In the past decade, Guernsey has established its reputation as the destination of choice for non-UK incorporated companies listing on the Main Market of the London Stock Exchange (LSE) and on the Alternative Investment Market (AIM).
According to figures published by Guernsey Finance, at the end of 2016 there were 124 Guernsey-incorporated entities on the LSE, with around three quarters of those listed on the Main Market.
By comparison, Jersey, which is the second most popular overseas jurisdiction for LSE listings, was at that time home to 82 London-listed entities, followed by Ireland with 51, the Isle of Man with 44, and the British Virgin Islands with 39.
Guernsey is now recognised as the leading offshore jurisdiction for investment funds listing on the London markets and choosing not to incorporate in the UK, and London boasts one of the largest and most actively traded closed-end funds markets in the world. Guernsey entities that listed in 2016 included Hadrian’s Wall Secured Investments, the first investment company to list on the LSE’s Main Market in 2016; and VinaCapital Vietnam Opportunity Fund, which last year moved from the Cayman Islands to Guernsey and from AIM to the premium segment of the Main Market. Overall, Guernsey is home to 91 non-UK companies listed on the Main Market of the LSE, and to 33 entities listed on AIM. It is also the market leader for non-UK investment funds listed on the LSE, and is benefitting from a boom in funds choosing to list in London. In July, the LSE announced record fund listings in the first half of this year, with listed funds and real estate investment trusts (REITs) raising £5 billion of initial and follow-on capital.
There were nine fund initial public offerings (IPOs) in the first half, a five-fold increase on the same period in 2016, and LSE noted the increasing diversity of funds choosing its markets – from microcap funds supporting SMEs, to real estate funds focusing on social housing and student property, and life sciences debt funds.
Because the use of Guernsey as a jurisdiction to incorporate London-listed investment funds has become such a well-trodden path, local service providers have built up significant experience and expertise in the sector in recent years. Guernsey is home to globally recognised administrators, the Big Four accountancy firms have large offices on the island, and all the principal local law firms have specialists with expertise in the London listed investment fund sector.
The island is also home to funds expertise that includes a bank of willing and capable potential non-executive directors who understand the products, which is of growing significance as businesses seek to demonstrate substance by sourcing the majority, if not all, of their directors from the island community. Fund administrators in Guernsey offer a broad range of services to listed funds including assistance with listing, structuring, incorporation, setup and ongoing administration of the structure, as well as providing accounting, reporting and company secretarial services.
Guernsey is politically stable, and its government does not have political parties, which means the island is not prone to pendulum swings in regime or policy as might be seen elsewhere. The Guernsey regulator, the Guernsey Financial Services Commission, is also generally perceived to be robust yet pragmatic, and is renowned for being approachable and accessible, encouraging face-to-face meetings to discuss new ideas. The island’s state-of the-art company registry (the Guernsey Registry) is also recognised for offering an efficient service, with 24-hour company incorporations available for a fee of £100.
One of Guernsey’s greatest benefits for non-UK entities seeking to list in London is of course proximity, with regular flights to and from the capital’s airports daily. Being outside the EU is also helpful, as UK equivalent funds have experienced long Alternative Investment Fund Manager approval times under the Financial Conduct Authority, which has held up several new funds looking to launch. The national private placement regime is working well and is still the favoured option for marketing into certain jurisdictions among UK advisers. Setting up offshore typically means lower ongoing costs compared to the UK, where overheads are naturally higher and additional service providers, such as depositaries, are required.
Robust Regulatory Framework
A paramount concern for investment funds incorporating offshore is the credibility of the jurisdiction in which they choose to operate. Investment funds listing on the premium segment of the LSE are generally keen to comply with the UK’s highest standards of regulation and corporate governance, as this attracts a broader range of investors as a result of greater transparency and additional protections, and so it is vital that they incorporate in a well-regulated international finance centre.
Guernsey has consistently been recognised globally as a properly regulated and compliant jurisdiction. It was in the first wave of countries placed on the ‘white list’ by the Organisation for Economic Cooperation and Development (OECD) in 2009, and has since been commended by the International Monetary Fund (IMF) for its high standards of financial regulation, supervision, justice and stability.
In 2016, MONEYVAL, the monitoring mechanism of the Council of Europe, judged Guernsey to be largely compliant with 48 out of 49 of the Financial Action Task Force (FATF) recommendations, which set out a comprehensive framework that countries should implement to combat money laundering and terrorist financing. Guernsey’s ranking was the highest of any jurisdiction so far assessed.
Commercially Forward Thinking
The corporate law regime in Guernsey is similar to the equivalent UK legal regime, but also offers extra flexibility. For example, there is no ongoing requirement to meet the onerous conditions of the UK Investment Trust regime, which means only a simple solvency test needs to be met before a dividend is declared, and that can be paid from any account or source.
Similarly, companies are able to redeem shares and give investors capital treatment for UK tax purposes, as well as make buybacks directly and not through a market maker. Finally, unlike the UK Companies Act 2006, there is no requirement under Guernsey law to pay a dividend by reference to a set of audited or interim accounts, which has proven to be challenging for UK investment trusts targeting an income yield in the first year of operation.
Ten years ago, the majority of funds that listed on the LSE were vehicles focused on investing in listed equities, and it rarely made sense to set up in a jurisdiction other than the UK. Since then, a growing component of investment fund issuance has come from alternative asset classes such as real estate, credit or infrastructure.
In 2016, there were 23 non-UK listings on the Main Market of the LSE, and more than a third of those involved Guernsey incorporated companies. In all, eight of the 2016 listings came from Guernsey, three from Jersey, two each from the BVI and Egypt, and the remainder from a wide array of jurisdictions. The largest Guernsey company to list on the Main Market last year was Market Tech Holding, a real estate holding and development investment fund, which listed with a market cap of £654 million.
Over time, Guernsey has built up extraordinary expertise in providing services to listed investment funds, with one of the most significant deals taking place in November 2010, when our team advised on the listing of John Laing Infrastructure Fund, which now has a market cap of £1.17 billion. As alternative fundraising continues to increase, and as successful funds continue to attract investor demand and issue shares, Guernsey looks well positioned to continue operating as the destination of choice for companies seeking to list on the LSE via a non-UK jurisdiction.
Ian Smith Client Director at Estera Adminstration (Guernsey) Limited. He is also a Chartered Member of the Charter Institute for Securities and Investments.