Aug 2007 Guernsey Hedge Fund Services 2007 Harwood Report Exchange-listed New entrants seek puts seal on new funds raise island’s out administration regulatory regime international profile market niches CONTENTS In this issue… 03 Harwood and fund listings give Guernsey fresh momentum By Simon Gray 05 Administrators move to centre-stage By Stuart Mauger, Royal Bank of Canada 09 Guernsey turns drawbacks to advantage By Gavin Farrell, Ozannes 12 Boost from permanent capital vehicles By Richard Boléat, Capita Financial Group 13 Business surge drives dynamic growth in fund services industry By Simon Gray 15 The importance of long-term commitment By Brenda Petsche, HSBC 19 Guernsey, KKR and the Euronext link By Graham Hall, Carey Olsen 22 Divergence and convergence By Neale Jehan, KPMG Publisher Special Report Editor: Simon Gray, [email protected] Sales Manager: Simon Broch, [email protected] Publisher/Editor-in-Chief: Sunil Gopalan, [email protected] Marketing Director: Oliver Bradley, [email protected] Graphic Design (Special Reports): Siobhan Brownlow at RSB Design Photographs: Courtesy of Guernsey Tourist Board Published by: Hedgemedia Limited, 18 Hanover Square, London W1S 1HX Tel: +44 (0)20 3159 4000 Website: www.hedgeweek.com ©Copyright 2007 Hedgemedia Limited. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher. GUERNSEY Hedgeweek Special Report Aug 2007 www.hedgeweek.com | 2 OVERVIEW Harwood and fund listings give Guernsey fresh momentum By Simon Gray At international gatherings and seminars, Investor Fund regime in February 2005. The representatives of Guernsey’s financial first fruit of the report, whose industry, not least its fund sector, continually recommendations are expected to be fully reinforce the theme that the island is “open implemented later this year or in the first for business”. It’s necessary, say practitioners, quarter of 2008, is the regulatory framework to counter suggestions from the jurisdiction’s for closed-ended Registered Funds, launched rivals in the offshore world that the Guernsey at the beginning of February. industry somehow lacks the capacity and The new regime, under which a fund’s capability to accept a greater share of administrator undertakes due diligence international financial services business. checks such as ascertaining the promoter’s Actions speak louder that words, however, integrity and competence on the and over the past year or so Guernsey has commission’s behalf, in return for an left potential clients in no doubt that it is accelerated approval process, dovetails neatly both able and willing to compete strongly for with the growing attractiveness of Guernsey business. First came the much-anticipated closed-ended funds among managers of release of a report by a working party hedge funds and private equity seeking to headed by leading advocate Peter Harwood, establish ‘permanent capital’ vehicles, usually drawn up following extensive discussions listed in London or Amsterdam. with the Guernsey Financial Services The island is already well established as a Commission and industry members, that sets domicile for funds of hedge funds that have out a new blueprint for regulation of the been listed on the Main Market or Alternative island’s fund sector. Investment Market of the London Stock The Harwood Report, as it is universally Exchange, but what seized the attention of known, builds on the commission’s alternative fund managers worldwide was the established principles-based approach to listing on the Euronext Amsterdam exchange financial supervision and extends the focus of the EUR5bn KKR Private Equity Investors on regulation of service providers rather than vehicle by Kohlberg Kravis Roberts, doyen of products introduced with the Qualified the US private equity industry. ➧ p6 GUERNSEY Hedgeweek Special Report Aug 2007 www.hedgeweek.com | 3 STRENGTH WHERE IT COUNTS Global Custody | Fund Services | Corporate Services | Trade Execution | Trustee Services | Banking | Online Services THERE’S A LOT SAID THESE DAYS ABOUT CLIENT Bahamas Guernsey Montreal SERVICE AND OPERATIONAL EXCELLENCE. OUR Barbados Hong Kong New York Brunei Houston Porto Alegra APPROACH CAN BE SUMMARISED IN JUST TWO WORDS. Buenos Aires Istanbul San Francisco Calgary Jersey São Paulo UNPARALLELED SUPPORT Caracas London Singapore Cayman Islands Madrid Tokyo Dubai Miami Toronto Our clients enjoy a broad range of value added services and tailored solutions Geneva Montevideo Vancouver including global custody, fund administration and banking services. Our partnership approach means we can support your strategic objectives by delivering a truly integrated service that fits seamlessly with your business. We take care of administration and other details allowing you to focus on market analysis and delivering top performance to your investors. To find out more, visit www.rbcprivatebanking.com/ci.html This advertisement has been issued on behalf of the RBC Financial Group subsidiary companies that comprise Royal Bank of Canada's Global Private Banking network. Some of the services may not be offered in all the jurisdictions above or be available to you. This material has, to the extent required, been approved for purposes of the UK Financial Services and Markets Act 2000 by Royal Bank of Canada Investment Management (UK) Limited, 71 Queen Victoria Street, London, EC4V 4DE, which is authorised and regulated by the Financial Services Authority. ®Registered trademark of Royal Bank of Canada used under licence. FUNDS/07/200 Channel Island Fund Administrator of the Year ROYAL BANK OF CANADA Administrators move to centre-stage By Stuart Mauger The value of Guernsey closed-ended funds administrator’s timeframes for conducting under administration increased by GBP17.4bn due diligence on the promoter and or 55.8 per cent in 2006 to a new high of documenting and transitioning the fund. GBP48.5bn, helped in part by the trend among The new regime, which effectively puts investment managers to raise permanent promoter and administrator in partnership capital on the London Stock Exchange, from the outset, is welcomed by Royal Bank London’s AIM market or Euronext Amsterdam. of Canada. Its team-based approach to Guernsey has become the jurisdiction of prospective fund launches places RBC’s choice for fund promoters and sponsors business professionals in banking credit, considering listings for a broad spectrum of corporate trustee, fund accounting/ hedge funds, funds of hedge funds, private administration/valuations and global custody Stuart Mauger is head of sales equity, syndicated loans and property and business development for and their support teams in front of promoters vehicles. According to ABN Amro research, corporate and institutional, from the first meeting. at the end of last year 37 listed funds of British Isles, and based with Regular meetings with the client clear up Royal Bank of Canada (Channel hedge funds and three single-manager Islands) in Guernsey issues such as the roles and responsibilities hedge funds had a combined market of the corporate secretary, including the capitalisation of GBP5.9bn, an increase of weekly estimate preparation and timeline and GBP2.4bn or 70 per cent in 2006. agreement of templates for RNS reporting, Public listing enables managers and the treatment of currency hedging valuation promoters of funds of hedge funds to take a and cost across share classes, processing of longer-term investment perspective, and share conversion programmes and trailer offers greater transparency for shareholders, payments, and changes in financial reporting. competitors and market-makers to the Royal Bank of Canada (Channel Islands) underlying portfolio. Investors in closed- acts as custodian to some USD22bn in ended listed funds also benefit from broader hedge fund assets and provides ancillary corporate governance requirements, such as services such as currency hedging and the UK Listing Authority’s combined code on timing and settlement financing to funds. corporate governance for companies listing Passive hedging is critical to the performance on London’s Main Market. of fund share class prices and, where a fund Under Guernsey’s new Registered Funds is closed-ended, the availability of a credit regime, closed-ended funds need no longer facility helps the promoter to purchase undergo the established weeks-long consent investments against future redemptions or application process. Instead, consent may be invoke the discount provisions clause. obtained within three days of the administrator RBC’s Corporate & Institutional Business certifying to the regulator that the promoter is operation provides fund administration and fit and proper and of satisfactory integrity, global custody services to alternative and solvency and competence. traditional investment vehicles at offices in the Historically, when UK and Guernsey legal Caribbean, Guernsey, Jersey, London and teams and the lead sponsor guided the Edinburgh. RBC entities in Guernsey act as promoter through the launch of a fund, the custodian and fund administrator to the largest appointment of an administrator was London-listed fund of hedge funds to date and generally one of the last aspects to be as custodian to Alternative Investment decided. This sometimes led to a perception Strategies, which became the exchange’s first