In the wake of the credit crunch, private equity fundraising remains difficult but the sector is showing signs of recovery, according to Michel Davy, the new Guernsey managing director of private equity administration specialist Ipes.
“The number of funds in the market has increased and limited partners are once again looking to invest,” Davy says. “However, they remain cautious, which continues to put pressure on general partners during the fundraising process.”
Increasing private equity business is good news for Guernsey, where the sector represents a significant proportion of the local fund activity. The island’s overall tally of assets under administration has grown for the past five quarters and Ipes Guernsey is seeing a steady stream of enquiries, according to Davy.
“Guernsey has traditionally been the seat of the private equity asset class in the Channel Islands and has a track record of innovation in the fund industry,” he says. “This remains important as the island sees more competition from jurisdictions such as Jersey, Luxembourg and Malta.
“Jersey is also starting to see more private equity business because of its better transport links with the UK and Europe and rising expertise in the sector.”
Davy believes that the finalisation of the European Union’s Alternative Investment Fund Managers Directive in November is another favourable development for Guernsey.
“The contentious issues around third-country rules were key for Guernsey and other offshore jurisdictions,” he says. “After much political lobbying, the preservation of private placement regimes [for at least five years after the directive comes into force in 2013] and the creation of a passport for marketing into the EU is good news for the island.
“While there is a lot more to distil from the directive in terms of level two guidelines and rules, for Guernsey the perspective is business as usual.”
However, Davy insists that promotion of the jurisdiction remains necessary to reinforce the message and attract follow-on fund business from the island’s existing client network. “We will be on the road from now onward, discussing with our clients and intermediaries their options for the next fund,” he says.
The appointment of Davy as managing director for Ipes in Guernsey, alongside Andrew Whittaker in London and Nigel Strachan in Jersey, illustrates the firm’s drive to develop each of its operations.
Davy says his ambition is to expand the Guernsey business as much as possible while maintaining a client-focused approach. “We see funds of funds as a growth area,” he says. “As a member of the Channel Islands Stock Exchange, closed-ended listed funds is another area we are really keen to develop.”
Established in Guernsey in 1998, Ipes now also has offices in Jersey, London and Luxembourg, each headed by a locally-based managing director. The group currently employs 120 staff and manages more than USD37bn in assets.
Guernsey’s closed-ended fund sector enjoyed asset growth of GBP11.9bn (12.7 per cent) in the third quarter of 2010 and of GBP24.8bn (30.6 per cent) since the end of September 2009 to reach a total of GBP105.9bn, according to the Guernsey Financial Services Commission.
With Guernsey-domiciled open-ended fund assets growing by a much more restrained GBP0.2bn (0.4 per cent) over the quarter and GBP2bn (3.9 per cent) over the 12 months to the end of September to reach GBP53.5bn, closed-ended funds accounted for the lion’s share of the industry’s overall growth of GBP18.9bn (8.4 per cent) in the third quarter.
The other main source of growth was the provision of some element of management, administration or custody services for funds domiciled in other jurisdictions, the assets of which grew by GBP6.8bn (8.8 per cent) in the third quarter and by GBP34.8bn (71.2 per cent) over 12 months.
According to the regulator, the significant increase in the size of this business over the past year stems from a large number of non-Guernsey funds that contracted service level agreements with local licensees during the second quarter of last year.
