Despite a difficult past 12 months for the private equity industry in Guernsey, characterised as elsewhere by depressed transaction volumes and limited capital-raising for new funds, there are sign
Despite a difficult past 12 months for the private equity industry in Guernsey, characterised as elsewhere by depressed transaction volumes and limited capital-raising for new funds, there are signs aplenty that the island remains in favour with private equity houses thanks to its long track record and experienced staff, and that it will be a prime beneficiary once the recovery gathers full pace.
While uncertainties remain over the eventual shape of the European Union’s Directive on Alternative Investment Fund Managers, there is every reason to believe that Guernsey’s commitment to the highest standards of regulation and its embrace of the transparency required of alternative investments in today’s environment will enable it to meet whatever requirements the EU asks of third-party jurisdictions.
The island’s willingness to co-operate with other countries on issues such as the exchange of tax information was recognised in April when the Organization for Economic Co-operation and Development placed it immediately on its ‘white list’ of jurisdictions that had both accepted and were implementing internationally agreed standards, an assessment that left other financial centres both inside and outside the OECD scrambling to catch up.
The high standards embodied by Guernsey have helped it to continue to attract business even in the downbeat market, especially among promoters that have taken the opportunity to launch innovative products that capitalise on new ideas. Funds established in the island in recent months include vehicles investing in litigation funding, the media, sustainable and renewable technologies and timber, as well as a range of globally diverse infrastructure funds. In particular, the growth of environment-oriented investments are encouraging the development of expertise in an area that enjoys especially good prospects for long-term growth.
The jurisdiction’s reputation for expertise has also made it a jurisdiction of choice for new private equity firms, in many cases spin-outs from well-established groups. Attracting financing and capital from investors is taking longer than in the past, but the level of new enquiries being received by Guernsey firms indicates that many fund promoters are looking to the longer term by preparing vehicles for launch as soon as conditions are propitious.
Firms with strong track records are optimistic about prospects in an industry where horizons are traditionally long-term, reaching beyond temporary fluctuations in the economic environment and market sentiment. For example, Mourant was recently involved in the establishment of PPF Partners, a joint venture between Generali and PPF that envisages raising as much as EUR5bn over the next three to five years.
The tricky market environment has encouraged a flight to quality in terms of service providers. Leading firms have been able to maintain their business levels and have also enjoyed greater stability in their workforce. The island’s administrators have long-term clients and long-term business structures, and will continue to thrive even if fee levels are under greater pressure than in the past.
For years Guernsey has attracted leading European private equity houses such as Alchemy, Terra Firma, Apax, EQT and Permira, which in recent years have been joined by top US firms including KKR and Apollo. The fact that this blue-chip client base is drawn to the island’s experience and expertise offers the best assurance of its long-term future as a private equity centre as the industry regains traction globally.
Darren Bacon is head of the Guernsey office of Mourant du Feu & Jeune
