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If you think Guernsey is just another “tax haven” then think again. This offshore jurisdiction has carved out its own unique niche based on stability, professionalism, and financial prudence. It’s a winning formula that is becoming increasingly hard to ignore.
If you’re looking to invest in offshore funds you’re probably struggling with several questions. Is it safe to keep my money here? How easy is the investment process? Do they provide tax reporting for my home country? Why should I invest here? Understandably, these are all pressing questions for a prospective investor.
When it comes to due diligence, perhaps one of the best signs of a well-regarded jurisdiction is that it does lots of business with other jurisdictions. On this count, Guernsey ticks a lot of boxes.
Part of the island group known as the Channel Islands, Guernsey is a well-established offshore financial hub. Having chosen to leave its mark in fund management and related industries such as trust management, its finance industry today has £270 billion of funds under management and administration.
Alongside the 1,400+ investment entities, Guernsey is also home to 30 international banks, 850+ insurance entities, and 150+ trust companies. Today, the finance sector and its ancillaries such as legal and accounting services make up no less than 44% of the island’s GDP (Gross Domestic Product) – which only fell by 3% in real terms during 2020, highlighting a resilient economic performance amidst the pandemic.
So why is Guernsey such an attractive place to do business and to invest? Two words: safety and competence.
Guernsey has a track record of innovation and professionalism, and tends to be ahead of the curve when it comes to introducing new services and products for which it believes it can carve out a niche.
Readers may be surprised to learn that Guernsey is home to The International Stock Exchange (TISE), which boasts more than 3,000 listed securities from around 1,700 issuers with a combined market capitalisation of more than £450 billion – that’s around 136 times the value of Guernsey’s GDP.
As the name and market capitalisation suggest, TISE caters to a wide range of international issuers, but it has been particularly successful in attracting high-yield corporate bond listings. In fact, TISE accounted for 30% of all European high-yield bond issues ($25.65 billion) in 2018, from next to none just a few years earlier.
While Guernsey’s common-sense regulatory regime was indeed a factor in attracting this business, successes like this would be impossible without the right local talent pool. Guernsey already had a debt market, but the depth of expertise now available in this area is generally accepted to be unmatched anywhere in Europe.
Unsurprisingly, given the significant levels of funds under management and administration, Guernsey hosts a plethora of experienced fund service providers, including administrators, auditors and custodians. This creates a virtuous cycle whereby the increase in funds under management drives a further increase in the level of expertise available, which brings in more funds, and so on.
Meanwhile, the island’s excellent levels of stewardship and governance are underpinned by a small army of fund directors who ensure the best levels of oversight, in keeping with international standards. This is a crucial factor that sets the island in good stead for maintaining its position as one of the leading offshore financial centres in Europe.
With Guernsey having attracted a large influx of new residents in the wake of COVID-19, many of whom previously worked in London’s financial services sector, its talent pool is getting larger and looks likely to continue to do so in future.
In addition to hosting some of the best financial and legal expertise, Guernsey offers a political and legal climate that is safe and secure – and, crucially, is backed up by centuries of stability.
Sarnian exceptionalism (Sarnia is the Latin name for Guernsey) stems from a unique historical experience that has resulted in what is best described as a hybrid constitutional arrangement for Guernsey.
The series of events that brought about the current settlement were set in motion in 1066, when Duke William (“the Conqueror” to some, “the Bastard” to others) of Normandy successfully invaded England and established what was essentially a feudal empire in north-western Europe.
But in 1204, King John, one of Duke William’s more infamous descendants, lost Normandy to the French king. The Channel Islands were the only part of the duchy to be retained by the English Crown when England ceded its claim to Normandy in the Treaty of Paris in 1259.
But through one of those strange quirks of history which epitomises the Channel Islands’ unique character, the islanders still to this very day toast the English monarch as “the Queen, our Duke”. They owe allegiance to the English monarch, but not in her capacity as Queen of England – rather, in recognition of her residual claim to the Duchy of Normandy.
As a so-called “Crown Dependency”, the Channel Islands are neither part of the United Kingdom, nor are they a completely independent nation. The islands of Guernsey (with Alderney), Jersey and Sark each have their own parliament, although they rely on the UK for defence and foreign policy.
A crucial difference to the UK when it comes to parliamentary decision-making is that Guernsey’s government is made up of independent members who are all locally elected, which means party politics doesn’t frustrate legislation, which is based primarily on a utilitarian approach. Decisions are taken solely in the best interests of the island – and with the island’s economy hugely reliant on its financial services sector, it is abundantly clear where those interests lie.
The fact that Guernsey’s constitutional and legal systems have evolved over many centuries – just like those of the UK – means that the rule of law and the protection of property rights have been established for centuries. This brings great attractions for businesses and individuals looking for a friendly jurisdiction in which to do business and to hold wealth. It also brings with it the peace of mind that investors won’t be subjected to any punitive or arbitrary actions that might affect other jurisdictions where these principles are less well established.
Anyone looking to do business in Guernsey will quickly discover that it benefits from some rather obvious but nevertheless crucial practical advantages.
Firstly, as you might expect, the island is English-speaking and is used to conducting business with all manner of overseas jurisdictions. It also sits in the Greenwich Mean Time (GMT) time zone, which conveniently puts it in between the US and Far Eastern time zones.
Geographically, Guernsey is easily accessible from continental Europe and the UK mainland, being just a short flight from Europe’s financial centre, the City of London. With this in mind, there’s nothing stopping you from making a visit to the island and conducting your business in person, if that’s your thing.
Less obvious perhaps is the fact that Guernsey-based funds are open to business to investors from more than 100 jurisdictions internationally, which means our products at Sarnia Asset Management are accessible to 80 percent of the world’s investible wealth. If you’re based in the UK, the US, or the EU, that probably includes you.
The growing attractions of Guernsey stand in stark contrast to the diminishing allure of rival competing jurisdictions.
The G7 and OECD are currently putting a lot of effort into cracking down on jurisdictions that offer so-called “post box” companies, otherwise known as “shell” companies. Malta was on the receiving end of this campaign in June 2021, after it was put on a grey list by the world’s money laundering and terrorist financing watchdog (FATF). Similarly, the Cayman Islands were briefly blacklisted by the EU last year.
The Caymans are an interesting example in that they illustrate the deep-seated structural problems inherent in many competing offshore jurisdictions. Although the Caymans have been removed from the EU’s blacklist (for now at least), investors are nevertheless confronted with a volatile political backdrop with a multi-party system that has created division and instability.
Moreover, the Caymans have a direct political relationship with the United Kingdom by virtue of their status as a British Overseas Territory, which brings them under greater scrutiny from the UK Parliament. As such, we believe the Caymans are likely to see their relative international appeal decline over time, as punitive moves against non-compliant jurisdictions increase in frequency.
And let’s be clear. Such actions are more than a slap on the wrist: they have real consequences for clients who may find that banks in some jurisdictions will no longer accept bank transfers. In future, this could potentially leave clients’ wealth effectively stranded in these jurisdictions.
This combination of hard restrictions, reputational damage and political manoeuvring is making it harder to use what is conventionally known as a “tax haven”. Increasingly, clients or businesses with assets in jurisdictions that find themselves black- or grey-listed by FATF, the EU, the OECD or other supranational body encounter a situation where it is difficult to do business with the rest of the world.
Clearly, it is no good having assets somewhere if you can’t get hold of the money when you need it. The result is that investors and businesses are becoming much more selective in terms of which jurisdiction they choose to do business with or keep their wealth.
Guernsey sits on the OECD White List (and has been so since this list was first created in 2009), meaning that it adheres to very high standards of financial conduct and transparency. This even makes it attractive to high-profile blue-chip names such as Netflix and Blackstone, both of whom recently opted for a TISE listing for their European bonds. It’s also a major draw for the growing cohort of international investors and family offices on the island.
Guernsey has long cultivated a clear and transparent tax system. Future-proofing Guernsey’s international position is a major priority for policymakers, with the island having adopted a policy of being fully compliant with international standards as they develop.
With this in mind, Guernsey was the obvious choice for Sarnia Asset Management when it came to deciding where to locate our business. We work with discerning, experienced high-net-worth individuals who prefer to have products designed solely around their needs and preferences. For example, our products are built for high performance, which requires levels of portfolio concentration that would be off-limits to funds based in the EU or the UK.
Luckily for us (and our clients!), the Guernsey Financial Services Commission (GFSC), Guernsey’s financial regulator, has adopted an approach that prioritises the development of unique products that cater to the needs of the client rather than the diktats of politicians and bureaucrats.
It is this unique mix of a robust but pragmatic regulatory environment and deep financial expertise, underpinned by centuries of stability and adherence to the principles that promote a vibrant market economy, that puts Guernsey at the top of investors’ lists when it comes to offshore funds.
This is why we at Sarnia Asset Management believe Guernsey is integral to our offering to clients. If you’d like to learn more, we’d love to continue the conversation in person.
Disclaimer: This blog is intended for informational purposes only. This blog is not intended to invite, induce or encourage any persons to engage in any investment activities and is not a solicitation or an offer to buy or sell any stock, investment product or other financial instruments. If in doubt, please seek financial advice from an independent financial adviser. Sarnia Asset Management is licensed by the Guernsey Financial Services Commission (GFSC). Past performance is not an indication of future returns. Investments carry risk, including the risk that you will not recover the sum that you invested.
By James Faulkner
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