

‘I have family ‘For me, the story of the Occupation Dr Carr’s exhibition, ‘Occupied in Guernsey doesn’t end in 1945, it’s something that and have been haunts Islanders: metaphorically, and, Behind Barbed Wire’ opens at visiting pretty according to some stories, literally – Candie Museum in Guernsey from much since people tell me they have seen ghosts of March 2010 to September 2010, before I was German soldiers in bunkers. A lot of then moves to Jersey Museum and born. I’d people still talk about the Occupation Art Gallery in 2012. always been frequently, and there are frequent interested in anniversaries to remind us. Liberation the Day, Charybdis Day, and the dates The history of the Channel Islands is Occupation deportees were liberated from Biberach influenced by their larger neighbours, yet but at first I didn’t see a way to study it and Wurzach in Germany are very much their own. Two dates, nearly within archaeology. Then in 2005 I went remembered by those who were 800 years apart, stand out: 1204, the year to a lecture on artefacts from the trenches deported. The German bunkers also act that the islands separated from the Duchy of World War I, and saw it was possible. as daily reminders. They haven’t just of Normandy and became British Crown For me research on the Occupation is been sitting there minding their own Dependencies; and 1940, the year that the much more immediate and involving business for the past 65 years; some were Channel Islands were invaded by Nazi than studying Roman Britain. It’s converted into museums, some into forces. Unlike that first major turning something that my family went through. fishermen’s stores, workshops, wine point in Channel Islands history, there are And when you’re reading the diary cellars, house extensions and even a still Channel Islanders alive who can tell entries that people wrote on Liberation chapel! And it hasn’t been an the tale of the Occupation era, and such Day, or at the time of evacuation, or the unproblematic relationship with them – it was its impact on local society that much day the Germans bombed the harbour, took 30 to 40 years for people to be of this section relates to it. for example, it’s impossible not to be ready to restore and renovate the moved.’ bunkers. Time has to pass sometimes before people are ready to re-engage with ‘Because I’m an archaeologist I’m their heritage.’ BEHIND BARBED WIRE interested in artefacts, things found in When the Channel Islands were taken people’s attics, museums, archives. There Dr Carr’s most recent research is on over by Nazi forces on 30th June 1940, it are a lot of reminders of the Occupation artefacts illustrating the ‘V for Victory’ was the beginning of an episode which still present in Guernsey and Jersey today campaign of silent resistance waged by would leave an indelible mark on the – the German bunkers, the celebrations islanders and deportees during the archipelago’s identity. Much has been of Liberation Day, the memorials and the Occupation. In 1941 the BBC broadcast written about the Occupation but it’s not Occupation museums. I think the value a series of requests to the people of always easy to get a sense of what it was of artefacts is that each tells a story of the occupied Europe to show their resistance actually like to be there. Archaeologist Dr hardship of the Occupation. There are to German forces by chalking ‘V’ for Gillian Carr takes methods that she’s several groups of items made by people victory, or ‘victoire’ in French, in public previously applied to Roman-occupied who lived through it. The islanders, for spaces, to demoralise German forces who British relics to example, used make-do-and-mend items would see that they were surrounded by create, perhaps such as the potato flour grater. You could a hostile resistance army. The BBC also OCCUPATION BADGE counter-intuitively, bake bread with potato flour – it encouraged listeners to tap out the ‘v’ a very immediate wouldn’t taste great but it was bread. sound in Morse code – three short beats sense of the trials There are also items made by German followed by one long one, as in the start of occupation – soldiers, by deportees and by evacuees. of Beethoven’s 5th Symphony – which and the methods They all tell a story, and when the was also played frequently at the time, to islanders found, in Occupation generation is no longer great effect. around, which sadly is not so far off, the most difficult ‘This wasn’t encouraged in the Channel these objects will still be there to tell the of circumstances, Islands because they were seen as being story.’ to silently resist. in a precarious position – at its height islands, in Hitler’s own orders from 1942, “an impregnable fortress”. It is these fortifications, part of Hitler’s Atlantic Wall, stretching from Northern Norway to the Spanish border which remain today as the most visible indication of this period in Channel Islands history.

Slave labourers (many of whom died), forced workers, voluntary labour and German soldiers built the hundreds of bunkers, gun emplacements and tunnels which look out solemnly from the islands' cliffs and coastline and run underneath its soil. The disposal of ordnance, a huge GERMAN TOWER, GUERNSEY task came straight after Liberation. Then the bunkers were sealed and it was several decades before islanders could take the step of addressing what to do with them. there was one soldier to every two was caused and nine people were killed. islanders, compared to one soldier to So it was clear from the beginning that it every 100 people in occupied France. But would not be an easy chapter in Jersey's OPERATION BASALT, people in the Channel Islands still had history. English born Islanders were OCTOBER 1942 radios until 1942.’ deported to Germany, most to return at the end of the war, some never to return. By Simon Wood Islanders began to fashion subtle ‘V’s in Those left behind suffered from shortages whatever way they could – in Guernsey, During WWII, the British ‘Small Scale of food and commodities, social people would take silver coins (to Raiding Force’ mounted a series of raids repression, and lack of news, though a islanders named Alf Williams and Roy along the Channel Coast, writes Simon few people, under risk of execution, kept Machon) to be filed into v-shaped badges Wood. The raids caused a homemade radio sets. It was by these, for which people would wear under their disproportionate amount of example, that the 'V' for Victory lapels and would then flash to each other inconvenience and disturbance to the campaign spread. There were many as a patriotic symbol when they passed in enemy, who were never sure where they small, quiet and dangerous acts of the street. In Royal Square in Jersey’s would come next and were thus obliged bravery like these during the Occupation, capital, St Helier, some stone slabs which to keep forces along the Channel Coast in contrast to the deportations, had to be replaced in early 1945 were that might otherwise have been deployed oppression and towards the end, near- arranged into a ‘v’ shape. on the Eastern Front. Mr Wood’s uncle, a starvation, that made life so hard. The young but distinguished SAS officer There were other, more overt, acts of shortages of food and heating which named Geoffrey Appleyard, led one of the resistance by Channel Islanders – people made the final freezing winter the worst, raids... hid Jews and slave workers; they were to some extent shared by the demonstrated by turning up in vast 28,000-strong German garrison many of It was 1942 and Geoffrey Appleyard was numbers for funerals of Allied military whom would rather, no doubt, have been at home on a weekend’s leave. His personnel washed up on the coast, and at home. parents could not understand why he was they protested against the deportations in so keen to watch a cine film of a family That end came on 9th May 1945, a date 1942. Other acts of resistance will be holiday in Sark, taken some ten years still celebrated in the islands now as investigated in a book Dr Carr is co- earlier. It wasn’t until later when they Liberation Day. HMS Beagle brought an writing on resistance in the Channel read in the papers about the Commando advance task force of British soldiers, and Islands to be published in 2010-2011. Raid on Sark that they realised he was the Union Jack was raised by Captain refreshing his memory of the beaches and Hugh Le Brocq, who was one of several cliffs where he had played as a boy so Channel Islands task force members. FORTIFICATIONS IN JERSEY that he could lead his men confidently The physical occupation may have ended over those same beaches and cliffs. On July 1 1940, The German luftwaffe in 1945, but the scars remained. The arrived at the airport in Jersey. There had On the night of 3rd to 4th October 1942, largest tangible ones were the concrete been some rushed evacuations to the UK Geoffrey, or ‘Apple’ as he was known, fortifications (in the region of 300 mainland but many islanders remained. and his men landed on the Pointe individual structures) left behind by the The German forces had been unaware of Chateau near Dixcart Bay and climbed occupying army. Because of Jersey and the British Government’s decision on 15 the Hog’s Back to be met by what Guernsey's perceived strategic importance June to demilitarise the island and as a appeared to be a group of German they were the only part of the British Isles consequence German aircraft bombed the Soldiers. After some minutes, during to be overrun by Germany during the potato lorries at the harbour believing which the Germans did not move or Second World War. Construction took them to be army vehicles. A lot of damage make a sound, Geoffrey carefully crept place during the Occupation to make the towards them. It transpired that they dark days just before World War II. It is were perfectly dressed dummies that were LIFE IN maintained now as the only surviving being used for target practice. Royal Air Force squadron wartime affiliation. The group moved on until they arrived at THE IDYLLIC La Jaspellerie, close to Dixcart Hotel. The The link remains very active, with annual house had all the appearances of being visits to Guernsey by members of the empty, but on entering, they found an old ISLES DE Squadron as part of Battle of Britain lady in bed and asleep. She must have week, and much valuable work on behalf been terrified to find her room full of NORMANDY of local charities. This year some 80 tough looking men armed with knives squadron personnel were presented with and pistols. But when she realised they the Operational Service Medal were British, she happily gave them They may be small, but there is much to Afghanistan and the Iraq Medal by Air information about the garrison on the Channel Islands culture, past and Vice Marshal (Retired) George Island and living conditions, as well as present. The Islands have been the Chesworth, a previous 201 Squadron copies of newspapers which contained inspiration for and home to many works Commanding Officer and Station details about the proposed deportation of of literature, from the early writings of Commander. ‘The medals serve to Channel Islanders to concentration camps Guernsey and Jersey French authors such remind us of the great service that our on the continental mainland. That was as ‘the Guernsey Burns’ Georges armed forces give to us all,’ said an the first that the British Government was Métivier, through to the novels of the association spokesman. to learn about them. Islands’ most famous resident, French ‘Guernsey Supporting 201 Squadron’ is a Romantic author Victor Hugo, to the From La Jaspellerie, the party moved on not-for-profit fundraising association recent rediscovery of G.B. Edward’s ‘The towards the Dixcart Hotel, where formed to support RAF 201 Squadron Diary of Ebenezer Le Page’ and the Geoffrey had stayed with his family ten and its longstanding affiliation with current success of ‘The Guernsey Literary years earlier, and which was now being Guernsey. It raised enough funds in 2009 and Potato Peel Pie Society’ by American used as a garrison. Here they entered one to sponsor a visit by 6 Squadron author Mary Ann Schaffer. Jersey is the of the outbuildings and took five Members to Guernsey during Battle of location of the oldest public library in prisoners. Unfortunately, on leaving the Britain Week, bolstering the parades, Britain and was also home to several buildings they were spotted, and in the community activities and Royal Air famous artists including John Everett subsequent confusion, two of the Force Association fundraising. The CISX Millais, a founder of the 19th century prisoners were killed and two escaped. Business Summit stand raised money for Pre-Raphaelite Brotherhood. a new flag pole to be erected at RAF Nevertheless, the party successfully made Today, there remains a vibrant arts scene Kinloss (home to 201 Squadron) ‘so the their way back to their boat with their in both Guernsey and Jersey, with many Guernsey Flag could continue to be one remaining prisoner and arrived just as local orchestras, bands, and visual artists. flown with great pride’. The Association the naval officer in charge of the boat, The Islands attract major international Patron, Bailiff Sir Geoffrey Rowland, having delayed his departure as long as he acts to festivals and concerts, and have a participated in a flag-raising ceremony dared, was about to issue the order to disproportionately large number of high on his visit to RAF Kinloss in October leave. quality pubs and restaurants, including 2009. As Geoffrey wrote later to his younger two Michelin-starred restaurants in brother, Ian, ‘We spent over four hours Jersey and one in Guernsey. In summer, there and had a really good browse though, the most popular island pursuits VICTOR HUGO around before we rang the bell and are the simplest – walking, swimming, ‘I dedicate this book to announced ourselves. It was so strange to sailing, and generally making the most of the rock of hospitality see old familiar places again. Such as the the Islands’ carefully maintained and freedom, in the tree under which you found half-a-crown! coastline (Jersey’s St Ouen’s Bay is corner of the ancient Remember? I recognised it immediately.’ particularly noted for its surf). Norman lands where The story of the Islands is that of a real the noble little people place with real people, and as such also of the sea live, to the NOIRMONT POINT, JERSEY contains its low points. But as the locals island of Guernsey, will tell you, through successes and trials, harsh and sweet, my celebrations and tribulations, Island life current refuge, my remains a very special thing. likely resting place.’

So, beautifully, begins RAF 201 SQUADRON one of Victor Hugo’s most famous novels, ‘Les Travailleurs De La Mer’ The link between Guernsey and (‘Toilers of the Sea’), which was largely ‘Guernsey’s Own’ 201 Squadron, which written in a small stone hut on the cliffs can claim to be one of the oldest British of Pleinmont on Guernsey’s south coast. military flying units, was forged in the You can visit it today: it remains unadorned, peaceful, and simple. Which, explore wide social themes against a and 1,327 speakers of Guernsey Norman given the sort of author Hugo was, is backdrop that was all the more French (2.2% of the total resident probably how he would like it. extraordinary for its ordinariness. He did population, with nearly 70% of these not, as he so eloquently predicted, remain speakers aged over 64). It is estimated Hugo (b. 1802, d. 1885) lived in both in Guernsey as his final resting place, that fewer than 20 out of the 600 Jersey and Guernsey. He was one of the though he did live there for 15 years, and permanent inhabitants of Sark can speak most important figures in the French his town house in the capital St Peter Sark Norman French. Language support Romantic movement, and he was a Port now doubles as a well-preserved campaigns currently exist on both Jersey polymath of a sort that seems to have tourist attraction and honorary French and Guernsey, including some teaching of been much more common in every Consulate. But in the end, Victor Hugo Norman French in school. A limited previous era than it is today – a poet, was laid to rest in the company of other amount of literary output has also been novelist, playwright, social activist, visual great French artists in the Panthéon in produced in Channel Island French. For artist, photographer and statesman. Paris’ Latin Quarter. example, three volumes of the poetry In contrast to Winston Churchill’s from the pen of Georges Métivier were observation on the political trajectory of published in the nineteenth century age, Hugo became more liberal as he got CHANNEL ISLANDS FRENCH (Rimes guernesiaises (1833), Fantaisies older. Gradually embracing By Dr Mari Jones guernesiaises (1866) and Poésies republicanism after a youth of guernesiaises et françaises (posthumously, conservative royalism, he used his art to Due to the introduction of Latin during in 1883)) and Thomas Alfred Grut’s reflect on social issues of his time. Hugo’s the Roman occupation of the Channel short stories were collected in 1927 sympathies were with the ordinary Islands, it can be assumed that some under the title Des lures guernesiaises. people of France, and he watched with form of Romance speech has been Recent years have also brought to light horror as Louis-Napoléon, whom he had spoken there for approximately two Thomas Martin’s translations into initially supported, became increasingly millennia. Although the archipelago was Guernesiais of the Bible, and one authoritarian. Following the latter’s coup separated from the Duchy of Normandy hundred plays from the work of d’état in 1851, Hugo was forced to flee. in 1204, until relatively recently most of Shakespeare, Pierre Corneille, Thomas He first went to Brussels, then in 1852 to the inhabitants spoke Norman French Corneille, Molière, Voltaire and Jersey. In 1855 he protested against the dialects closely related to those of the Longfellow. These were probably expulsion from Jersey of fellow neighbouring Norman mainland. English undertaken at the end of the nineteenth republican writers, was himself expelled was introduced to the Islands in the century or at the beginning of the and had to flee again, this time to Middle Ages, when garrisons were twentieth and are, as yet, mostly Guernsey. established there, but the local dialects unpublished. remained as the everyday speech-variety In Jersey, Hugo wrote pamphlets and of the majority of the Islanders until well Channel Island French has left a clear poems criticising Napoleon III’s reign. into the nineteenth century, when the influence on the distinctive variety of His most famous output in Guernsey is growth of trade and tourism led to English spoken in the Channel Islands. the abovementioned ‘Toilers of the Sea’, progressive Anglicisation. However, with increasing immigration the story of Gilliatt, a social outcast who from the UK, this variety is not as falls in love with a captain’s niece, The evacuation of many of the widespread as it once was. Deruchette. Gilliatt’s labours to win inhabitants to the British mainland in the Deruchette’s hand in marriage by days preceding the German Occupation salvaging the steam engine from a of the islands during the Second World shipwreck include a battle with an War had severe linguistic repercussions. octopus – a scene which, somewhat Alderney, where the local dialect was Dr Mari Jones is Senior Lecturer in the improbably, inspired a cephalopod-based already moribund, was totally evacuated Department of French at the University of fashion in France at the time. Indeed the and the dialect is now extinct. Since the Cambridge and Official Fellow, Tutor and Guernsey French word for octopus or official language of all the Channel Director of Studies in Modern and Medieval squid, pieuvre, became mainstream Islands has always been Standard French Languages and in Linguistics at Peterhouse. French thanks to Hugo’s use of it in and never Norman French, the presence She is currently Visiting Professor in Linguistics favour of the more common French word of Norman French in ‘prestige’ domains at the University of Bamberg and Research pulpe (today pulpe is generally used for has been virtually non-existent: Standard Associate at the University of Rennes. Dr. Jones octopus as a food while pieuvre refers to French (and now English) has been the specialises in language contact, language octopus as a living animal – harking language of religion and legislation and change and dialectology. Her research has back, perhaps, to Hugo’s image of that English is now dominant in the education focused particularly on Welsh, Breton and the vivid, untameable monster). system. Today, Standard French is French of the Channel Islands. Major reserved largely for ceremonial functions. publications on Channel Island French include Like Guernsey’s most famous indigenous Jersey Norman French: A linguistic Study of an novel, G.B. Edwards’ ‘The Diary of In 2001, the censuses undertaken in obsolescent dialect (Blackwell, 2001) and The Ebenezer Le Page’ (described in 2007 by Jersey and Guernsey recorded that there Guernsey Norman French Translations of the New York Times’ Guy Davenport as remained 2,874 speakers of Jersey Thomas Martin: a linguistic study of an ‘one of the best novels of our time’), Norman French, (3.2% of the total unpublished archive (Peeters, 2008). Hugo used his Island writings as a way to resident population, with some two- thirds of these speakers aged over 60) AND FINALLY...

ORMERS Royal Warrant in 1980 but its red saltire on white is the Cross of St In California they are called abalone, in New Patrick, the Patron Saint of Ireland. This design has been used by Zealand, paua, in South Africa, perlemoen and in Jersey ships since the 19th century, possibly as a result of the Japan, awabi. In the Channel Islands, the confusion about the Dutch word for Ireland, Ierse. It also has ‘ambrosia of the sea’ is known as ormer. Ormers England’s coat of arms and a crown of the house of Plantagenet – are protected by law, with their gathering closely monitored. Jersey’s seal. Incidentally, abalone is a central ingredient of ‘the world’s most expensive soup’, unveiled by London restaurant Kai Mayfair in COWS AND GOATS 2005. ‘Buddha Jumps Over the Wall’ is priced at £108, takes two Some of Jersey and Guernsey’s most famous days to prepare and requires 5 days’ notice to order. It also contains inhabitants have four feet. Jersey cows are small, shark’s fin and gold. gentle and brown, and their rich yellow milk and tolerance to warm climates have made them one of NEW JERSEY the most popular breeds in the world. Jersey was exporting them as As might be guessed, the origins of New Jersey the early as the 1700s. Guernsey cows are equally rich in milk, equally US state trace back to Jersey. In 1664 England’s gentle, and a similar fawn to golden brown colour, but slightly Charles II took over what had been the Dutch larger. Guernsey cows have some cloven-hoofed compatriots who New Netherlands and gave the eastern half to Sir are lesser-known but also special; Golden Guernsey Goats. This George Carteret as a reward for the help the latter had given him rare and pleasingly alliterative breed of goat is native to Guernsey during the King’s exile in Jersey (the western half went to Lord John (goat bones have been found in Guernsey’s prehistoric tombs) and Berkley). The ‘new’ land was named after the island that Sir George now has its own UK society – the Golden Guernsey Goat Society. had been Bailiff of – Jersey. New Jersey was mainly rural, with more ethnic diversity and civil freedoms than other colonies. CHANNEL ISLANDS’ MONEY www.state.nj.us The legal currency in Guernsey and Jersey is Sterling but the islands still make their own coins CANS AND SWEATERS and banknotes, which are equivalent but not Guernsey and Jersey milk cans have, it’s said, been identical to their UK counterparts. English and used in the islands for 1000 years to collect the Scottish money is legal tender in the Channel Islands but the reverse rich yellow milk of the Islands’ indigenous herds. is not the case. Jersey used French currency until 1834, and They are still made as souvenirs and collector’s Guernsey minted its own coin, the ‘Double’ up to 1966. ‘8 Double items, traditionally in copper and also sometimes in silver. Guernesey’ coins (using the French word for Guernsey) are in fact still produced – in gold, as a collector’s piece, at the Guernsey Mint A Guernsey is a tight knit woollen garment worn by fishermen. Bullion Company. www.guernseymint.com. Guernseys and their sister jumpers, Jerseys, are designed to last for many years, and are traditionally washed rarely and oiled to keep their watertight properties. HORTICULTURE The Islands' have a strong horticultural industry JERSEY CHEESE dating back over 200 years. Whilst flowers remain an integral party of today's industry, for over 100 Jersey dairy products are held in high international years, Guernsey's economy came to rely on regard. In 2008 Jersey held ‘what is believed to be thousands of pounds worth of income from the tomato industry. A the first ever breed-specific international cheese major development in the Jersey potato industry took place in competition’. As its name would suggest, the 1878, with the discovery of a new variety of potato, christened the World Jersey Cheese Awards attracted a global range of Jersey Royal - still a sought after variety today. competitors. And aside from Jersey itself and the UK, winners hailed from as far afield as Australia and California – the cheese competition was featured in antipodean national paper ‘The VRAIC Australian’. www.jerseycheese.com The harvesting of vraic – seaweed – was also once a thriving export for both islands. It was used in JERSEY AND GUERNSEY’S FLAGS the manufacture of iodine and the cosmetics industry and some varieties were (and still can be) Guernsey and Jersey have flown flags throughout eaten. Such was the social importance in the Islands of vraic that their history, but it is only in the last three decades there remain laws relating to its harvesting. Anyone tempted to that they have had flags of their own. The commit a seaweed-related felony in Jersey, for example, should note Guernsey flag, a golden ‘Guernsey Cross’ in the that among other things the law still ‘forbids the carrying of vraic in centre of the red Cross of St George, was designed by Commander boats or by means of a net, other than on the coast of Noirmont, Bruce Nicolls in the 1980s and is inspired by a scene on the Bayeux before the third day after the beginning of the permitted harvesting Tapestry in which William the Conqueror receives a flag with a season.’ yellow cross from the Pope. The Jersey flag was established by

DjgXa^Zcih`cdll]Vii]ZnlVciidVX]^ZkZ#LZ`cdl]dlid\ZiDjg Xa^ZZcih`cdll]Vii]ZnlVciidVX]^ZZ Z#k LZ`cdl]dli \Zid ` :beadnZZWZcZÆiigjhih:beadnZZWZcZÆiigjhih i]ZgZ#Ldg`^c\l^i]hdbZd[i]Zh]VgeZhib^cYh^cXdgedgViZaVli]ZgZ# Ldg`^c\l^i]hdbZd[i]Zh]VgeZhib^cYh^cXdgedgViZaVl ` EjgedhZigjhihVcYHeZX^VaejgedhZkZ]^XaZhEjgedhZigjhihVcYHeZX^VaejgedhZkZ] XaZh VcVcYÆcVcXZ!lZejaaid\Zi]Zgi]Zg^\]iWaZcYd[hZgk^XZhidhj^YÆcVcXZ!lZejaa id\Zi]Zgi]Zg^\]iWaZcYd[ hZgk^XZh id hj^iiZVX] ZVX] XXa^Zci¾hjc^fjZh^ijVi^dc#L^i]Vc^ciZgcVi^dcVacZildg`d[Zma^Zci¾hjc^fjZh^ijVi^dc#L^i]Vc^ciZgcVii^dcVa cZiilldg`d[[ZmeZgiheZgih ` >ckZhibZci[jcYh>ckZhibZci[jcYh VcYVg^VcYVcYVg^X]]^hidgn^ci]ZÆcVcX^ValdgaY!lZ]VkZi]ZeZdeaZVcYVg^X] ]^hidgnn^ci]ZÆcVcX^Va ^c i]Z ÆcVcX^VaaldgaYdgaY! lZ]VZ]VkZi]Z  eZdeaZ VcY ` >ciZaaZXijVaegdeZginhigjXijgZh>ciZaaZXijVaegdeZginhigjXijgZh `cd`cdlaZY\Zid]ZaendjhjXXZZY#laZYY\Zid]Zaendj hjXXZZY# ` >ciZgcVi^dcVaeZch^dchX]ZbZh^cXajY^c\FGDEH>ciZgcVi^dcVaeZch^dchX]ZbZh^cXajY c\FGDEH SeServicesrvices prprovidedovided bbyy InIntertrusttertrust GuernseyGuernsey I]ZVWdkZa^hid[hZgk^XZhVgZ_jhihdbZd[i]ZegdYjXihVcYh`I]ZVWdkZa^hid[hZgk^XZhVgZ_jhihdbZd[i]ZegdYjXihVcYh`^aahaah ` ::hiVWa^h]6Yb^c^hiZghiVWa^h]6Yb^c^hiZg >>ciZgigjhi^cckZhibZciHX]ZbZh8daaZXi^kZ>ckZhibZciHX]ZbZh hhZgk^XZhlZXVcegdk^YZ!eaZVhZXdciVXi/Zgk^XZhlZXVcegdk^YZ!eaZVhZXdciVXi/

33 A^b^iZY8dbeVc^ZhA^b^iZY8dbeVc^Zh >>Vc8aVg`ZVc8aVg`Z 33 EVgicZgh]^ehEVgicZgh]^eh IIZa/Za/ )))%&)-&'&&(&%)%&)-&'&&(&%

33 Jc^iIgjhihJc^iIgjhih <

` hhjZhGZh^YZcXZ9db^X^aZIVm>hhjZh IIZa/Za/ )))%&)-&'&&(+%)%&)-&'&&(+%

` IgjhiIVmVi^dcIgjhiIVmVi^dc ;;gVcHcdY^c\gVcHcdY^c\ ` Eg^kViZVcYXdgedgViZigjhiVggVc\ZbZcihEg^kViZVcYXdgedgViZigjhiVggVc\ZbZcih IIZa/Za/ )))%&)-&'&&(&))%&)-&'&&(&)

` 8dbeVc^ZhgZ\^hiZgZY^cVkVg^Zind[_jg^hY^Xi^dch8dbeVc^ZhgZ\^hiZgZY^cVkVg^Zind[_jg^hY^Xi^dch

>ciZgigjhi;jcYHZgk^XZhciZgigjhi ;jcY HZgk^XZhckZhidgh7V^a^l^X`d[ckZhidgh 7V^a^l^X`` d[

>ciZgigjhiciZgigjhi

BBVgiZaad8djgiVgiiZZaad8djgi 6Yb^gVaEVg`6Yb^gVaa EVg` OurOurc clientslients comecome fromfrom everyevery cornercorner ofof thethe globe.globe.D Differentifferent HiEZiZgEdgiHiEZiZgg Edgi ccountries,ountries, ddifferentifferent ccultures.ultures. WWee hhaveave mmoreore tthanhan 11000000

\jZgchZn5^ciZgigjhi\gdje#Xdb\jZgchZn5^ciZgiggjhii\\gdje#Xdb

llllll##^ci^ciZgigjhiiZZgigjhi\\gdje#Xdbgdje#Xdb Capita Financial Group For Fund Managers who just want to manage funds

With more than 35 years industry experience, Capita Financial Group offers a comprehensive fund administration service for a wide range of asset classes.

Our main focus is to provide a ‘Best in Class’ administration service. Our dedicated service enables clients to have the peace of mind to focus on their core investment management competencies.

Capita Financial Group’s Guernsey operation provides a personalised and reliable service and supports property, private equity, hedge fund and traditional listed investments.

To fi nd out more about how you could benefi t from working with Capita Financial Group please contact: Andrew.howat@capitafi nancial.com or visit www.capitafi nancial.com for further information.

Capita Financial Group is a trading name of Capita Financial Group Limited and its subsidiaries, members of which include Capita Financial Managers Limited, Capita Financial Nominees Limited and Capita Financial Administrators Limited, who are authorised and regulated by the Financial Services Authority.

Capita Financial Group is a trading name of Capita Financial Group Limited and its subsidiaries, members of which include Capita Financial Administrators (Guernsey) Limited, who is regulated by the Guernsey Financial Services Commission as a permit holder pursuant to the Protection of Investors (Bailiwick of Guernsey) Law 1987, as amended.

Part of Capita plc, a FTSE 100 Company. 1109/02

A4 Briefcase Ad_Ref 050901.indd 1 16/11/2009 11:57:19