Shores of certainty as city firms continue to face instability and confusion from the fallout of Covid-19 and Brexit, they continue to look to the Channel Islands for consistency and high-quality service.
The past 18 months have certainly been full of change and uncertainty, fuelled by the double-whammy of the coronavirus pandemic and Brexit. These circumstances have accelerated developments and innovation, as many businesses have rapidly evolved their proposition to continue to satisfy their markets. By contrast, however, financial services firms in the City of London have largely wanted to see more of the same from Jersey and Guernsey. The unpredictable and volatile business conditions have simply increased the steady appeal of the Channel Islands as international finance centres. Their longstanding stability, expertise, established track record and consistency of service all provide relief from the turbulence elsewhere. As a result, it’s generally been business as usual for the Channel Islands’ financial centres. And much of that business continues to be City-led.
QUEST FOR CLARITY
Mark Clubb, Senior Investment Manager at TEAM, explains: “City business introducers are confused and waiting for clarity regarding financial services and Europe, specifically around what they can and cannot do. “Both islands have worked hard to be prepared for this, with the aim of protecting their interests and security while maintaining good relationships with the UK – to benefit from the UK-EU Trade Agreement – and to maintain their ‘good neighbour’ status with the EU. “We have to remember that the islands are not, and have never been, a part of the EU – and did not benefit from the UK’s membership except for Protocol 3 (trade in goods). So, for the islands, the relationship has not changed when it comes to financial services.” Sophie Reguengo, Partner at Ogier, takes the point a step further. “I would argue that the appeal of the Channel Islands has actually increased as a result of Brexit and the pandemic. You come to realise who your natural business partners are during these periods of difficulty. “The excellent reputation of the islands is more important than ever, particularly with investments and the drive to support sustainable finance.” That view is endorsed by Simon Burgess, Managing Director and Head of Alternative Investments at Ocorian. “What we are seeing is that London intermediaries advising or representing international capital have a very close affinity with the financial services professionals in the Channel Islands, and a business model that’s tried and tested,” he says.
Clubb adds that the islands’ status as financial safe havens to wealthy people who are looking for asset security in a stable tax environment has become much more important given the imminent prospect of new taxes and the unprecedented issue of government debt. Furthermore, the islands have remained credible business partners for the City by focusing on their core areas of expertise, in particular the investment fund sector. Initial fears about the impact on funds of Covid-19 were unrealised as the islands stuck to what they do best. Reguengo adds: “We spent a long time preparing for Brexit but there was no time to do the same going into the pandemic. You assume business is going to fall off a cliff, capital flows are going to dry up and investors are going to pull funds – and you are going to get recession-type reactive behaviour. “That was not necessarily the case. Infrastructure was particularly active as an asset class, capitalising on the rise of online shopping, which in turn caused a spike in demand for logistics and fulfilment of commercial real estate. “Our venture capital practice also saw a startling rise in investments in the pharma, health and education technology sectors, given the demands placed on these industries by the pandemic.” Burgess recognises that there have been winners and losers. “If you are capitalrich, now is the time to respond to the opportunities created by the volatility of the past 12 months,” he says. “Hopefully, we are at the trough and the canny investor will buy at the bottom in the hope of selling at the top. Hence the growth of deployment of private capital into our funds sector. This is also driven by a desire to inflation-proof investments and to mitigate risks of capital erosion given the likelihood of higher interest rates and, in turn, inflation.”
Anita Weaver, Head of Corporate Services, Jersey, at Stonehage Fleming, says the Channel Islands offer further appeal as a facilitator of market access – and not just from the City into Europe. “We can assist fund structures with accessing European and global markets and enable Europe to still access the City,” she says. “It’s not just one way. The two islands are well placed to utilise their existing networks to facilitate mutual investments in both directions. “Activity levels have increased. There’s interest in the ESG market, infrastructure and real estate. At the back end of 2019, some clients were slowing down on deal activity pending the resolution of Brexit, but they had also lined up deals for 2020. “Investment activity has picked up again post-Brexit and, with Covid-19, people are looking for a safe allocation of their capital. They’ve had time to think and are being more innovative.” Clubb supports this view. “Whenever there’s change, there also comes opportunity,” he says. “This is certainly true for the Channel Islands post-Brexit. There will be new ways of doing business, through regulation change, and it is also an opportunity to look at how we might improve things within the islands. “Until the UK comes to an agreement with the EU, fund wealth managers may not be able to market funds or services into the EU,” he adds. “Some managers have responded to this by building a presence in Europe. However, many fund managers continue to market Guernsey and Jersey funds in continental Europe using National Private Placement Regimes. We have in place the necessary cooperation agreements to enable them to do so. The islands may be a suitable alternative home for other UK fund managers facing such challenges.” Paul Mundy, Managing Director of Fund Services at Suntera Global, agrees that the hiatus caused by Brexit and Covid has in some respects been a positive. “For once, the money-makers have been forced to sit at their desks as opposed to crossing the globe raising capital,” he says. “This additional time will have seen a number push forward with ideas and new structures.” It is here that the Jersey Private Funds (JPFs) regime has come to the fore, with Guernsey offering its own iteration, the Private Investment Fund.
“JPFs are the best product we have by far,” Reguengo says. “It’s codification, amalgamating several products into one very simple, user-friendly commercial product. It’s also a low-cost product with a 48-hour turnaround time to gain consent.” Weaver adds: “They are definitely getting a lot of attention. I am getting lots of inquiries, which is fantastic news. To see the JPF becoming more well known is just great. “It’s essential that fund managers are picking the right jurisdictions that their investors will support. They’re looking for service quality, ease of doing business, track record, digitisation, security and reporting in real time. A jurisdiction that has invested in its technology is also an important factor.” Alongside the recognised strengths of Jersey and Guernsey in the funds space, another area continuing to draw strong interest is the structuring of private client assets. This is particularly the case given the $15trn of intergenerational wealth due to be handed down by 2030 and a growing interest in ESG, philanthropy and sustainable investments. The islands are well recognised for their robust trust and property title laws. Clubb says: “It is estimated that more than half the world’s wealth is held offshore. Offshore wealth and asset management, or the facilitation of it, is and will continue to be in high demand from the world’s wealthy, very wealthy and certain organisations such as family offices. “The generations inheriting this wealth will have different values and aspirations in terms of what to do with it. It will change the way this wealth is managed. “They will demand more accountability and adherence to environmental and sustainability matters, alongside social impacts such as gender and race diversity and equality,” Clubb adds.
Ocorian has seen increased traction for institutional-grade family offices, says Burgess. “They are very institutionalinvestor- like. The governance is high and the approach to investing is equal to that of institutional investors.” Meanwhile, sophisticated solutions are required to meet the complex challenges for the wealthy, Reguengo adds. “A simple trust is unlikely to meet the requirements of large wealthy families with multiple generations, diverse wealth creation and family members located around the world. “We increasingly see the need for bespoke structuring. Some of the new generation want to manage the assets themselves and an investment funds element starts to creep in, combining wealth and asset management.” She continues: “Jersey has a commitment to building a reputation for sustainable finance on a sustainable island. We want to be one of the leaders in terms of being a green island.” These arguments and viewpoints paint a solid picture of the Channel Islands’ ongoing appeal for City partners. But what core message should they be reiterating to their City counterparts? Burgess is concise in his view: “The message is that Guernsey and Jersey are open for business and they are easy to do business with.” Reguengo adds: “We want to be seen as a supportive, collaborative partner – people you can talk to and work with, and be on the same wavelength. Our USP is the ‘G’ in ESG. We do governance and we have high-quality human capital here.” Meanwhile, Mundy re-emphasises the continuing symbiosis between the islands and the City. “Throughout the past 18 months, it feels like the islands and the City have continued to support each other more than before. Be it Brexit or Covid, the reliance both ways is still there and the relationships seem to have strengthened during a difficult period.”