As published on internationalinvestment.net, Wednesday October 3, 2019.
Meeting European and OECD economic substance requirements has given Guernsey's investment funds industry a competitive edge, as rival financial centres are still waiting to be white-listed.
Panel speakers at the Funds Masterclass, a Guernsey Finance event in London, said that achieving substance had become an increasingly important issue in jurisdictional choice for general and limited partners, and that Guernsey was now more strongly positioned in the market.
Frank Ochsenfeld, partner at Coller Capital, said that it was crucial for Guernsey to have "embraced this issue head on". The substance principles adopted by the island offered "practical guidance and certainty" for both managers and investors, he said.
"Substance is clearly becoming a differentiator in the market".
Christopher Crozier, chief risk officer and managing director at Permira, said the private equity firm had already taken significant steps to developing substance through the EU's AIFMD process earlier in the decade.
"A Guernsey licensee will have quite good substance already - it is very hard to object to the principles - and we have always operated in a way which focused our decision-making in Guernsey and will continue to do so.
"Much of this is just about being able to demonstrate that you are doing what you should be doing, and, in our case, what we've told our investors we're going to do," he added.
Elena Rowlands, tax partner at Travers Smith, who specialises in the taxation of investment funds, highlighted the strength of Guernsey infrastructure, particularly for the private equity sector.
She described the Guernsey substance rules as "really helpful" and said it was a "huge advantage" for Guernsey to have secured a white-listing from Europe.
The net asset value of total funds under management and administration stood at £295.9bn at the end of June 2019, a 7.1% rise over the past year, and the island's private equity industry has some 400 funds, with a NAV of more than £120bn.
Guernsey Finance chief executive Dominic Wheatley said: "Economic substance has emerged in the past year or so as a key industry issue. Guernsey's history of developing genuine substance over the years has served us well - we were able to quickly adapt to the new environment and readily meet new global standards.
"Substance is clearly becoming a differentiator in the market, which is now positioning Guernsey at a significant advantage over many of our competitors.
"We are seeing that firms and managers are increasingly looking to jurisdictions which can and have met the new global standards, which is just another reason to select Guernsey for investment funds."