BL Magazine Issue 47 November/December 2016 by BL Magazine

BL MAGAZINE

ISSUE 47 NOVEMBER/DECEMBER 2016

The funds Edition 2016 The Bluffer’s Guide to Channel Island funds Fighting for funds business • ManCos Property funds • Boutique managers Stress testing funds • Debt markets

Hail the rise of

Generation

ISSUE 47 NOVEMBER/DECEMBER 2016

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2 july/august 2015

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Welcome

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When the unexpected hits you between the eyes THIS HAS BEEN a pretty bizarre year, all told. Even the late, great Cilla Black would have been massively understating some of the events of 2016 by calling them merely a ‘surprise’. And there could be more to come yet. As I write this, we are less than a fortnight away from the US presidential election. By the time you read it, either America will have elected its first woman to the highest office in the country, or a man with the least political experience ever to run for the role will have his (rather small) fingers on the big red button. Whichever way the result turns out, it will likely cap a year that few would have predicted on New Year’s Day. The first shock to the system came in April, when 11.5 million documents were leaked in what fast became known as the Panama Papers. Heads rolled at the highest level of business and government, and the media jumped onto one of its favourite hobby horses – labelling all tax dodgers worse than pond scum and accusing all offshore centres of being the root of all evil and facilitating financial crime. As is par for the course in such cases, Guernsey and Jersey got lumped in with the likes of Panama and other opaque jurisdictions, despite there being minimal evidence in the Papers of Channel Island involvement. As more tales of ‘wrongdoing’ were gradually drip-fed to a salivating press – although there seemed to be few instances of any illegality in the leaked documents – the Channel Islands were forced, yet again, to fight their corner and explain how they were different to less well regulated offshore centres. And just when you thought all the brouhaha was over, there were further revelations later in the year, when details of more than 175,000 companies in the Bahamas were published online in September. They revealed the names of politicians, businesspeople and a former European Commissioner whose previous job was to hound big corporations into adhering to EU rules. Sandwiched in between these two startling events was the not-insignificant matter of the UK’s referendum in June on whether or not to stay in the European Union. At the start of the year, the vast majority of pundits, and indeed most of the polls, were pointing to the fact that ‘Brexit’ couldn’t possibly happen. But as the months wore on, and the Leave campaign continued to make promises which, after that fact, would have people screaming ‘Liar, liar, pants on fire’, it seemed that the referendum was going to be a lot closer than many could have possibly predicted.

I know I wasn’t alone in feeling absolute dread when the result from Sunderland came in early in the morning on 24 June. The unexpected looked like it was going to happen; and – to trot out a whopping great cliché – the rest, as they say, is history. But that, of course, is oversimplifying the matter, because while the UK has voted to leave, the process to make it happen hasn’t actually started yet. And despite promises from Prime Minister Theresa May – something else no one would have predicted in January – that Article 50 will be triggered early in 2017, there is still no guarantee that is going to happen, taking into account the threat of a legal challenge and all sorts of chicanery. Which brings us back to events in the US. In the run-up to the presidential election, Brexit was vigorously waved in the face of those voters who argued that Donald Trump couldn’t possibly make it to the White House – so there was no need to turn out and vote. If you’re reading this and a Putin-loving egomaniac with Shredded Wheat for hair is preparing to take his place in the White House, then I suspect the message didn’t hit home. I, for one, would like to get through the rest of 2016 without any more surprises, thank you very much. n

I’d like to get through the rest of 2016 with no more surprises

Nick Kirby, Editor-in-Chief, BL magazine

www.blglobal.co.uk november/december 2016 3

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Contents

INSIDE

BL guernsey guernsey challenge threatens tax information agreement

uernsey’s Court of Appeal is to consider for the first time whether a decision by the island’s Director of Income Tax to approve a foreign tax authority’s request for information gathered from a Guernsey financial institution could be subject to judicial review. If it is open to review, the Court of Appeal will consider whether the decision by the Director of Income Tax to issue a notice to a Guernsey financial institution – following a request from the Indian tax authorities under a Tax Information Exchange Agreement (TIEA) – was valid. The Court of Appeal hearing, which will be held later this year, could pave the way for an apparently valid notice issued by the Director of Income Tax to be subsequently struck down by the courts. Under the Income Tax Law in Guernsey, the Director of Income Tax has the power to issue a notice for the production of documents and information where there is a request from a foreign tax authority that meets the criteria of a TIEA between Guernsey and that foreign country. There is a right of appeal against the issue of a notice. However, at a hearing of the Royal Court of Guernsey that took place in October, the presiding judge decided that the right of appeal wasn’t available in this case as the taxpayer,

whose affairs were being investigated by the foreign tax authority wasn’t the recipient of the notice. The Royal Court further refused permission for judicial review on the grounds that the Director’s decision is taken pursuant to a binding international agreement. As such, it isn’t subject to judicial review by the courts. In any event, the judge said that the taxpayer has an alternative remedy – namely to challenge the issue of the request by the tax authorities of India in his home jurisdiction. At a sitting by the Bailiff as a single judge of the Court of Appeal the following day, the Bailiff granted the taxpayer leave to appeal the decision of the Royal Court regarding whether the issue of the notice is open to judicial review. But he refused an application to stay the operation of the notice. As a result, the recipient of the notice was still obliged to comply with the notice within the required time frame. However, the Bailiff granted an injunction preventing the Director of Income Tax from transmitting documents and information provided by the financial institution in compliance with the notice to the Indian tax authorities, pending the outcome of the appeal. n

Aurigny to post £4.6 million losses

uernsey’s Aurigny airline is set to make losses of £4.6 million this year despite having 15 years of debts written off, according to a report on the BBC website. The figures are considerably in excess of previous figures that put Aurigny’s loss at £1.5 million in 2016 and 2017. Rising maintenance costs of £1.4 million were partly to blame for a £3.1 million overspend, according to the latest accounts. Guernsey Deputy Gavin St Pier, speaking to the BBC, described the figures as “clearly disappointing”. “They have deteriorated so

significantly and so quickly from those which were presented to the States really quite recently,” he said. “The reality is that Aurigny is a subscale operation operating a mixed fleet with a limited network,” he continued. “It would not be commercially viable in almost any other circumstances. “It is a small operation having to cope with a significant number of challenges, and only a slight variation from plan can have a significant effect on the bottom line. And that’s exactly what we’ve seen.” n

Survey points to passport benefits

Startup Guernsey launches support programme

ranting Guernsey a third-country passport under the Alternative Investment Fund Managers Directive (AIFMD) would lead to more investment in European infrastructure projects, research by the island’s finance regulator has found. The Guernsey Financial Services Commission (GFSC) surveyed Guernsey fund administration companies in response to a request from the European Securities and Markets Authority (ESMA) to assess the impact of extending an EU AIFMD passport to Guernsey. The request, made before ESMA published its non-EU AIFMD passport review findings, asked for an evaluation of the ‘expected inflow of funds by size and type into the EU’ from Guernsey if the passport were granted. From an industry-wide perspective, the GFSC survey projected there would be a 12 per cent increase in the number of Guernsey funds launched on an annual basis, with an accompanying 21 per cent increase in the scale of capital being raised. Given the typical share of EU investments in Guernsey funds, the GFSC forecast a 27 per cent increase in investment into EU assets generally and a 40 per cent increase in investment into infrastructure assets over five years if a passport were granted. The research took place prior to the UK’s Brexit vote on 23 June. The GFSC has since gone back to the firms surveyed to ascertain their initial views on the impact of Brexit on a passport extension. Dr Andy Sloan, Director of Financial Stability at the GFSC, said that while it was too early to be definitive, the consensus was that extending the passport would have an increased positive impact. “Given that Guernsey is already a third country, its attractiveness as a jurisdiction would increase due to the stability and security its unchanged status affords. The same funds would be able to be marketed in parallel into the EU and UK,” he said. n • Passport expectations – benefits of granting Guernsey an AIFMD passport, which contains the GFSC survey, is at www.weareguernsey.com

89 november/december 2016

BL MAGAZINE

BL is published six times a year by Chameleon Group +44 1534 615886 www.blglobal.co.uk

CEO, CHAMELEON GROUP Carl Methven carl.methven@blglobal.co.uk EDITOR-IN-CHIEF Nick Kirby nick.kirby@blglobal.co.uk ART DIRECTOR Angela Lyons SUB EDITOR Kate Wheal ADVERTISING sales@blglobal.co.uk NEWS AND EDITORIAL news@blglobal.co.uk GENERAL ENQUIRIES enquiries@blglobal.co.uk

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7 News

34 stress testing funds

A round-up of the latest Channel Island business news

Is it possible to futureproof funds against shocks to the system?

12 Appointments

39 property funds

Recent key hires for Channel Island firms

Real estate funds are proving more resilient than they used to be

16 Interview Christopher Jehan and Mike Byrne on funds in Guernsey and Jersey

FUNDS 22 the insider view

42 DEBT MARKETS Funds providing lending are fast becoming a growing market

49 boutique funds

Experts talk regulation, real estate, private equity and other funds

Launching your first fund? Then the Channel Islands are the place

26 a bluffer’s guide Want to know about funds in the Channel Islands? This is for you

52 MANCOS Regulation has opened doors for a new breed of management companies

31 FUNDS business

58 funds forum review

How Luxembourg and Dublin are the Channel Islands’ key competitors

A review from BL’s recent Channel Islands Funds Forum

DAVID BURROWS

© Chameleon Group Limited, all rights reserved. Reproduction in whole or in part without written permission is prohibited. Views expressed by our contributors are their own and do not necessarily represent the views or policies of Chameleon Group. While every effort is made to achieve total accuracy, Chameleon Group cannot be held responsible for any errors or omissions.

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he total value o Guernsey has in consecutive qua Guernsey Financial The regulator’s re 2016, the net asset in Guernsey stood a the end of March th For the year endi increased by £27.2b Guernsey Financ “Exchange rate fact but we also saw som “What is equally funds and non-Gue their respective pos Guernsey closed£153.4bn during th for the year since Ju Guernsey open-e £41.3bn, an increas Non-Guernsey sc have some aspect o out in the island – n £4.4bn (9.2 per cen £12.7bn on the sam In total, Guernse investment funds du one open-ended fun The total numbe servicing in Guerns

MoU signed with Abu Dhabi

he Guernsey Financial Services Commission (GFSC) has signed a Memorandum of Understanding with the Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market. The MoU, signed in September by GFSC Director General William Mason and FSRA Chief Executive Officer Richard Teng, is intended to facilitate cooperation on the supervision of cross-border establishments and the exchange of information, as well as to foster best regulatory practice in both jurisdictions. Zoë Cousens, Guernsey Finance’s Middle East representative, said the MoU would aid her work in the region. Based in Dubai for the past year, she acts as the main point of contact for Middle Eastern firms and clients interested in Guernsey. She also acts as a presence in the region for Guernsey service providers looking to further their work there. n

Pic

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The latest financial and business news and views from the bailiwick

opinion 64 hospitality Longueville Manor’s Malcolm Lewis wants respect for his industry

FINANCE 68 ECONOMIC INDICATOrs Why do the experts fail to predict downturns?

73 financial sanctions How the regulators in the Channel Islands deal with financial failings

BL jersey Funding for new initiatives

J Pictured l-r: John Willman, Editorial Consultant (moderator); Senator Philip Ozouf, Assistant Chief Minister at the States of Jersey; Mark Pragnell, Head of Commissioned Projects at Capital Economics; and Geoff Cook, Jersey Finance CEO at the launch of the reports

Jersey’s contribution to UK and EU revealed

ersey Finance launched new research to an audience of business leaders and politicians in London in October, which found that Jersey’s finance industry facilitates almost €190bn of foreign investment into the EU (excluding the UK), supporting in the order of 88,000 jobs across those EU member states. The Jersey Finance-commissioned research, entitled Jersey’s Value to Europe, was published by Capital Economics and launched at an event held in the UK Parliament building. Meanwhile, a separate report from Capital Economics – Jersey’s Value to Britain – was also launched. It builds on previous research undertaken in 2013 to outline the current value of Jersey to the UK. The two reports are aimed at providing a comprehensive and up-to-date assessment of the impact of Jersey’s finance industry to the UK and the rest of the EU. Key points from the reports include: ● Jersey is a conduit for €188bn of foreign investment into the European Union (excluding the UK), which is equivalent to four per cent of the bloc’s total net international investment. ● Around one third of all fund assets administered and managed in Jersey are located in EU countries other than the UK. ● Jersey is estimated to be a conduit for almost £500bn of foreign investment into the UK, equivalent to five per cent of the total stock of foreign owned assets in the country. ● Jersey supports an estimated 250,000 British jobs, of which 190,000 are from foreign investment alone, and adds £14bn to the UK economy. ● Jersey banks upstream £89bn of deposits to UK banks, providing 1.5 per cent of the funding of the whole UK banking sector. The research also emphasises that, whilst the UK and the EU are core markets for Jersey, a focus on global markets is vital for Jersey’s future success. It found that, globally, cross-border lending and borrowing by banks has risen from just over US$1 trillion in 1980 to US$25 trillion in 2015. Against that backdrop, Jersey is now the custodian of €1.7 trillion of wealth in its banks, trust companies, corporate structures and fund vehicles, with around two-fifths (37 per cent) originating from investors outside of Europe. The two reports can be found on the Jersey Finance website, www.jerseyfinance.je n

ersey’s Treasury Minister, Senator Alan Maclean, has approved growth funding for three initiatives: to develop a governmental Brexit planning unit; to enable the island to respond to new European data protection requirements; and to further develop businesses and skills within the digital sector. These initiatives are the first of a series of projects that have applied to receive funding from the Economic and Productivity Growth Drawdown Provision (EPGDP). The funding is designed to support initiatives aimed at improving and protecting economic growth and increasing Jersey’s productivity. The first allocation (£1.75 million) will ensure the right resources are in place to allow Jersey’s government to understand and deal with issues arising from the UK’s Brexit decision. The Brexit planning unit, established in the Ministry of External Relations, will oversee all Brexit-related activities during the UK’s negotiations with the EU. It will establish and coordinate a working group across all States departments to assess the implications for Jersey and determine the island’s cross-cutting interests in Brexit negotiations. In addition, a range of other work to assess the scale and nature of economic opportunities resulting from the UK’s changed circumstances will also be undertaken. The second allocation (£324,000) will enable Jersey to respond to the introduction in 2018 of the EU’s General Data Protection Regulation. The money will help the Office of the Information Commissioner (OIC) to respond to increased regulatory requirements under the new regime, as well as allowing government to seek to identify alternative funding models for the OIC. The third allocation (£107,000) will help to further develop on-island digital businesses and skills. The funds will be used to address an identified shortage in local digital skills, by helping Digital Jersey establish digital skills courses, a digital skills zone and an enhanced co-working space at the Digital Jersey Hub. This first wave of initiatives draws from the £18.5 million that will be used to bolster economic output between 2016 and 2019. n

90 november/december 2016

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90 bl Jersey A review of the biggest business developments and finance news stories

business 76 Groupthink Why brainstorming can be bad for business

80 generation z How will the next gen fit in the world of work?

technology 85 search engines Do we really see what we ask for online?

The Agenda It’s ‘stars and stripes a go-go’ as our lifestyle section heads Stateside in time for Christmas

The BL Global Discussion Forum

Office: Floor One, Liberation Station, Esplanade, St Helier, Jersey JE2 3AS

Funds g yet aga

88 bl guernsey

contributors

tartup Guernsey has launched a programme of drop-in sessions to give those setting up new businesses free advice on marketing, tech, e-commerce, legal, accounting, recruitment and networking. The Let’s Talk weekly drop-in service, held at the Digital Greenhouse, is open to all and provides an opportunity for startups and entrepreneurs to meet experts on an informal one-to-one basis. More than 40 companies have so far signed up to help. The first session took place on 23 September and was attended by marketing specialists from Specsavers optician, creative agency LRD, digital agency Indulge, consultancy Ripple, social media specialist All Things Social and design house the Potting Shed. Let’s Talk sessions on a range of topics will take place throughout the year on either Wednesday lunchtimes or Friday afternoons. More details can be found at www.startup.gg. n

No one can predict the future, but managers are under pressure to make sure their funds are as robust as possible. Finance writer Dave takes a a look at whether you really can ‘stress test’ funds.

BEN JORDAN

He’s not an old boy by any stretch of the imagination, but our business writer Ben definitely developed a few wrinkles when writing about the scary bunch that make up Generation Z.

KIRSTEN MOREL

It was a juggling act this time round for BL regular Kirsten as he reviewed our recent funds forum, got to grips with how funds are using debt, and then took on the sensitive issue of financial sanctions.

DAVE WALLER

BL stalwart Dave took on the challenge of explaining Guernsey and Jersey’s funds industries in layman’s terms, before weighing up the islands’ competition, as well as looking at funds that are starting off.

november/december 2016 5

Report sets out vision for sport

he Jersey Sport Shadow Board (JSSB) has delivered its initial report and recommendations to the Assistant Minister for Economic Development, Tourism, Sport and Culture, Connétable Steve Pallett. The JSSB is advising the Assistant Minister on the creation of Jersey Sp which, in 2017, will take responsibility for the development of sport in th The Sport Report sets out a long-term vision for Jersey Sport, followin consultation among Jersey’s sporting community and informed by interna research. As an organisation that is independent of direct States control, J Sport will play an important advocacy role, affecting and, where necessar challenging public policy, and providing evidence of the value of sport an physical activity in Jersey. The establishment of Jersey Sport follows a Green Paper and consultat process in 2013, during which 64 per cent of respondents from the sporti community expressed a preference for a new body to oversee sport and bring fresh leadership. Connétable Pallett said: "A priority for me will be furthering our work in physical literacy and developing our children’s overall physical and me wellbeing. In creating Jersey Sport as an independent organisation, we wi be providing the new leadership, coordination and direction that the sports community needs." n

Jersey set for tax amnesty

ersey is to introduce a tax amnesty period next year before bringing in measures to clamp down on tax avoiders on the island, according to the States of Jersey's recently released budget statement for 2017. The Treasury and Resources Minister, Senator Alan Maclean, said a “tax disclosure opportunity” would be introduced in 2017. “This will be a one-off opportunity for people to get their tax affairs in order before new data sources, new technology and new legislation make the detection of tax error and evasion easier,” he said. “The disclosure opportunity will run from April to December. After that, new sanctions, penalties and interest charges – which I will ask the Assembly to adopt in Budgets 2018 and 2019 - will begin to apply.” The Jersey government sees dealing with financial crime as a priority. Maclean said: “We are introducing powers to enable the Taxes Office and States Police to collaborate in tackling financial crime.” n

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Collas Crill completes BVI merger Flybe considers flights from Heathrow to islands FLYBE HAS CONFIRMED that it is looking into the feasability of operating flights from Heathrow to both Jersey and Guernsey. Flybe CEO Saad Hammad threw his weight behind Heathrow expansion, saying: “To effectively compete in a post-Brexit environment whilst a third runway is built in the South East, and in light of the new Heathrow plans, Flybe would strongly urge the government to give an expanded Heathrow the green light.” Heathrow has announced expansion plans and wants 25,000 new flights to be in operation by 2021. The proposals include reduced fees for domestic carriers such as Flybe when flying to UK destinations. While the Channel Islands would undoubtedly benefit from a connection to Heathrow, it’s unlikely that any new route would open until the airport is expanded or a third runway is introduced. n

Stenham and Credit Suisse form CI wealth management arm ASSET MANAGEMENT AND private

wealth management group Stenham has set up a new Channel Islands-based investment firm with Swiss bank Credit Suisse. The new firm, Stenham Wealth Management (Stenham WM), will act as an external asset manager for the bank in the Channel Islands and elsewhere. Credit Suisse is ending direct client coverage out of the Channel Islands, so Stenham WM will offer those clients wealth advisory services, including Credit Suisse wealth management products, services and lending solutions.

OFFSHORE LAW FIRM Collas Crill

and British Virgin Islands firm Farara Kerins have announced that they are to merge with effect from 1 January 2017, subject to regulatory approvals. The firm will continue to operate as Collas Crill in its current jurisdictions but will trade as Collas Crill-Farara Kerins for a transitional period in the BVI. The business will then take the name of Collas Crill one year after the merger has completed. The merger will add to Collas Crill’s existing presence in Singapore, Cayman Islands, London, Guernsey and Jersey. The BVI offering will include funds, corporate and dispute resolution work. Collas Crill Group Managing Partner Jason Romer said: “It was a natural step to cement our presence in the Caribbean. Many clients across the world have asked us to have a presence in the BVI, and it allows us to provide a seamless offering across all our jurisdictions.” n

The firm will also offer global custody and transaction services as part of a multi-asset class approach to private client investment management. Four former Credit Suisse investment staff have transferred to Stenham WM. David Baker, previously Head of Credit Suisse’s Jersey office, becomes Managing Director. Allan Stewart, Ian Blackman and Adrian Starr join as Directors, responsible for the investment management and advisory services. Allan and Ian will join David in Jersey while Adrian will be based in Guernsey. n

www.blglobal.co.uk november/december 2016 7

MERGERS AND ACQUISITIONS

Pictured (l-r): Patrick Spiteri (Malta MD), Alasdair Milroy (Guernsey MD) and Bruce Maltwood (Business Development Director)

Sarnia opens Malta office SARNIA YACHTS, ONE of the largest yacht fiduciaries in Europe, has opened a new office in Malta. The company’s headquarters in Guernsey will work with the Malta team to offer yacht operation, ownership and administration services. The new office will establish and administer Maltese companies, handle Maltese flag registrations, offer VAT administration, Maltese leasing and other locally based services for private and commercial yachts. Having a team on the ground in Malta also provides additional support for the many yachts that are required to visit the island. The new office in Floriana, near Grand Harbour, will allow Sarnia to give a personal service to clients and captains during their visits to Malta and ensure that yachts can depart promptly. Patrick Spiteri has been appointed Managing Director of Sarnia Yachts (Malta). Between the two offices, 30 staff provide a diverse and flexible range of services, including yacht administration, VAT management, flag registration, crew employment and payroll and corporate yacht ownership. n

Crestbridge set to manage first Luxembourg RAIF CRESTBRIDGE LUXEMBOURG

will act as manager for the first platform to be launched under Luxembourg’s new reserved alternative investment fund RAIF) regime. Under the regime, the regulatory focus lies with the alternative investment fund manager, rather than each fund requiring approval. This means non-EU managers can quickly set up funds under the pre-authorised manager. Following the approval of the RAIF law in July, the launch of the

8 november/december 2016

first such platform is expected to attract a broad range of asset classes, including private equity, real estate and hedge funds. Daniela Klásen-Martin, Managing Director, Country Head, Crestbridge Luxembourg, said: “Through the platform, we are essentially able to offer a ‘plug and play’ approach. We expect that to be highly attractive to managers, including in the US and Asia, who want a straightforward means of accessing the European market quickly and in a wellregulated environment.” n

Trust and corporate services provider Equiom has acquired Heritage Trust Group, an Asian corporate services provider with offices in Singapore, Hong Kong and the British Virgin Islands. Established in 2002 and led by CEO Angelo Venardos, Heritage provides trust, foundation, fiduciary, corporate and accounting services. A total of 60 staff will join Equiom with immediate effect. The Hong Kong team will move into Equiom’s offices and Heritage will rebrand to Equiom in January 2017. Equiom has also acquired Dubai-based facilitation and advisory services provider Links Group, which operates in the United Arab Emirates and Qatar. LDC, Equiom’s private equity partner, has provided additional funding for the transaction, which is the eighth since LDC invested in the business in 2013. In a busy period, Equiom has also acquired Equation HK, the Hong Kong-based business formerly known as Grant Thornton Corporate Services. The Equation team has moved into Equiom’s new offices in Guangzhou, China. Led by Managing Director Laure Mathieu, Equation was established in 2010 to help individuals and corporations set up in Hong Kong. Channel Islands retailer SandpiperCI has completed negotiations to buy the local portfolio of Costcutter stores. Subject to approval by the competition regulator CICRA, SandpiperCI hopes to conclude the deal, for 16 stores, by the end of November. Sanne is to acquire FLSV Fund Administration Services (FAS) for a total consideration of $65.8 million (£50.7 million). New York-based FAS offers fund administration and reporting services to alternative asset managers, primarily in North America. It has 115 employees – 75 in Manhattan and a further 40 in a support office in Belgrade, Serbia. The acquisition represents an important step for Sanne in establishing a platform to enter the US alternative assets fund administration market. FAS founders and major shareholders Jeffrey Hahn (CEO) and Brenda Grayson (COO) will stay in the business to lead what will be Sanne’s North American arm. The deal is to complete by the end of November. In October, Acorn Mortgages and financial services firm Structura announced their intention to merge on 1 November, subject to regulatory approval. The merged entity will trade as Structura and offer global financing solutions for every asset class, with a focus on real estate, aviation, marine, high-value and classic cars and business finance. It will remain an independent broker and private lending business in Jersey. The Acorn Finance side of the Acorn Group will continue to trade as a separate company and to assist in the development of Structura. n

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News

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News

CISE reports growth and opens up membership THE CHANNEL ISLANDS Securities

Exchange (CISE) reported 229 new listings during the first half of 2016, a rise of 13 per cent on the same period last year. This took the number of listed securities on the Official List to 2,222 at the end of June 2016. CISE CEO Fiona Le Poidevin (pictured) said: “We are seeing greater diversification in the geographical origin of our business. An increasing proportion of new work is coming from further afield and we expect that to continue. “We are also seeing increased diversification in the types of new business – a growing number of companies with equity quoted on the London Stock Exchange are choosing to list convertible debt on the CISE.” The group’s parent company, the Channel Islands Securities Exchange, was admitted to the Official List of the Exchange operated and regulated by its wholly owned subsidiary, the Channel Islands Securities Exchange Authority. The CISE has also revised its membership rules so firms from a wider range of jurisdictions can act as sponsors to listings on the exchange. The rules previously restricted sponsors to entities established in the Channel Islands. Now sponsors can be based in any jurisdiction deemed acceptable to the CISE. n

CORRECTION

In the last edition of BL, we mistakenly printed that Jon Nobes had been appointed as the Manager of Hawksford’s corporate team. In fact, Jon is one of several managers working within a team of 23, and will oversee eight administrators. We are happy to correct this error. n

10 november/december 2016

Done Deals Law firm Appleby and offshore management and administration services firm Estera have advised on the $200 million public offering and listing on the Bermuda Stock Exchange by Waterloo Investment Holdings. BVI-based Waterloo has hospitality, banking and investment interests in the Caribbean and Central America. The legal team was led by Appleby Bermuda Corporate Partner Steven Rees Davies, assisted by Associate Seth Darrell. The listing team was led by Estera Bermuda Associate Director Sherman Taylor, assisted by Account Manager Gordon Cox. Guernsey firms Alter Domus and Carey Olsen have assisted Macquarie Infrastructure and Real Assets (MIRA) in launching its Macquarie European Infrastructure Fund 5 (MEIF5). The fund was oversubscribed and closed with €4bn of investor commitments within eight months of its launch. This is the largest private infrastructure fund raised in Europe in 2016 and takes MIRA global fundraising to US$29bn in the past five years. MEIF5 will focus on transportation, communications and utilities infrastructure investments in Europe, as well as renewable energy. The Carey Olsen team, led by Partner David Crosland, included Senior Associate Jan Johannsson and Associate Colin Calvert. Alter Domus has been appointed as administrator and depositary of the new fund. Outsourced services provider Ipes is providing administration services to European private equity firm OpCapita in the closing of its second fund, OpCapita Consumer Opportunities Fund II. The fund closed at its hard cap of €350 million and attracted strong support from a high-quality, global investor base. Fried Frank and Mourant Ozannes acted as legal council.

Mourant Ozannes’ corporate team has advised LondonMetric Property on its £130 million private placement of blended fixed-rate senior notes with US and UK institutional investors. The Mourant Ozannes team was led by Partner John Rochester, with Senior Associate Alex Davies and Associate Sophie Williams, who advised on the Guernsey aspects of the capital raise, alongside UK Counsel O’Melveny. Mourant Ozannes has also advised Delta Topco, the Jersey parent of the Formula One business, on its proposed sale to Liberty Media Corporation from a consortium of sellers led by CVC Capital Partners. On completion, Liberty Media will own Formula One and it will be attributed to the Liberty Media Group, which will be renamed the Formula One Group. The consideration comprises cash and newly issued shares in the Liberty Media Group tracking stock (LMCK) and a debt instrument exchangeable into shares of LMCK. The transaction price represents an enterprise value for Formula One of $8bn and an equity value of $4.4bn. The Mourant Ozannes team was led by Partner James Hill, Counsel Jon Woolrich and Senior Associate Andrew Salisbury. Corporate service provider Vistra has played a key role in one of the most complex private equity transactions of 2016 – the acquisition of Thomson Reuters’ IP and science business by Baring Private Equity and Onex Partners for $3.55bn. All 64 Vistra offices were involved across 41 distinct jurisdictions, providing integrated corporate secretarial and governance assistance during the transaction. The new company will be rebranded as Clarivate Analytics. It will continue to own and operate a collection of subscriptionbased businesses. n

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Appointments

Deutsche Bank’s Guernsey office has named Daniel O’Driscoll (pictured) as Head of Financial Intermediaries. He will also act as Branch Manager. Daniel joins from Barclays Bank in Guernsey, where he served fund administration clients. Prior to that he worked in banking in London and South Africa, primarily in investments and asset management. In addition, Jayne Wallbridge, Head of Business Operations for the Bank’s Global Trust Solutions Division, has been promoted to Director, having joined the bank as Manager of Client Accounting in 1997 when it was Deutsche Morgan Grenfell.

FTSE 250 merchant bank Close Brothers has appointed Richard Briscoe as Managing Director of Close Finance (CI). Richard brings with him more than 20 years’ experience of consumer and asset finance, most recently as Managing Director of Close Brothers Business Finance. Prior to this, he set up and managed financial services firm Arkle Finance. In his new role, he will be responsible for managing Close Finance’s offices in Jersey and Guernsey, with a focus on growing the company’s loan book across motor, consumer and business to business.

Former Bailiff Sir Geoffrey Rowland QC has become a Director of Bailiwick Investments. Sir Geoffrey comes to the role having served both as a Director of several Guernsey companies and an Advocate, and as Bailiff of the island from 2005 to 2012. He has also held office as Solicitor General and Attorney General. He joins Chairman David Lowe and John Henwood on the board of Bailiwick. Sir Geoffrey replaces Charles Parkinson, who stepped down on 30 September due to potential conflicts of interest, having become President of the States’ Trading Supervisory Board.

Global conservation organisation Durrell has appointed Dr Lesley Dickie as its Chief Executive. Dr Dickie began her career at the Royal Zoological Society of Scotland as a records and zoo keeper at Edinburgh Zoo. After completing field work in Madagascar and finishing a doctorate, she began working at the Zoological Society of London, latterly as Zoo Conservation Programme Manager. From 2008 to 2014, she was Executive Director of the European Association of Zoos and Aquaria in Amsterdam, bringing in strategic changes and launching a research journal and training academy.

JTC Group has recruited Dirk Oppelaar as the new Managing Director of its Geneva office. Dirk will be responsible for the day-to-day running of the company’s Swiss operation and a key figure in the development and implementation of organisational strategy. Dirk qualified as a lawyer and began his career in finance in 1995, working as legal counsel for Benelux Trust (Luxembourg), eventually becoming Managing Director, before moving to advisory firm Maitland Group in 2004. Dirk remained with the company until 2013, moving to its Geneva office a year later as Managing Director. In 2013, he became Partner with Hg Real Estate.

12 november/december 2016

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News

Full Service Support

Financial services provider Crestbridge has made three board promotions. Fiona St-Clair-Bolam (pictured), Head of HR, joins the firm’s Jersey operating company board. Daniela Klasén-Martin, Managing Director of the Luxembourg office, becomes a Director of Crestbridge’s Jersey Management Company (ManCo) board. And Fiona Fauvel, who has served as Head of Compliance for seven years, becomes a Director of the board for Crestbridge’s fund administration business. The promotions follow Paul Windsor’s appointment as Managing Director of its London office.

Specialist insurance broker Rossborough Healthcare International has appointed Richard Clarke as its new Managing Director. Having previously spent more than four years as Manager of Rossborough Healthcare’s Jersey office, Richard has now assumed responsibility for the overall business, as well as continuing with client work. He leads a team of 12 healthcare advisers across Jersey, Guernsey and the Isle of Man. In the past, Richard also spent more than two years working for Channel Islands retailer Sandpiper CI as Commercial Manager.

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Produces ready to submit reports Financial services provider Estera has appointed Ethan Levner to the new role of Group Head of Corporate Development. He will be responsible for leading the company’s growth strategy. Ethan has 15 years of experience in financial services, on the buy and sell side, in Asia, Europe and the US. Before joining Estera, he was Director at AnaCap Financial Partners, a private equity fund focused on European financial services. Prior to this he was Managing Director of JRJ Ventures, a private equity fund focused on European financial and business services, and a Director at UBS Investment Bank.

First Names Group has named David Wild as Chief Risk Officer. Based in the Jersey head office, David will be responsible for all aspects of the risk management framework, including the group’s risk strategy and supporting commercial opportunities. He will sit on the group’s management, audit and risk committees, in addition to joining the board, and will report to Group CEO Mark Pesco. With over 20 years’ experience in financial services, David joins First Names from RBC, where he was Head of Fiduciary Risk Management for Wealth Management – International Fiduciary Services.

Kate Ovenden has joined Bedell Cristin’s Guernsey office as Managing Partner. A corporate, banking and financial services lawyer, Kate started her career in Guernsey, then spent 10 years at City law firm Withers, before returning to the island in 2006 to join Bedell Cristin. Named a Partner in 2010, she has extensive experience advising all types of clients on banking, funds, corporate and commercial matters. Outside work, she serves as a Director of information hub and counselling charity Young People Guernsey. Mark Helyar, Bedell Cristin’s former Guernsey Managing Partner, will stay with the firm in an Of Counsel role, having led the Guernsey office since it opened.

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A BL event

In partnership with:

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life in THE HOT SEAT

Thursday 23 March 2017 The Royal Yacht, Jersey 9am to 1pm 3.5 Hours CPD available DELEGATE RATE: Â£195 (+ 5% GST if applicable) Places can be booked by visiting www.cineds.com or emailing events@blglobal.co.uk

Interview

The funds industries in Jersey and Guernsey are in a fascinating position at the moment. Mike Byrne, Chair of the Jersey Funds Association, and Christopher Jehan, Vice Chairman of the Guernsey Investment Fund Association, explain why that is Words: Nick Kirby Pictures: Glen Perotte

What’s your take on the current state of the funds industry in your island? Mike Byrne: If I look at the Jersey stats for funds under administration, in dollar terms it was $297bn at the end of June 2016. It’s too soon to see any direct impact from Brexit, though changes in foreign exchange rates may have an impact on that number when the latest figures are released. As far as the number of funds goes, I think there will fundamentally be no

change because most of our funds are closed-ended, so they aren’t short-term and volatile in nature. The funds stats show a stable platform, trading up or down $5bn in a quarter with no significant increase or decrease – and it’s been a very stable position over the past three to five years. What I’m seeing at the top end are some of the larger funds managers continuing to raise very large funds, but at the bottom end we’re also seeing a lot of new managers using Jersey as the domicile for their funds. Overall, I’d say we’re in pretty good shape. Christopher Jehan: Looking at the Guernsey investment fund statistics in the year to 30 June 2016, in sterling terms the assets under management increased by £18.7bn – or 10.6 per cent – to £194bn.

Some of this movement may be due to the weaker pound as a result of Brexit, but much of it is growth in the sector, given that the majority of that was prior to the referendum. In general, I’d say business growth has remained steady. The number of funds has reduced slightly over the year – from 816 to 809 – but this indicates that generally the average fund size is increasing. What does Brexit mean for the islands? CJ: We haven’t yet seen a massive impact as a result of Brexit. And I think that even when Article 50 is triggered we won’t see a massive effect. That’s because triggering Article 50 doesn’t really change anything. It’s the end of the negotiation period that’s going to have the biggest impact. The

The

interview 16 november/december 2016

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reason for this is that it will completely change the way that the Channel Islands deal with the UK. It’s going to be a whole new ball game, almost back to the old days where we could have a special relationship between the islands and the UK without the interference of EU directives. I think that the way the islands deal with the UK will change. The way the UK deals with the EU will change. But it’s how it’s going to change that we still have to wait and see. It’s a case of staying on our toes and seeing how things start to play out once things are negotiated. With regard to Guernsey, GIFA has formed a Brexit working group to try to determine what the direction of travel may be, and therefore what we need to lobby for so we can remain in a prime position when dealing with the UK. MB: I’d agree with Christopher in that we haven’t really started seeing the impact of the vote yet. What I hear is that there were some real estate transactions that were cancelled or postponed post-Brexit and then there were some that came about as a result of the sterling decrease, where assets in the UK are looking a lot cheaper for investors who are either euro-based or dollar-based. I think it’s fairly difficult to try and

understand exactly how UK managers will distribute funds going forward. After Article 50 there follows the period of negotiation, which Christopher referred to – but what’s going to happen in that period, and how quickly UK managers can get market access again, is a matter of wait and see. I would expect that, like Swiss managers, they would have market access. It’s just a matter of time. And I think the opportunity for Jersey may come about in that we could provide a measure of certainty for new fund launches that doesn’t exist in that intervening time. Of course, until the UK sorts out its route to market, there’s an opportunity that funds could be placed through the Channel Islands, especially if we have our AIFMD passport. On the matter of AIFMD, the islands have been approved for the third-country passport, so when do you see that being implemented? And what might that mean for the private placement regimes? MB: Jersey did everything it could to put itself in the best possible position with ESMA and the EU with a view to getting third-country recognition – and it’s been a fantastic effort from all those involved

to get us to where we are now. I think the frustrating thing for Jersey is that there is a strong suggestion that the third-country passports will only happen in one wave. So that means we may have to wait for those that haven’t got there yet, such as Cayman, which is disappointing, seeing as we’ve put our house in order before them. The analogy is that although we’re in the boat, the boat isn’t going to sail until it’s full, so we have to wait for the others. And that will take however long it takes, and is outside of our control. In the meantime, we have private placement. The most recent stats I’ve seen from Jersey Finance are that more than 200 funds from Jersey have been distributed via the NPPR [national private placement regime]. So that’s our standard go-tomarket approach and it works. I think there have been strong noises from countries such as Germany that once passporting comes along they’ll turn off the private placement regime. So while it would be ideal for us to have a dual-track approach, I don’t think certain countries are going to allow that – in reality we’re going to have to elect one or the other. CJ: I’d agree that the ideal situation is having both. We’re already in a better situation than Luxembourg, for instance,

Christopher Jehan and Mike Byrne www.blglobal.co.uk november/december 2016 17

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Interview

What other regulation issues are going to have an impact on funds? CJ: The substance element becomes important with BEPS because you look to where the value creation point of the fund is. So it will affect the transfer pricing between the fund management company locally and the investment manager primarily in the UK. So BEPS will have an impact because it will move the transfer pricing in favour of the jurisdiction of the investment manager. Peripheral services around funds may be affected by MiFID II and MiFIR and, of course, we will have whatever the changes become in the UK resulting from Brexit. There are always changes coming, and to be honest we get fixated on the UK and Europe. We’ve seen changes in Switzerland with the Collective Investment Scheme Act, and we’ve seen changes in selling funds into South Africa because of the Collective Investment Scheme Control Act. If we look further afield, there are two passporting regimes up and running in Asia now. We need to be cognisant of what’s happening on our doorstep and also what’s happening globally. Both islands have either introduced new products this year, or are on the verge of doing so. They’ve been seen largely as a response to Luxembourg’s RAIF (reserved alternative investment fund). How important are they going to be for business going forward? CJ: Guernsey’s intention was to get something out and live before Luxembourg did and we actually managed it, with the manager-led product [MLP]. I think we actually came up with something that goes

18 november/december 2016

a step further than the RAIF because we ended up with something that doesn’t just allow simple notification and registration of a new fund, but actually the new general partner of a fund as well. Once a top-level management company is fully regulated by the Commission, the establishment of any subsidiary general partner as well as the fund can be a simple registration. Of course, at the moment this is with the opt-in to the full AIFMD rules, although derogation can be allowed from some of those. But there are certain other items being looked at – for instance, a more international-based version with its own set of prudential regulations. There’s always talk about other potential products in the pipeline, but the MLP was a very innovative piece. MB: From the Jersey side of things, there are two new products on their way – one is the JRAIF and the other is the Very Private Placement Fund. What we continue to do is to be innovative in designing products that the market wants. And this is in no small part down to the fantastic cooperation between the regulator and Jersey Finance and the Jersey Funds Association in designing these products and pulling it all together. Do you accept that these new products are, in reality, going to account for a relatively small amount of business, but it’s still essential you have them? MB: Yes, I think that’s probably right. What this demonstrates is an awareness of the competition. We don’t necessarily want to be seen to be reactive, but we don’t want to lose ground to Luxembourg or to Guernsey’s MLP. It shows that when the market says ‘this is what we’d like to do’, then we can make it happen. CJ: I’d agree that it will account for a small amount of business – certainly to start with. But it’s worth looking at the bigger picture. Jersey has something that always opens the door for discussion – the very private fund. Now the MLP is opening

with the mlp, we actually came up with something that goes a step further than the RAIF Christopher Jehan

similar doors for discussion in Guernsey. Even if that’s not what they end up with, they may end up with something else in our stable of offerings. But it’s important because it’s starting the conversation. Is there anything else you think should be created from a product perspective? CJ: Following the tenor of the MLP, I’d look to a lighter touch regulation type of fund – something where the manager takes all the prudential responsibility on and just notifies the regulator when they are running that type of fund. We see it with other jurisdictions – the BVI incubator fund, for instance. We need something where effectively all the legal work may take months, but when you want to bring it to market you want it within a day or two. You can literally notify the regulator you’re running that fund and the designated manager will take responsibility for ensuring all the requirements are met. Mike, you talked earlier about a number of bodies working more closely – is that more important than ever in the current climate? MB: There are two specific groups I’ve been asked to join. One is the FSAB [Financial Services Advisory Board], where the heads of the different industry bodies – the

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because we can offer out-of-scope, in-scope NPPR and in-scope passporting. However, I imagine that would put us in too good a situation by comparison to the EU jurisdictions, so naturally they are going to want to turn off the private placement if we get passporting. I’m not sure I agree with regard to having to wait for Cayman. Whilst Cayman may well have the legal and regulatory infrastructure, I’d question as to whether or not Cayman fund managers really can show substance. We have managers of real substance in both the Channel Islands. Normally Cayman outsources all the admin, they have a couple of resident directors you may meet once a year, but there are no people on the ground to create substance. To be honest, if we have to wait until Cayman gets the passport, it could be a long wait. My gut feel is that the jurisdictions which are currently at the top of ESMA’s list will be announced to get the passport within the next six months, although full implementation may take up to a year.

E very success st ory con sta n t ada p ti on, ch a nge. A compa ny still will s oon b e

Interview

i s a ta le o f re vi si on a nd th a t sta nds forgo tt en.

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Interview

Jersey Bankers Association, the Jersey Association of Trust Companies, the Law Society, the Jersey Society of Chartered and Certified Accountants, and the Jersey Funds Association – meet with government, the regulator and Jersey Finance to inform the government as to what’s going on. We look at what we’re seeing on the ground, and the challenges faced, be that in terms of licence or regulatory approval or reputation in the market. And that’s a fantastic mechanism for us to engage through. The other is a more specific funds body called the Funds Quadrilateral, where we take pretty much the same constituents but boil them down to funds only. If we look at Mike Jones [Policy Director at the JFSC], for instance, he is very probusiness, he gets the funds landscape, he understands what the issues are. I think there’s always going to be a natural tension between industry and the regulator. We want the door open – they want the door nicely secured. The question is: just how quickly should the revolving door of business turn? And how do we work together to make sure that only the right business comes into the island? I think the tension exists, but it’s a good open dialogue, and funds like the JRAIF prove that. Going back to competition – would you say that Luxembourg and Dublin are the biggest threats right now? CJ: Certainly Luxembourg has stolen a march on both of the islands in that it does sit completely within the EU and has full access to AIFMD and UCITS passports. If final approval is given to both Jersey and Guernsey in the AIFMD passports, that will strengthen our position. We will be able to offer alternative funds products that are completely comparable with that of Luxembourg. MB: Other centres do boast about their growth, but if you look at it on a like-for-like basis with ours, Luxembourg and Dublin are growing from a very low base. Yes, they have EU access which is where we need to attract more. But on alternatives, which is where the Channel Islands are firmly established, they are considerably further behind. CJ: I’d agree with that. There’s nothing really out there that’s giving me sleepless nights. Nothing that we can’t come up with – other than the old chestnut that we can’t play in UCITS. Staffing has been raised as a problem time and again in the islands. Is shortage of top talent in funds an issue? MB: I think it is. There’s no doubt that the funds sector across administration and law could do with more resources. Fund administration is, by its nature, labourintensive and there’s an opportunity for

20 november/december 2016

there’s a natural tension between industry and regulator – We want the door open, they want it nicely secured Mike Byrne

people to transfer from other areas of finance, such as banking. But the response needs to come from those wishing to enter that workforce to skill themselves up. CJ: First, the department of government that deals with population has been working better with industry so that we can get the practitioners we need. But there’s a lot we can do to create our own practitioners from within the island. Certainly over the years, I’ve seen people come into the funds industry from other industries and a recent conversation I’ve had is ‘where’s the route into industry?’. I know there are people who want to get into the industry but perhaps lack the qualifications to do so – so there’s been talk of putting something on the GIFA website to show the route to achieving that. We have the appropriate qualifications available here in Guernsey – we can offer all the exams we want in whatever areas we want. We have the expertise to train the future potential staff ourselves. MB: I agree that fund administration is a business that does very well when you fill from the bottom and get people working through the structure. It would be great if there were more talent available. It’s highquality work and there’s no reason more people shouldn’t be interested in it.

Looking forward to the next 12 months, what are your predictions for the funds industry? CJ: Taking into account the triggering of Brexit and the possibility of getting the AIFMD passport, and when I look at the overseas marketing initiatives currently in place, I’d suggest that in 12 months’ time we will probably be in a better position than we are now. Giving you a ballpark figure, I’d predict a 10 per cent increase in both the number of funds and assets under management. I’d even suggest that might be a conservative number. MB: As long as interest rates remain low – and I can’t see any reason why they won’t – the opportunities that alternative funds provide for performance alpha is very strong. We’re seeing funds being more innovative in the use of leverage to boost investor returns. We’re seeing continued strong interest in the alternatives sectors, with, for instance, nearly $300bn raised globally by private equity funds during 2015. If we ask European allocators what they’re doing they’ll tell us they’re typically ‘re-upping’ their commitments. There’s a lot of confidence going forward. We see a lot of the Jersey administrators consolidating and growing and becoming leaders in what they do. Then look at Sanne’s listing and share price – it reflects confidence in their growth. And take Aztec, they continue to win mandates globally and look to expand into Sweden and other places. The quality of administration in Jersey is creating confidence and that’s allowing private equity investors to come into it and others to buy into the sector. We’re seeing new administrators setting up as well. One or two of the world’s largest are looking to establish a presence in Jersey as it continues to be of interest to investors. This can only be a positive thing in the coming years. n NICK KIRBY is Editor-in-Chief of BL magazine

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Interview

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Quilter Cheviot Limited is registered in England with number 01923571, registered office at One Kingsway, London WC2B 6AN. Quilter Cheviot Limited is a member of the London Stock Exchange, authorised and regulated by the UK Financial Conduct Authority and regulated under the Financial Services (Jersey) Law 1998 by the Jersey Financial Services Commission for the conduct of investment business in Jersey and by the Guernsey Financial Services Commission under the Protection of Investors (Bailiwick of Guernsey) Law 1987 to carry on investment business in the Bailiwick of Guernsey. Accordingly, in some respects the regulatory system that applies will be different from that of the United Kingdom. This document is intended solely for the addressee and may contain confidential or privileged information. If you have received this document in error, please permanently destroy it and do not use, copy or disclose it. The value of investments, and the income from them, can go down as well as up. Investors may not recover what they invest.

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Funds

As this is BLâ&#x20AC;&#x2122;s annual funds issue, we gathered together leading practitioners across the Channel Islands to give their view of various funds sectors and issues in the coming months

Private Equity ALISTAIR HORN, COUNSEL, AND TIM MORGAN, PARTNER, MOURANT OZANNES Established private equity (PE) managers setting out to raise new funds in 2015 and 2016 encountered some of the best conditions they had seen post-credit crunch. Fresh capital enabled such managers to hit or exceed their fundraising targets and generally raise capital more quickly, on average, than at any other time during the course of the past decade. On the other hand, the casualty rate (up to 26 per cent) among small PE firms during the financial crisis, and the downturn that followed, claimed many smaller players, who struggled to deal with increased fixed regulatory, compliance and reporting costs. The success of established houses has, in recent times, therefore created a bifurcation in the fundraising market of haves and have-nots. The Channel Islands have catered for both sides of this divide. We have seen a

22 november/december 2016

The Insider View welcome return to launches of funds by some of the largest European PE managers, while also playing more and more of an important role in facilitating or incubating market access by new managers who are leveraging off the best attributes of the Channel Islands regulatory offering. The significant range of Channel Islands regulatory options has therefore allowed a mixture of established, middle market and new managers to launch funds by availing themselves of products to suit their needs and those of investors. The availability of private and public fund products (and in some cases the ability to switch between these products as structures evolve) coupled with the ability to opt into AIFMD private placement have allowed the Channel Islands to support the diverse requirements of private equity managers incorporating many investment styles, behaviours and objectives. Private equity funds are therefore more scalable and more diverse than ever, manifesting themselves in all manner of structures and with traditional asset classes such as real estate, infrastructure and debt continuing to remain prominent, as well as those with a niche asset focus.

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Funds

Real estate PHILIP HENDY, DIRECTOR, REAL ESTATE SERVICES, JTC GROUP This summer, despite the view of the property profession being in the Remain camp, Brexit became a reality. The following weeks felt post-apocalyptic, with resignations, volatile markets, plunging sterling and dire predictions for the UK economy in general, and property in particular – but with Article 50 still not activated, perhaps the real challenges lie ahead for UK commercial real estate. The City of London’s position as the leading centre of Europe’s financial services is under pressure in a post-Brexit world. The possibility of financial services businesses and allied suppliers relocating to the EU creates concerns over capital values and rental growth for London property. Each property asset class – whether it be offices, warehouses, retail or industrial – is affected by concerns about the UK’s economic growth and the inherent impact on rents and prices. For those regions that benefited from EU investment, this concern is magnified. Now we wait

to see how the Channel Islands will be affected by the UK negotiations and exit from the EU. In March 2016, SDLT relief was given to certain UK structures, while unexpected changes to the tax treaties between the Channel Islands and the UK mean offshore developers of UK real estate will be taxed. As a result, development companies have been redomiciling or becoming UK tax-resident. Hopefully, the change was an anomaly rather than the inception of wholescale alterations to the taxing of commercial property. Post-Brexit, it’s a brave government that adds to the reasons not to invest in the UK for international capital. The OECD Base Erosion and Profit Shifting initiative will affect all funds and structures that use debt to increase investor returns. The maximum 30 per cent rate of interest over EBITDA will capture many real estate investments, which are often highly geared. With interest rates currently at an historic low, the issue will compound if interest rates rise. Guernsey and Jersey received positive news in July on AIFMD passporting into the EU, meaning the islands will be able to market funds into the EU. Given that the UK is still to negotiate its exit terms, this may give the Channel Islands funds industry a competitive advantage. Immediately post-Brexit, the devaluation of sterling means UK real estate is cheaper for overseas investors, to whom Channel Island structures are beneficial. It remains to be seen if this attraction continues or if concerns about the UK economy and the returns from real estate investment prevail, putting pressure on capital values, particularly if rental growth looks limited. Many international investors have concerns about the UK’s recent push for public transparency on beneficial ownership of indigenous companies and real estate. The Channel Islands will remain attractive, their offering of public privacy balanced out by strong regulatory transparency. The result of the US presidential elections is imminent (at the time of writing), so we may well see a flight of capital, with real estate and the Channel Islands well positioned to benefit accordingly. n

Other funds sectors

DAN O’CONNOR, PARTNER, JERSEY, AND BEN MORGAN, PARTNER, GUERNSEY, CAREY OLSEN Whilst many centres are struggling to come to terms with increasing regulation, Jersey’s and Guernsey’s proactive approach to transparency and substance are positioning the islands as sustainable finance centres that have a desire to embrace a variety of alternative asset classes. This includes hedge, infrastructure, debt, technology and fintech as a complement to the islands’ existing strengths in private equity and real estate. There continues to be real confidence in what Jersey and Guernsey have to offer and in their ability to face increasingly high global standards. The scale and accessibility of an independent government allows each island to respond swiftly to industry requirements, combined with a proactive regulator outlook. Jersey continues to take steps to enhance its funds regime through consultation proposals aimed at introducing a very private placement fund guide and a new manager-led Jersey registered alternative investment fund (JRAIF), as well as consolidating the public fund space. In Guernsey, the two big developments on fund regulation and law to have taken place in 2016 were the introduction of the Guernsey manager-led product in May, and consultation on the introduction of a very private fund regime. Interestingly, recent changes to the listing rules of the Channel Islands Securities Exchange have meant that it is able to cater for a wider range of investment vehicles to reflect the evolving nature of the sector and the much wider range of vehicles being used. For hedge funds, the growing focus on governance, substance and reputation has meant the continuing trend of inward migration of fund managers and increasing

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Linked to this has been the flexibility to cater for the shifting priorities of heavyweight investors who are turning to novel ways to invest in the PE space beyond just simply committing to a new fund. The requirement by investors to fill or increase PE allocations means that co-investing alongside managers is continuing to grow in popularity, often through separate accounts. The latter is particularly prevalent in the case of sovereign wealth investors. Continued developments in regulatory policy (covering such areas as Moneyval, ESMA and early adoption of CRS) and investors seeking a greater granularity of information has transformed the compliance infrastructure for funds. Tailored governance and compliance solutions offered by Channel Islands service providers generate the skilled support and robust local substance that managers need at a time when legislative initiatives will continue to be even more pervasive. Since the summer pause, significantly deepened this year by political uncertainty from the UK Brexit vote, there are signs that deal flow activity has increased, reflecting the increasingly global exposure and outlook of the Channel Islands. Continued access to European markets has also been assisted by the July AIFMD assessment from ESMA on Channel Island passporting. Although volatility continues to be a feature of our marketplace, the vital signs for Channel Islands private equity continue to remain healthy in 2016. n

Funds

Regulatory changes staff numbers for existing managers, providing real opportunities to the Channel Islands as substance jurisdictions offering expertise in asset management. The arrival in the islands of the $25bn hedge fund BlueCrest Capital is a great example. Investor demand for certain returns over the long term, coupled with a prolonged period of low interest rates, has meant that Jersey and Guernsey are also seeing considerable infrastructure fund activity, with a particular focus on European assets. Businesses such as 3i Infrastructure, Aviva and GCP Infrastructure have established structures in the Channel Islands, and Macquarie recently structured Europe’s largest infrastructure fund through Guernsey. Furthermore, as a result of the continuing pressures on the traditional lending markets, many private equity and hedge fund firms have established themselves as alternative sources of debt finance. There continues to be a steady stream of debt funds (both private and listed) in the Channel Islands, taking advantage of the range of structuring options available – including businesses such as MezzVest, ICG and Alcentra. The islands have also demonstrated a strong commitment towards developments in the technology and fintech asset classes and we expect to see growth in this area throughout 2017 and beyond. Finally, as AIFMD continues to be one of the biggest regulatory issues for fund professionals, flexibility remains key for alternative asset managers, with Jersey and Guernsey ideally positioned as a result of the private placement access regime and recent ESMA-verified passporting potential as third countries under AIFMD. n

RAIF s and MLP s demonstrate a fresh, pragmatic approach to regulation, something to be excited about

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SOPHIE REGUENGO, SENIOR ASSOCIATE, WALKERS JERSEY, AND STEPHEN OZANNE, SENIOR ASSOCIATE, WALKERS GUERNSEY Funds regulation is not a topic that usually generates excitement. However, recent developments have given the Channel Islands’ funds industry cause for great optimism. Ever since the financial crisis of 2008-09, the trend in Europe and the Channel Islands has been one of increasing regulation, and the regulation of fund managers has been no exception. The EU’s Alternative Investment Fund Managers Directive (AIFMD) has had a major effect on the funds industry throughout Europe and beyond. In order to adapt to the changing European environment, the Channel Islands responded in their usual fashion by introducing gold-plated AIFMDequivalent regimes. While other offshore jurisdictions may have looked on with raised eyebrows asking ‘Are you mad?’, the Channel Islands’ strategy has seemingly paid off. Jersey and Guernsey have recently been endorsed by independent bodies and institutions of the highest standards as leading international finance centres. Most recently, ESMA announced in July that there were ‘no significant obstacles impeding the application of the AIFMD third-country passport to Jersey and Guernsey’. Clearly, the ESMA recommendation represents a huge industry effort in both islands to implement AIFMD-compliant regimes. ESMA’s advice will now be considered by the European Commission, Parliament and Council. There does, however, remain speculation that there could still be considerable delay and uncertainty before the AIFMD third-country passport is introduced for any jurisdiction. It is hoped the European Commission will prioritise the adoption of the third-country passport, as benefits for the EU economies, promoters and investors should follow. If nothing else, increased competition encourages greater choice and efficiencies.

It is possible, of course, that the Channel Islands have over-egged the pudding and that other third countries will be considered for the passport without having raised the regulatory bar for their fund and manager products so high. Only time will tell if the Channel Islands’ approach was correct and proportionate. Meanwhile, they wait patiently with their fingers crossed. Looking ahead, hopefully, AIFMD will be the high-water-mark for the regulation of fund managers targeting professional investors in the EU. Interestingly, a quid pro quo for such a comprehensive regulatory framework is emerging in the form of reserved alternative investment funds (RAIFs) and manager-led products (MLPs), which are either not subject to supervision by local regulators per se, or are otherwise subject to fast-tracked and light-touch approval regimes, provided the RAIF or MLP has an authorised AIFM. Luxembourg was first off the blocks with its RAIFs, with Guernsey hot on its heels with the launch of MLPs (which are granted fast-track approval). Jersey is expected to swiftly follow with the introduction of the JRAIF (where the fund will be regulated ‘by proxy’ – that is, via the Jersey AIFM). It’s a welcome changing tide for industry and a relief for investors, who have often had to shoulder much of the cost of dual regulation and compliance. RAIFs and MLPs demonstrate a fresh, pragmatic approach to regulation, which is something to be excited about. After all, why regulate what is essentially a ‘pooling vehicle’ when the manager (and many of the other service providers) are appropriately regulated? Less regulated fund products, coupled with simplified fund regimes that are promoted and managed by regulated managers, will, if embraced and proportionately regulated, ensure Jersey and Guernsey remain at the cutting edge of fund regulation. n

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The value of investments and the income from them can fall as well as rise and you may not get back the original amount invested. Exchange rate changes may affect the value of investments. Nedbank Private Wealth is a registered trade name of Nedbank Private Wealth Limited. The parent of Nedbank Private Wealth Limited is Nedbank Group Limited, which is incorporated in South Africa and is regulated by the South African Reserve Bank. The ultimate parent of Nedbank Private Wealth Limited is Old Mutual plc, which is incorporated in England and Wales. The latest audited report and accounts, and details of the credit rating are available at www.nedbankprivatewealth.com. Nedbank Private Wealth Limited is licensed by the Isle of Man Financial Services Authority and is a participant in the Isle of Man Depositors’ Compensation Scheme as set out in the Compensation of Depositors Regulations 2010. For full details, please see www.iomfsa.im. Registered office: St Mary’s Court 20 Hill Street Douglas Isle of Man. The Jersey branch is regulated by the Jersey Financial Services Commission and is a participant in the Jersey Banking Depositor Compensation Scheme. See www.gov.je/dcs for full details of the Scheme and banking groups covered. The London branch is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registration No: 313189. Your eligible deposits with Nedbank Private Wealth Limited, London branch, are protected up to a total of £75,000 by the Financial Services Compensation Scheme, the UK’s deposit guarantee scheme. Any deposits you hold above the £75,000 limit are unlikely to be covered. Please ask for further information or visit www.fscs.org.uk. The UAE representative office in Dubai is licensed by the Central Bank of UAE. Licence No: 13/191/2013. Representation in South Africa is through Nedbank Limited. Registered in South Africa with Registration No 1951/000009/06, an authorised financial services and registered credit provider (NCRCP16).

Funds

WELCOME TO

S â&#x20AC;&#x2122; R E F F U A BL O T E GUID S D N FU

Funds in Jersey and Guernsey play a large part in the success of the islandsâ&#x20AC;&#x2122; finance sectors, but does the man or woman in the street really have a clue how the funds industry works? Our quick guide26aims to explain november/december 2016 all

Words: Dave Waller

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combined net asset value of more than £450bn, and more than a couple of thousand funds under management and administration, it’s almost impossible to overestimate the importance of the funds industry to the Channel Islands. But it doesn’t necessarily follow that the rest of us, peering in through the darkened downstairs windows, actually have the faintest idea what’s going on inside. But fear not… BL has nabbed a spare key, and you’re welcome to join us as we have a wander about.

WHAT EXACTLY DO WE MEAN WHEN WE SAY ‘THE FUNDS INDUSTRY’ IN THE CHANNEL ISLANDS? A fund is, in simple terms, a vehicle that allows a bunch of investors to pool their resources and invest in an asset together. That asset could be anything from a company on the stock market to real estate or fine art. Or even, bizarrely, a concept – but more on that later. Those investors could be anywhere, as can the assets, while the fund can be one of two main types. Open-ended retail funds allow people to come in and out as they please, and are designed for the man in the street. Channel Islands funds are generally of the second type – closed-ended – which tie people in for the duration of the fund and cater for ‘sophisticated’ investors – family offices, insurance companies, pension funds and sovereign wealth funds, as well as wealthy individuals who know what they’re doing. The choice of fund will depend on how quickly you want your money back, and your risk appetite: being locked into a private equity fund for 10 years may seem risky, but it can deliver tasty returns. So, back to ‘the funds industry’ – this refers to all the people who fulfil a role in putting together a fund. The Channel Islands have typically focused on administration and support functions for funds run elsewhere, but these days the big guns base themselves here too.

SO HOW EXACTLY DOES A FUND COME INTO BEING? It starts with the fund adviser – the investment professional who has the concept for the fund and needs help making it happen. “They need an idea, and investors who like the idea,” says Mike Byrne, Chair of the Jersey Funds Association. The process can take six to nine months, he adds. “I could have an idea tomorrow to build a big shopping centre in Brighton. I’d do my research, then sell the idea to potential investors. With my investment thesis and investors interested, I can start to build it out. A London lawyer will advise as to the appropriate domicile for the fund – the Channel Islands, say – and then connect me with a local lawyer. They then pull together the fund structure and engage tax advisers, a fund administrator and directors, and an auditor to check that it’s all above board.”

While that may sound logical, in practice the process would have you donning a flame-retardant suit and projecting yourself mid-air through a series of hoops – producing the legal documents; processing client due diligence documents, to prove that the investors aren’t simply laundering money for terror organisations; collecting the money from investors; checking the fund is following the law and its own investment guidelines; and, later on, making sure it delivers those returns. “Getting a fund over the line is a lot of work,” says Andrew Whittaker, Chair of the Guernsey Investment Fund Association. “And it’s all time-consuming.”

Getting a fund over the line is a lot of work, and it’s all time-consuming

ONCE THE FUND’S UP AND RUNNING, WHAT ACTUALLY HAPPENS? Much of the day-to-day running is down to the fund administrator, employed as the ‘guardian’ of the structure, who sees out the fund from launch to liquidation, protects it and ensures it’s run in accordance with the law. The fund administrator also draws up a quarterly report for the adviser to share with the investors. This role is crucial for investor confidence. “The first thing I say to a new client is: ‘You need an administrator’,” explains Niamh Lalor, the Partner who leads Ogier’s investment funds team. “It’s a critical part of every fund. They do all the payment runs, so if the property manager says: ‘I now want to buy a shopping centre in Manchester’, it’s the administrator who says: ‘You’re only meant to be in London, or investing in the right type of centre’.”

Hmmm...

SO BEYOND SHOPPING CENTRES, WHAT OTHER ASSETS ARE WE TALKING ABOUT? It could be anything. A private equity fund may invest in businesses seeking growth, while real estate funds may plump for commercial property, like office units. Basically, it comes down to whatever gets investors their coveted yield – which is how we get to those more esoteric areas. “Technical funds invest in people or intellectual property, ideas and concepts,” explains James Orrick, MD of Private Equity Administrators. “Say someone worked developing the Candy Crush computer game, and they left that company and set up their own thing – a fund may invest in that person. “That’s especially big in the venture capital [VC] world, as are things like Bitcoin and fintech. But it’s very high risk, as you’re

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WELCOME TO THE house of funds… With a

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not buying anything tangible.” While some of the more traditional routes are proving less reliable at delivering returns, there’s no shortage of ingenuity around new areas that may do so. “Singapore is full of ideas and investor money,” says Byrne. “In two years there, I met 200 new managers, all launching new funds. One guy I met wanted to launch a fund investing only in watches that were going up in value.”

WHAT’S THE SCORE WHEN IT COMES TO CHANNEL ISLANDS FUNDS? The Channel Islands are primarily involved in ‘alternative’ assets, such as real estate, private equity and hedge funds. Jersey has more real estate and hedge funds, Guernsey has more private equity. These are higher-risk funds for institutional investors. “The risks are crystal clear, but to understand them, you have to know your stuff,” says Byrne. But if anyone’s looking for a deep and meaningful reason why the islands are split this way, they’re likely to be disappointed. “A lot of it is down to a herd mentality,” says Lalor. “Someone set up a real estate fund here 20 years ago, and it went well, so their friend set up the next one 19 years ago. And so on. So there’s now a community here, which has matured and filled with professionals who are able to react when the UK changes its rules on things like tax. That adaptability is key to our success.”

AND WHAT ARE THESE VERY PRIVATE FUNDS WE HEAR ABOUT? Very Private Funds aren’t as salacious as they sound. They’re just an example of other fund vehicles offered by the Channel Islands to provide options to investors. They’re smaller, with the number of investors restricted to 15 or fewer. A smaller group of investors means it’s seen as being lower risk, which also means a lighter regulatory load, which makes it cheaper. “If someone wants to set up a fund but doesn’t have a track record on their own, they can ask a couple of mates to add a few million each to a Very Private Fund,” says Lalor. “They can buy some stuff, get a track record and then next time they’ll be able to set up a bigger fund.”

THIS FUNDS GAME MUST BE RIPE FOR SOME MONUMENTAL SCREW-UPS… Making investments is a gamble, so yes, things do inevitably go wrong. If the fund’s not performing, the investors can group together and sack the fund manager. That’s rare but it does happen. A fund can run out of money. They can also make bad investments. John Moulton’s Better Capital private equity fund bought City Link, the courier company, in April 2013, but thousands of City Link staff only found out it had gone bust

28 november/december 2016

Much of the day-to-day running is down to the fund administrator, employed as the ‘guardian’ of the structure

when it hit the news on Christmas Day 2014. “Failures are quite commonplace,” says Whittaker. “Either a fund has invested in assets they shouldn’t have, according to its documentation, or the assets have underperformed, or perhaps it’s been hit by geopolitical events. “For example, if a fund were investing in exporting goods to Russia, when the sanctions struck, the operation may have gone bust.” Then there are the other headline-grabbers. Bernie Madoff has become shorthand for just how spectacularly badly a fund may go. But his was a Ponzi scheme, just one kind of malpractice that modern regulation is designed to prevent. Given the Channel Islands’ oft-touted regulatory standards, you won’t see any of that in these parts. “Governance is such a big buzzword,” says Orrick. “So anything on the horizon that may cause a breach – around procedure, structure or processes – is flagged ahead of it happening, and something will be done about it.”

WHY DO PEOPLE USE THE CHANNEL ISLANDS TO RAISE FUNDS? Two words – track record. Investors see the Channel Islands as safer than their rivals, with better corporate governance too. Anti-money laundering laws are stricter there than elsewhere – and the islands engender a lot of trust when international standards bodies like the OECD and ESMA regulators give them the green light. Which says a lot in the wake of the Panama Papers. Since the news broke of people being able to farm out money and disappear off the books in other less-regulated jurisdictions, areas like the Cayman Islands are now reporting a drop in business. “The whole reason for the Channel Islands’ existence is they’re not tax havens, they’re tax neutral and completely transparent,” says Whittaker. “You won’t get the Prime Minister of Iceland trying to hide his wife’s wealth here. Investors come to the Channel Islands to be looked after – we have stable governments and that ticks all the right boxes for them, so they’ll be safe,” says Whittaker. “And they won’t be financing terror.”

FINAL THOUGHT – DO PEOPLE THINK THIS WHOLE THING IS MORE COMPLICATED THAN IT REALLY IS? It appears not. “A TV chef makes an apple tart look easy,” says Byrne. “But try it at home and it comes out nothing like the one on the telly. “Funds are complicated, with lots of moving parts, but people who are very good can make something complicated look easy. And this is inherently complicated.” n DAVE WALLER is a freelance finance writer

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Funds

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WE HAVE EXPERTS IN YOUR AREA, IN YOUR AREA. With unrivalled local knowledge and experience, no-one understands the needs of the local market like we do. To speak to our Channel Islands team, call (01534) 282076.

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Funds

The fight for funds business Words: Dave Waller FUNDS. NOT ONLY are they vital to Guernsey’s and Jersey’s financial health, but they’re also key to the islands’ sense of identity as players in the global business world. There’s a reason, however, why there’s a common warning about putting all your eggs in one basket – someone else can always come along with more eggs in a bigger basket… and a hammer. And that’s why the islands have always been, and will continue to be, mindful of where the competition is coming from. The first source of competition is from other offshore jurisdictions,

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With big sums at stake, competition for funds business is as voracious as ever – so the Channel Islands must size up the opposition and be ready for a fight

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a traditional area of rivalry, with many having a strength in a specific fund area. The Cayman Islands, for example, still dominate the hedge fund space. Then there are the fund managers – many US managers, for instance, have always gone to Cayman or the BVI for their offshore fund needs. While habit always plays a part in dictating who uses what jurisdiction – many US managers who use Cayman continue to do so simply because they always have – the issue of reputation is becoming increasingly important, especially in the wake of the Panama Papers. The general trend is towards transparency. “There tends to be a flight to quality at the moment,” says Mike Jones, Director of Policy at the Jersey Financial Services Commission. “Yes, people need offshore vehicles for tax-neutral purposes, but they prefer jurisdictions that have had good market assessments. We had a positive assessment from ESMA for AIFMD passporting in July, along with Japan, Australia and the US, so we’re in good company. Cayman wasn’t on that initial list.” These days, however, there’s an increasingly strong challenge from other sources. Where European business is concerned, AIFMD has had a huge impact. Fund domiciles within the EU have benefited from the AIFMD marketing passport, while those outside the EU are still waiting for final approval. “Realistically, places like Luxembourg and Dublin now count as our competition too,” says Jones. Indeed, Dublin and Luxembourg are the leading fund domicile jurisdictions within the EU. Along with Singapore and Hong Kong they’re examples of ‘midshore’ jurisdictions – those that are technically onshore but offer offshore characteristics. “Midshore jurisdictions don’t have large numbers of domestic investors but are attractive as fund domiciles for a number of reasons – typically, lower tax and regulatory benefits such as access to onshore markets,” says Frances Watson, a Partner at Ogier in Guernsey. Both Luxembourg and Dublin have an enviable funds haul of their own: Luxembourg has a 65 per cent share of global cross-border fund distributions, while Ireland has 22 per cent. By comparison, Jersey has three per cent, Guernsey even less. Admittedly, much of these figures relate to UCITS, which isn’t a space the Channel Islands really operate in.

FIGHTING TALK The Channel Islands are hardly shrivelling in the face of such competition, however. They’re attractive too – they combine the much coveted high standards of transparency and regulation with the flexibility of offshore funds domiciles, while offering strong regimes for marketing funds both to the EU and beyond. “Jersey is outside of the EU, which means there’s greater flexibility for fund structuring when it comes to accessing the European investor market,” says Geoff Cook, CEO of Jersey

Finance. “While some promoters may want a fully AIFMDcompliant solution, with all the additional requirements it brings, others may prefer a more flexible platform that still offers high levels of oversight but is also faster to market and enables marketing to non-EU jurisdictions. “Meanwhile, being at the front of the queue for a third-party AIFMD passport in the future is giving managers real confidence in Jersey’s long-term future.” Cook points to the “exciting growth trend” of fund managers migrating to Jersey – its funds sector stood at just over £223bn as at June 2016, driven by alternative asset classes, with particularly strong performances in private equity and real estate funds. There are now 126 fund promoters operating in Jersey – more than double the number of five years ago – and its reputation is of an asset management hub of substance, handy in these times of BEPS and AIFMD. “The emphasis for Jersey is always on quality, not volume,” says Cook. The argument for Guernsey is no different, and it is posting similarly bullish figures, with a net asset value of funds under management and administration of £247.1bn at the end of June 2016, up 12.3 per cent on the year before. Even so, it remains important for Channel Island players to keep a close eye on their performance – as well as that of their rivals. Direct comparisons can be tough, because of the differences in types of business done and in how data is gathered. Dublin may have a larger funds industry, but only around a quarter of its assets are in alternative investment funds, the Channel Islands’ speciality, with around 75 per cent in UCITS. Still, interested players can always find information. “We track Monterey Insight, which gives a picture of the funds that are active and the stage they’re at, and the levels of assets under management,” says Charles Le Cornu, a Director at Elian. “It’s important to keep track of other jurisdictions – the regulations and the overall performance in terms of fundraising and which domiciles fund managers want to use for their funds. We also have offices in Luxembourg, Dublin and Hong Kong – so it’s possible to have a view on anything happening in fundraising.”

STAYING RELEVANT

people need offshore vehicles for tax-neutral purposes, but they prefer jurisdictions that have had good market assessments

32 november/december 2016

But all the information in the world is useless if you can’t act on it. When competition is this strong, you need to innovate to compete. Both Luxembourg and Dublin have reacted well to changing needs in the wake of AIFMD. They’ve made their regulatory regimes more flexible and wider in terms of the range of products offered. Take the Luxembourg RAIF (reserved alternative investment fund). This was introduced at the end of last year in response to concern that the regulation of managers brought in by AIFMD was an unnecessary hoop that fund managers had to go through, given that the funds were already being supervised at product level. Luxembourg recognised speed to market as crucial – historically it would have taken the regulator a week to process that kind of

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How big is the competition?

LUXEMBOURG €3,462bn

the recent move to streamline the islands for the new world of AIFMD, to make it easier to set up and run funds, has been welcome

product when regulating it at fund level. In the new manager-led product (MLP) world, if the manager already regulates in that jurisdiction and complies with AIFMD, that’s enough. “The RAIF and similar products should help the funds industry because they reduce regulatory duplication, speed up fund launch and therefore translate into a welcome reduction in overall formation costs,” says Frances Watson. It’s a concept that’s subsequently been followed in Malta and in Guernsey, through the launch of its own MLP. “It’s a perfect example of innovation and evolution within the funds world.” Jersey is currently consulting on its own similar products, including the Jersey RAIF, as well as making changes to its Very Private Funds regime. “One historical criticism of Jersey is that while its regulatory products are very good, the overriding regime has often been too complex,” says Le Cornu. “So the recent move to streamline it for the new world of AIFMD, to make it more flexible and easier to set up and run funds, has been welcome.” And it hasn’t stopped there. The regulator is also working on measures designed to better enable the development of fintech and Bitcoin funds, as well as ways to make anti-money laundering measures easier in the funds space. “It’s our responsibility to keep the regime up to date and relevant,” says Mike Jones. Given that there’s a Bitcoin fund on Jersey already (courtesy of Global Advisors), the Channel Islands clearly have the right idea about opening new doors. Of course, rival jurisdictions are going to be opening doors of their own, too. So what’s the best way to protect those eggs? Carry your own hammer. Or remain innovative, and therefore competitive, at least. n DAVE WALLER is a freelance finance writer

DUBLIN €1,917bn

GUERNSEY £247.1bn

JERSEY £223.2bn It’s difficult to make direct comparisons between jurisdictions because of the funds areas in which they operate – Luxembourg and Ireland have a much larger percentage of UCITS funds. But at the very least, it shows how seriously they are as competition. All figures, for funds under management (or management and administration), are to end of June 2016.

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Words: David Burrows

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downturns in regions or sectors, but the combination of a globally diversified pool of investors and a respected and well-regulated funds industry does offer vital support.

ATTRACTIVE PROPOSITION The future health of the fund industry as a whole comes down to making sure it’s attractive to people who want to raise money. And Guernsey and Jersey are leading the way by doing what they can to provide a robust funds industry – for instance, by meeting international standards and by having a well-regulated and transparent industry. Morris agrees that the reputation of the Channel Islands is keeping them front of mind. He argues, however, that the islands need to remain nimble to adapt to new scenarios – notably AIFMD. “You can have the best fund structures in the world but you need to adapt or you may no longer be the jurisdictions of choice.” Hernandez takes a similar line, citing Jersey as a case in point. “Being front of mind means having something that suits the client model. We need to streamline the fund options in Jersey and make them less complex. Breadth of offering has been seen as a strong point but with Jersey now, there’s an over-population of funds, so rationalisation is being undertaken.” Looking at individual funds as opposed to the industry as a whole, Morris argues that as far as private funds are concerned (most are closed-ended), stress testing is not a concept that really applies. “It’s more about stress testing the client before they become a promoter rather than the strategy of the fund itself. Should we be looking at parties from jurisdictions with a chequered past – for instance, Russian private equity that isn’t regulated?” Wayne Atkinson, Group Partner at Collas Crill, agrees that stress testing the promoter is important. “It may be that the fee structure is such that the manager only gets paid for positive performance. While this seems good news for the investor, what if the global economy shifts? The manager might be

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WE LIVE IN uncertain times. For the funds industry in the Channel Islands, this uncertainty primarily falls into three categories. First, there’s the political instability caused by Brexit. Then there’s the economic volatility in the Middle East and Russia, with the related headwind of falling oil prices. Finally, there’s the regulatory waiting game with regard to Alternative Investment Fund Managers Directive (AIFMD) third-country passporting. OK, this may be simplifying things slightly, but with so many factors pulling at the funds industry, it’s not surprising that many insiders are asking whether it’s possible to stress test (or future-proof) funds against such matters. Joel Hernandez, Partner at Mourant Ozannes in Jersey, believes the Brexit vote has had the most evident impact on the island so far. “Jersey looks after a lot of structures that invest in UK real estate,” he says. “With Brexit having a direct effect on property valuations, we’ve already seen high-profile, open-ended property funds being suspended. In Jersey we haven’t seen funds suspensions in the same way as in the UK, but there are still difficult questions being asked on valuations and the effect this has on redemptions, asset disposals and fund covenants.” In terms of stress testing real estate funds in the aftermath of Brexit, Hernandez says the UK’s Financial Conduct Authority introduced extra guidelines on fund suspension rules after the referendum vote. And while they haven’t yet been seen in the Channel Islands, these new rules might be picked up in the future. As to economic volatility in the Middle East and Russia (and falling oil prices), Oliver Morris, Advisory Director at KPMG Channel Islands, believes Jersey and Guernsey are pretty resilient and not overly dependent on money flows from specific regions or countries. “We have diverse capital inflows. If there’s a slowdown in the Middle East, we might see greater inflows from the US. The Channel Islands aren’t overly exposed to one jurisdiction,” he explains. This point is largely echoed by Hernandez, who notes: “In 2005, most money coming into Jersey was from UK pension funds – after 2008/09 those flows reduced but there were increased flows from southeast Asia. We’re now seeing flows from south-east Asia reducing, but more money coming in from the US and Canada, with particular interest in UK real estate.” He adds: “There might be a dip somewhere across the globe, but money flows increase from other areas to counter that. For instance, following the appreciation of the rand, UK commercial real estate becomes more attractive to South African investors. The same is true for US investors.” There’s no easily prescribed solution that will fully immunise the Channel Islands from major economic

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itâ&#x20AC;&#x2122;s becoming more and more difficult to predict which way the world will turn â&#x20AC;&#x201C; so is it remotely possible to protect funds against every eventuality?

How to stress test

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doing as good a job as anyone, but with no fees coming in, how does the company pay its staff? There may well need to be a restructuring of the fund.” He adds that with some funds there is a charismatic figure at the helm who may not be in the best physical shape. How does the fund keep going if he or she has a heart-attack? The fund price might crash because of the perception of the star manager not being there. Is there a strong, well-resourced team in place to reassure investors that the fund is in safe hands while the manager is absent?

Should we be stress testing the client before they become a promoter?

ASKING THE QUESTIONS Fund promoters should be asking the question ‘what if X happens?’. “Nobody launches a fund for it to fail,” Atkinson says. “But many funds are set up on the basis that their strategy is a good idea, that ‘in normal conditions, this works’. The real stress test comes when major events like Brexit or the collapse of the banking sector happen. How well has the fund been prepared for the one-in-a-100-year storm?” He concedes that making a fund stress-proof for that one event might not always be cost-effective but that the onus in those circumstances should be on spelling out the risks of the fund clearly to investors. “There’s nothing wrong in itself with investment risk, but people need to know when they’re betting on a long shot. This is why improvements in investor relations are so important. Guernsey’s Code of Corporate Governance, for example, has helped to ensure shareholder interests are better looked after.” Hernandez makes the point that individual funds underwent the first round of stress tests back in 2008/09 after the financial crisis. He believes lessons were learned then with more recently launched funds stipulating 10 per cent redemption gates and market volatility clauses. He suggests it is legacy funds (funds from before the crisis) that have the greatest requirement for stress testing. Patricia White, Managing Director at Vistra Guernsey, insists that astute cash management is essential to sensible fund stewardship, particularly when investing in illiquid assets. “Sterling’s value remains about nine per cent below pre-referendum levels and 13 per cent lower than a year ago [at the time of writing]. While there is never a perfect hedge, managers with multi-currency funds, who hold sterling-based assets without a considered currency hedging policy during this uncertain period, will find themselves with some explaining to do to their investors.” As far as regulation goes, White is in no doubt AIFMD will have a direct impact on the Channel Islands funds industry. However, the positive assessment by the European Securities and Markets Authority (ESMA) and approval for recommendation for passporting expected imminently from the EU mean the Channel Islands are in a position of strength. Hernandez agrees that the ESMA recommendation is good news but he insists there are still concerns over how the regulatory landscape will finally look. “We don’t want local private placement regimes being taken away. Currently we can access the EU through private placement. However, countries like Germany may insist in future that local rules no longer apply and the only route of access is via full passporting.”

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There are other grey areas too. As Atkinson points out, to obtain a passport the Channel Islands will require an EU member state of reference – which, pre-Brexit, would have been the UK. Now there needs to be a rethink. “Both islands had contingency plans and had reached out to alternative jurisdictions other than the UK. Holland would be one of the obvious names on the list now. The important thing is that we now have contacts with regulators in, for instance, Germany, Belgium and Holland that we didn’t have before, and that’s a positive step.” The Channel Islands are arguably as prepared as they can be in the current climate, but contingency plans and efforts to future-proof can only go so far – you can never manage the unknown. As White concludes: “Stress tests can be highly sophisticated, based on complex computer models, but they’re only as good as the future scenarios on which they’re based. As such, they can be limited in effect – as the inability of experts to predict the crash of 2008 proved.” n DAVID BURROWS is a freelance finance writer

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Made of

strong stuff Property funds may have hit a bump on the back of the Brexit vote, but they’ve proved far more resilient than during the financial crisis

THERE HAVE BEEN a number of major fallouts from the UK’s surprise Brexit vote on 23 June: a new Prime Minister, a record low interest rate of 0.25 per cent and a plethora of surveys revealing volatile business and consumer confidence. The funds industry has also faced great upheaval. According to Investment Association figures, retail investors withdrew £3.5bn from UK investment funds in June. That’s far more than January 2008, the worst month for credit crisis withdrawals, when £561 million was taken out. Commercial property funds were the worst hit in June, with outflows of £1.5bn

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Words: David Craik

compared with £1bn from UK equity funds. Firms including Aviva, M&G Investments, Legal & General and Aberdeen Asset Management ‘gated’ their open-ended UK commercial property funds as investors, both preand post-Brexit, rushed to withdraw their holdings over fears that commercial property values were set to dive. Indeed, Legal & General cut the value of its property fund units by around 15 per cent,

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with Aberdeen Asset Management making a 17 per cent cut. M&G said it suspended trading in its £4.4bn fund to better protect remaining investors by stopping any other withdrawals and redemption requests. It added that such a move would allow it to raise cash levels in a ‘controlled manner’, so that asset disposals could be achieved at reasonable values to meet the redemption requests. But just why was commercial property so badly affected? Philip Hendy, Director, Real Estate Services at JTC Group, says investors cast their memories back to 2008 and 2009, when there was another wave of commercial property fund suspensions during the credit crunch. On that occasion, firms such as New Star, Aviva, Scottish Equitable and Axa barred investors from accessing their cash for periods of between three months and a year. In essence, this stopped them from reclaiming their funds during economic upheaval. “People took the view that UK commercial property was going to go downwards and decided to get the redemption process in sooner rather than later. They realised, from that experience eight years ago, that redemptions go in an orderly queue – so first in, first out,” Hendy says.

LIQUIDITY ISSUES The incompatibility of open-ended funds and real estate was also to blame. “The big problem with these open-ended commercial property funds is you think you have instant liquidity, but it’s backed by an asset class that’s clearly pretty illiquid,” Hendy adds. “People waking up after Brexit saw sterling collapse in value and the FTSE fall, but with commercial property, nobody knew what the end asset was actually worth. Nobody knew if it was going to fall by five, 10 or 20 per cent.” Naomi Heaton, Chief Executive of residential closed fund provider London

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Unlike June 2007 to July 2009, when commercial property values fell by over 44 per cent, the post-Brexit market is showing signs of stability

Central Portfolio, agrees that the funds structure caused much of the panic. “Openended commercial property funds are at odds with the assets they invest in. Large commercial offices with a small pool of tenants are particularly vulnerable in difficult economic times because if tenants go under or into default, this can result in squeezed income yields and a nonperforming investment,” she explains. “Funds may be forced to liquidate and it’s not easy to sell commercial property quickly, especially when the economy is softer, forcing a sale of assets at a significant discount,” she states. “These funds say they are liquid. People think they have access to their money at any time but they don’t.” This isn’t the case with residential property, even in tougher economic times. “Residential properties tend to have multiple tenants and ‘tenant churn’ is a given and manageable characteristic,” Heaton explains. “If one tenant gets affected and defaults on their rent, then it doesn’t affect the whole portfolio. “Residential property, in any event, is generally far more liquid and prime central London is also better protected when the domestic economy falls because it’s more reliant on global wealth and long-term investors not seeking a speedy exit.” Heaton believes it’s time that lessons were learned about open-ended funds and

commercial property. “After the financial crisis, I was surprised that these structures weren’t comprehensively reviewed. Investors should be made fully aware that they may not be able to get their investments out when they want to,” she says. “The FCA should look at the lack of crystal clear information provided and whether open-ended funds are appropriate for commercial property.” Indeed, the Financial Conduct Authority issued guidance in early July reminding fund managers they had a duty to act in the best interest of all investors. It recognised that the ability to suspend, in accordance with internal governance arrangements, was built into the structure of the funds. But it added: ‘If a fund has to dispose of underlying assets in order to meet an unusually high volume of redemption requests, the manager must ensure these disposals are carried out in a way that does not disadvantage investors who remain in the fund or are newly investing in it. We request that managers of authorised funds contact us in advance of any proposed suspension.’ There may be little need for that in the near future as, in contrast to the period between June 2007 and July 2009, when according to the IPD UK monthly index, commercial property values fell by over 44 per cent, the post-Brexit market is showing signs of stability. Again according to the IPD, commercial property values fell 2.8 per cent in July year-on-year due to fears over financial services quitting London, businesses tightening their financial reins rather than opening new offices, and shoppers freezing spending. However, buoyed by more economic confidence, values improved in August, down just 0.65 per cent. Some of the suspended funds have also re-opened, such as Aberdeen Asset Management, with its value markdown now cut to five per cent. “A number of the investors have withdrawn their redemption requests,” says John Barratt, Director of Elian Real Estate in Jersey. “They feel more comfortable now that the commercial property market isn’t going to fall off a cliff. For many, it was just an initial knee-jerk reaction. In terms of the assets, the funds have been able to find buyers for a few assets and raise the liquidity they need. The underlying quality of the sector has remained unchanged.” So what of the Channel Islands? Hendy says it was already less affected because of the nature of property investment here. “Open-ended property funds are targeted

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HOW PROPERTY FUNDS PERFORMED

Figures from the Investment Association for net retail sales in the property sector show that in the months running up to the EU referendum vote there were significant outflows compared with the end of 2015. However, after a large increase in outflows during June and July, the sector returned to positive figures (albeit only £1 million) in August 2016.

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more at retail investors. Most of the funds run through the Channel Islands tend to be more institutional investor-led products such as pension funds or large family offices,” he explains. “They hold longer term views.” Barratt agrees. “The institutional investors we deal with decided to stay where they were and remain in real estate, although they are being more cautious about what to buy to ensure they are the right value,” he states. “Fund managers are still approaching us with enquiries about setting up new real estate funds and are looking to fundraise. There is still an appetite to get involved, but they need to be more focused about where exactly they will place the cash, such as UK office or UK logistics. It’s still a great asset class, especially when the alternatives are very low-yielding.” One recent example was the launch of investment firm Mercer Real Estate Partners’ debut fund, Mercer Real Estate Partners II, which raised £235 million in August. It will look to source, manage and exit ‘below the radar’ opportunities in the UK. Investors include US endowments, corporate pension funds and global investment management groups. The weaker value of sterling is helping here. “These assets have become cheaper for US or Canadian pension funds or Far East investors wanting to buy into UK real estate,” says Barratt.

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“This helps the offshore islands because typically they will make their acquisitions via these jurisdictions.” It’s a point picked up by Justin Hallett, Head of Financial Services at BDO. “Guernsey is stable in a period of instability. Nothing’s changed here,” he says. “And investors may see us as a safe harbour.”

END OF THE EU? That feeling could grow in the months ahead. Peter Miller, Executive Director at EY, says further referendums in the Netherlands and Austria could begin to see the EU falling apart. “Then suddenly you have very cheap assets all over Europe. It may be a shopping spree for investors in the UK and elsewhere,” he says. “There’s going to be uncertainty ahead but there are also going to be opportunities out there as well. The good thing about real estate is that it’s an asset everybody understands. It’s real – an actual building with actual tenants – and if it’s well run and well looked after it’s going to be worth something.” It’s clear that the real estate sector has taken an enormous hit, and more uncertainty and nervousness

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will continue to emerge as the UK heads towards Brexit. Will it remain in the single market? Will banks and other financial services look to relocate? Will the UK fall into recession? Has the commercial property market fully priced in the impact of Brexit? Whatever the answers, the fundamental appetite among investors for commercial property is likely to remain strong because it offers decent yields. According to UK property consultancy Carter Jonas, total returns for commercial property reached 13.4 per cent in 2015. That’s attractive, particularly in a low-interest-rate environment. Investors certainly need to be more aware of the illiquid nature of openended funds and the perils of suspensions. Overall, however, although Brexit shook its foundations, UK real estate is not ready to crumble yet. n DAVID CRAIK is a freelance finance writer

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Seeing

DEBT from both sides

Funds aren’t just raising money for lending purposes, they’re taking advantage of debt as a bridging facility. and both these markets look set to grow Words: Kirsten Morel

42 november/december 2016

LAST DECADE’S CREDIT crunch taught us all many things, perhaps the most surprising being the realisation that it’s not money that makes the world go around, it’s debt. The financial crisis and the subsequent global recession were calamitous and, in many minds, were the result of a lending industry that had run out of control. Given this state of affairs, it’s likely to be something of a surprise to learn that since those dark days and the ensuing Age of Austerity – focused as it is on driving down debt-to-GDP ratios – the total amount of global debt has risen by $57 trillion since 2008. Today it stands at around $200 trillion. Banks, we are told, are lending less as they seek to comply with Basel II regulations, which require them to maintain higher levels of cash reserves to cover unexpected risks. According to McKinsey & Company, the European bank funding gap could stand at €1 trillion. Yet the same firm also points out that ‘the ratio of debt to GDP has increased in all advanced economies since 2007’. That means institutions outside of the banking sector are making up the difference. Alongside the insurance industry, the funds sector has been one

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TTBED into force in April next year and they’re likely to drive an increase in fund raising from third parties.” These new rules are driving the impetus for alternative sources of capital through lending, although the effect is concentrated in particular sectors. “Real estate and general private equity investment into trading companies are the main sectors looking at this,” says Savage. “Infrastructure less so because they have a carve-out from the new tax rules.”

LENDING PERSPECTIVE When it comes to lending, specialist debt funds can play a variety of roles but, according to Andrew Boyce, Partner at Channel Island law firm Carey Olsen, they tend, in the context of larger direct credit mandates, to get involved at mezzanine or junior level, together with a senior traditional bank lender. Direct lending, as an absolute alternative to a bank, occurs more in the mid-market for SME borrowing. “In the larger direct lending space, specialist debt funds will, in the main, provide mezzanine and junior debt, but they are rarely senior lenders,” says Boyce. “There are many specialist alternative debt providers and a number of the global multi-strategy managers have raised debt/alternative credit funds with commitments upwards of a billion.” Of course, lending can come in many shapes and sizes. As someone who sources lending for clients, Ben Thomason has seen deals across a vast range. “We’ve done everything from £1 million to several hundred million,” he says, before pointing out that the

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of the main areas in which there has been an increase in lending. As a result of this, the Channel Islands have identified an opportunity to encourage loan originating funds (LOF) to base themselves in the islands. LOFs are usually closed-ended funds that are created to act as lenders to other organisations. Jersey regulations ensure that any LOFs planning to set up in the island don’t provide capital to people or other financial institutions, with the Jersey Financial Services Commission deciding whether or not a fund is granted a licence. “The beauty of it is that [funds] don’t have the capitalisation issues that banks have,” says Ben Thomason, Managing Partner at Jersey-based Asset Leverage Consultants. “With an underperforming bond market and banks with capitalisation issues, pension funds are looking at the debt market as a great inflation hedge.” On top of capitalisation requirements, the OECD’s Base Erosion and Profit Shifting measures include regulations that discourage the use of debt as a means to reduce tax liabilities. In the UK, deductions for interest will be capped at a maximum of 30 per cent of a company’s or group’s EBITDA. There are exceptions, including some for worldwide groups, and given that the main target of the regulations is the use of internal debt to ‘artificially’ inflate deductions, there are likely to be incentives for using third-party debt. “It should make third-party lending more attractive,” says Mark Savage, Tax Director at BDO Guernsey. “These rules come

Funds

lending role that funds are playing changes their nature to some degree. “Some funds are looking to compete with investment banks and lend to businesses,” he says. “One such example is Blackstone, which has an exceptional underwriting process and has almost become a challenger bank.” This makes sense when put into the perspective of the US market, where banks only provide about 20 per cent of all lending. That’s very different to bank-focused Europe, and it means that there’s a very strong alternative lending market. However, fund lending is on the rise and steadily growing a healthy market share. “Since 2010, the number of funds and the amount being raised for lending has increased and looks set to become 20 to 30 per cent of the [lending] market,” says Daniel Richards, Group Partner at Channel Islands law firm Ogier.

ON THE FLIP SIDE The fallout from the credit crunch may be reshaping the lending scene, with more investment funds providing credit, but there’s another side to the coin – one in which funds are the users of debt. The use of short-term bridging lines (also known as subscription or capital call facilities) in the fund sector is long-established because it enables investment funds to move more quickly to secure the purchase of an asset. “Competition for quality and value assets is quite fierce,” explains Andrew Boyce. “Often, particularly in the context of an

the conventional European view that, beyond the bond markets, debt is the preserve of banking is fast being revised

auction, the fund has to demonstrate immediate availability of the purchase monies. A bridging line enables them to do this outside of the time constraints in the normal process of calling money from investors when needed. So the bulk of fund borrowing that we see is for bridging purposes.” Such facilities can help fund growth because they enable the fund to operate efficiently, being able to secure assets on the strength of the subscription line. For banks, looking at the fund with a view to lending, the appeal is equally strong. “From a bank perspective, many fund investors are institutional grade investors, so it’s an attractive asset for the bank,” says Daniel Richards. “The popularity of these facilities is likely to be because the banks see that subscription lines are a strong piece of collateral, whilst fund managers see the operational flexibility these arrangements offer. Managers are realising the usefulness of these facilities and are building them into their planning at the fund structuring stage, whilst they are fundraising.” Unsurprisingly, the size of such facilities can be extensive, ranging from $100 million to $1bn and beyond. As an example, the recently closed Cinven VI fund raised €7bn to invest in European businesses and established a facility alongside the fund in order to facilitate asset purchases through bridge financing. Whether funds are acting as lenders or are themselves borrowing in order to facilitate their own business, the conventional European view that (beyond the bond markets) debt is the preserve of the banking industry is fast being revised. Given the vast sums that funds have at their disposal, it isn’t surprising that businesses in the Channel Islands, which have for so long been home to a successful funds sector, are using their expertise to attract LOFs. At the same time, the advice of legal and funds professionals in the islands is being trusted by fund managers who need to be nimble players in markets that demand speed – a characteristic the banking industry is rarely noted for. It’s too early to confirm whether Jersey Finance or Guernsey Finance will succeed in attracting LOFs to the islands. However, as long as funds are involved in the debt markets, on whichever side, then the knowledge and expertise available in the Channel Islands should ensure that they remain a jurisdiction of choice for alternative funds of all types. n KIRSTEN MOREL is a freelance finance writer

DEBTTB E 44 november/december 2016

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E V O LV I N G

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The Channel Islands are proving to be fertile ground for start-up fund managers looking to get one foot on the ladder Words: Dave Waller

EVEN THE BIG guns have to start somewhere. In Formula One racing, for example, a car costs millions to run, success comes down to split-second decisions, and the slightest mistake can lead to catastrophe, perhaps even death. So it’s no surprise current world champ Lewis Hamilton cut his teeth first in karting, a junior version of the sport that’s all about driver skill. It was only after he moved through the ranks of Formula Renault, Formula 3 and GP2 that he finally graduated to Formula One, where cars go at 240mph, the rules are suitably tight, and success requires everything from managing your tyre degradation to the group mind of the pit-stop team.

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From humble beginnings…

Funds

And what’s good for the elite of motorsport works just as well in the funds space too. Boutique funds – those operating with a relatively modest £10 million to £100 million – are like the karting or Formula Renault of the funds world. They’re the perfect vehicle for a new manager who understands an asset class or investment strategy but has only ever made investments privately and is now let loose with other investors’ money for the first time. Or for a manager who’s left a much larger operation to go it alone. The benefits of starting out this way are manifold. “Sub-threshold managers targeting professional investors can build up their investor base and assets under management without the extra cost of added regulations,” says David Porter, Head of the Jersey Financial Services Commission’s Policy Unit. “Then, as they grow, those additional requirements apply – focused on what is proportionate and appropriate. It’s a lifecycle.” Indeed, if a new manager went straight to a regular fund, they’d suddenly be up against the highest risk and the strictest regulation, and the vast extra cost that comes with it. Under the EU’s AIFMD regime, for example, regulation becomes more detailed and restrictive when the levels of funds under management pass its two thresholds – €100 million and €500 million – bringing extra remuneration rules, compliance and risk control, restrictions on assets and far more complex reporting. These boutique funds, driven by seasoned professionals but freed of the

It’s easy to see the appeal of boutique funds for investors. They get a lot of value for their money, and a service that’s relatively bespoke

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burden of extra costs, usually start by collecting and working with relatively conservative levels of investment, in order to build trust and a reputation among investors. This at a time when larger structures have found the fundraising environment testing.

SMALL BUT EFFECTIVE Freedom Asset Management, set up in Guernsey in 2014, is a perfect example of those who used to work for large firms branching out on their own. “We’d worked at the likes of BlackRock and Schroders, and saw an opportunity to provide an alternative to the large asset managers,” says Sandrine Reynaud, Freedom’s CEO. “Lots of them have been suffering from heavy-handed regulation and they have lots of cost to product – they need a scalability of billions or it’s not interesting to them. We wanted to provide niche products – we can start a fund at £10 million and are still very cost-effective.” It’s easy to see the appeal of boutique funds for investors. They get a lot of value for their money, and a service that’s relatively bespoke to them. They may even get a shot at niche assets that a larger fund wouldn’t touch. “Investors are now thinking harder about who they’re giving money to and why,” says Paul Wilkes, Group Partner at Collas Crill. “Many of them got spooked by the structures they’d invested in, seeing their money not performing or even stuck in zombie funds, where the fund managers couldn’t find assets. So there’s that caution around nowadays. If the people behind a boutique fund are truly experts in alternative assets that are a little different, investors will feel they’re backing these skilled individuals, not a brand.” There are ample reasons why these start-up funds would wish to set up in the Channel Islands – beyond their stable regimes and strong economies. “There’s also an optionality,” says Porter. “They can set up different funds – to target EU investors under AIFMD and non-EU investors under Jersey’s own fund regime.” In terms of alternative investment funds (AIFs), Jersey had 115 alternative investment funds managers running 251

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AIFs at the end of June 2016, of which around 25 per cent operated below the AIFMD threshold and so could be classed as boutique. Guernsey has similar numbers. Then there’s the issue of future-proofing. “With onshore structures, you may be below the threshold on day one, but later you could be caught by that extra regulation and cost that investors don’t find palatable,” says Wilkes. “Going via a Channel Islands structure puts you out of scope of that regulation – using the private placement regime it’s more futureproofed and keeps costs acceptable for the investors. A fund may start at £20 million to £40 million on day one, but that growth may come as soon as three to five years, so you need to future-proof into the medium term as well as the long term.” The Channel Islands are also in good stead to receive the EU’s third-country passport for marketing alternative investment funds – something Wilkes thinks is “particularly important”.

THE BIGGER PICTURE Beyond the regulations there are, of course, plenty of other factors that draw boutique funds to the islands. Successful fund managers will have a network of investors through which to raise the funds, and be good at managing people’s money when they get it, but they wouldn’t get far without a network of advisers to guide them. The islands’ many top-quality service providers can assist their growth by helping them comply with the islands’ regulations, for example. Channel Island structures are recognised, and you’re only 45 minutes from London, while operating in the same familiar legal system. “Guernsey is a well-known jurisdiction, it’s well regulated and cost-efficient,” says Reynaud, explaining Freedom’s decision to set up there. “The investors we have tend to be family offices or high-net-worth individuals, so they don’t need the large institutional products of the UK or Luxembourg. In Guernsey, you get all the

benefits but you can do something much quicker and more bespoke. You get a product that provides the same comforts as others, and a regulator who’s very flexible and works very quickly. Within three days you can set up a new fund.” And the picture may be about to get even better for boutiques here. Both islands have introduced, or are introducing, manager-led funds, designed for the AIFMD world, which make funds easier to regulate and therefore quicker to set up, as well as saving costs. The islands are also streamlining their offerings, giving greater clarity around products and authorising them more quickly, thus making it easier to set up and run funds – something a first-time manager looking to establish themselves will clearly find attractive. “We know the speed to market is important for smaller funds, and with that in mind the government of Jersey and the JFSC launched a joint consultation this summer aimed at enhancing, simplifying and rationalising Jersey’s funds environment,” says Geoff Cook, CEO of Jersey Finance. “This included revised guidelines around Jersey’s Very Private Fund regime, which is a perfect and wellused platform for smaller boutique funds. “We feel that, while appropriate levels of oversight and governance are still expected, the regime can offer a fast and straightforward solution for boutique fund structuring, as well as other fund types.” Wilkes, Reynaud and Cook all believe that the Channel Islands will now see the arrival of more boutique funds. And that has to be a good thing – it means there will be an injection of entrepreneurialism, the enthusiasm that comes with helping people build businesses, and the potential for them to become significant employers in their own right. n DAVE WALLER is a freelance writer

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Funds

ManCos

present and future The growth of fund management companies in Guernsey and Jersey is giving the islands another string to an already impressive bow Words: Richard Willsher

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manco s will be authorised by regulators to act as AIFM s , and their role is, crucially, distinct from the portfolio manager

granted to Jersey and Guernsey – although as yet, the islands are still waiting for the bureaucratic wheels to turn for the passport to be put in place. Nevertheless, ManCo business in the Channel Islands has been growing. Firms such as Carne, Crestbridge, JTC, Sanne and law firm Carey Olsen are among those that now have considerable experience in the establishment and use of ManCos.

THE ROLE OF MANCO S So just what is a ManCo and what does it do? Justin Partington, Global Head of Funds at Sanne, which provides services to a variety of different types of alternative funds says: “If you have a ManCo that’s an established entity, providing risk management and portfolio management services, you give substance and credibility to what the manager is doing with the fund. “What a ManCo does is to look at the risk and portfolio management of the assets. This involves reviewing investments and then monitoring the risks around those investments. It’s about ensuring that investor requirements have been fully met, the risk/reward ratio is adequate and restrictions on what the fund can invest in have been met, and then monitoring liquidity to make sure it’s adequate.” AIFMD is quite prescriptive about what risk management of a fund involves. Limits need to be set and monitored for exposures to market risk, credit risk, liquidity risk, counterparty risk and operational risk. That requires a high level of expertise. “We specifically design a risk management framework in light of the strategy of a particular fund,” explains Mark Hodgson, CEO of Carne Group’s Channel Islands business. “We establish a risk register and reporting from various service providers to the fund. So the ManCo sits there as a separate regulated entity that looks specifically at the risks and portfolio management in relation to the fund’s strategy.” An individual fund may be managed by its own ManCo or by a ManCo that manages a number of other funds as well, but the ManCo’s role will be the same. It will be authorised by regulators to act as an alternative investment fund manager (AIFM) and its role is, crucially, distinct from the portfolio manager who may, for example, be based in London, New York or an EU fund management centre where investment decisions may be taken. The AIFM bears a number of responsibilities, as David Crosland, Partner at Carey Olsen in Guernsey, explains. “It has to have a particular level of capital adequacy. All staff are subject to a remuneration policy, there are rules about how the AIFM is organised and structured, there are policies and procedures, and the

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IT’S DIFFICULT TO talk about funds in the current environment without the focus turning inevitably towards the Alternative Investment Fund Managers Directive (AIFMD). While the regulation has provided its fair share of challenges to the Channel Islands, it’s also created opportunities – and notable among these has been the growth of fund management companies (ManCos). That said, ManCos aren’t a new development. An existing body of EU regulation, known as the Undertakings for the Collective Investment of Transferable Securities (UCITS), established, among other things, the role of ManCos in ensuring important protections for investors buying into various types of funds. These funds invest in ‘standard’ asset classes, such as equities and bonds. Another key aspect of UCITS-compliant funds is that once they and their management structure have been approved in one EU jurisdiction that conforms to EU directives, then they can be sold to investors throughout the countries of the EU – an arrangement known as ‘passporting’. Consequently, the use of ManCos for UCITS funds is well established, especially in centres such as Dublin and Luxembourg, where tax regimes and administration capabilities make them jurisdictions of choice. When AIFMD was introduced in July 2013, it applied similar regulation to alternative funds, including hedge funds, private equity funds, retail investment funds, investment companies and real estate funds. The Channel Islands have for some time had particular expertise in managing such funds, so when AIFMD came into force, they had a head start. Moreover, practitioners in Jersey and Guernsey believe it’s easier to adapt to the new regulatory regime there than it is for competitors in Dublin and Luxembourg to get up to speed with alternative fund management. As it stands, the Channel Islands are approved for EU business in private placements for both EU and non-EU investors. And in July this year, the European Securities and Markets Authority (ESMA) noted that there were ‘no obstacles’ that it could see to passporting permission being

Funds

personnel qualified,” he says. “As a trade-off for this level of management expertise and control, you’re allowed to passport your EU-based funds anywhere in the EU. We’re hopeful that once the ESMA decision is signed off, we’ll be given what’s called EU equivalency status and our jurisdictions will become fully empowered. We think Channel Islands AIFMs will become more popular, especially third-party ones that can reduce the cost to the funds by effectively sharing them.”

LOOKING FORWARD The Channel Islands face two uncertainties to the development of their role as jurisdictions for ManCo services. The first is whether or not ESMA’s full approval of third-country passporting will be handed down for ManCos based in the islands. Stuart Pinnington, Group Head of Institutional Client Services at JTC Group, is optimistic about this. “We have strong regulators in the Channel Islands with whom we work closely and they are keen to support the ManCo industry here,” he says. “Also, to make a ManCo structure work and be a desirable structure for funds, it’s about the skill set of the people who sit on ManCo boards and look after these structures. The Channel Islands are well placed to do this because they have very well-established industries with lots of credible professionals who’ve worked in funds for a long time. “There is probably a deeper professional, human capital resource here than there is in other jurisdictions such as the Cayman Islands, British Virgin Islands or Mauritius, which are potential competitors. So I think these are very positive characteristics for the Channel Islands.”

The second imponderable is the impact of the UK’s exit from the EU. Clearly, its terms have yet to be mapped out. As Mark Hodgson says: “It’s too early to tell, but I can’t see how we’ll be disadvantaged by the UK’s exit. The Channel Islands are non-EU jurisdictions with a strong business link to the UK. “Managers in the UK have a long track record in establishing funds in the Channel Islands and I expect that to continue, irrespective of how the UK landscape develops. The longstanding and ingrained expertise in the funds industry, and the development of ManCo solutions, should continue to make the Channel Islands an attractive destination for UK and worldwide asset managers.” Meanwhile, competing EU fund management centres, led by Dublin and Luxembourg, are keen to extend their UCITS ManCo expertise to alternative funds. While Jersey and Guernsey are currently the jurisdictions of choice for many such funds from around the world, nothing is certain. However, it’s worth noting that the major growth areas of wealth management are in emerging markets well beyond the EU, led by Far Eastern countries. With a high level of fund management and administration expertise and safe, well-regulated jurisdictions, the Channel Islands have much to offer investors around the world. Whether an alternative financial centre will emerge as a major competitor to disrupt this position remains to be seen. But for the time being, the ManCo industry in the Channel Islands remains competitive and looks set to keep growing. n RICHARD WILLSHER is a freelance finance writer

the ManCo sits there as a separate regulated entity that looks at the risks and portfolio management in relation to the fund’s strategy

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Joined-up thinking Mason Birbeck, Head of the Corporate, Commercial and Trust team at Parslows, explains how to create the framework for a successful joint venture VARIOUS STATISTICS ARE bandied about as to the success rate for joint ventures. A conservative consensus comes out at around 40 per cent. So why do many businesses still choose to embark on this seemingly risky option? The right ‘JV’ partner can open up new markets and distribution networks, and combining distinct skills and resources of separate-but-complimentary businesses should make achieving common objectives easier. Compared with going it alone, a joint venture can reduce each party’s resource commitment. So why the statistical failure rate? If contributions aren’t purely monetary, there may be disagreement as to the value that each party brings to the arrangement and, in turn, expectations as to control and financial return. A joint venture inherently involves separate businesses with separate leadership, which are used to autonomy in decisionmaking. That can heighten tensions as to control. If the originating businesses operate in the same space, then competing interests can also come into play. A joint venture agreement won’t be a panacea for such commercial issues. It can, however, set the framework for identifying the respective parties’ expectations and potential problems at the establishment stage, which may otherwise only come to light further down the line, when less easily resolved. So if, as a prospective joint venture partner, you’ve concluded due diligence on your proposed confederate(s) and determined that a separate JV company is the right model, what exactly should the agreement governing the venture cover? A shareholders’ agreement will be bespoke to the particular circumstances, but there are common aspects one would expect to include.

PURPOSE AND OBJECTIVES Identifying the nature and scope of the new undertaking’s activities is fundamental. The JV’s duration should be clear – is it finite (to achieve a specific project within a given

decisions, such as the issue of further shares or acquisition/disposal of major assets. If the shareholders’ ongoing commitments, financial returns or voting rights aren’t to be identical, then separate share classes conferring distinct rights and obligations may deal with that most effectively. Balance of power isn’t an issue confined to shareholder level. The directors will be the company’s governing mind, so invariably each joint venture party will want the ability to appoint a representative to the board, and to ensure that meeting quorum and voting rights achieve the agreed balance of board-level decisionmaking powers.

FINANCIAL RETURN

timeframe) or a longer-term arrangement? Expectations as to turnover, and any geographical limitations – such as excluding territories in which a shareholder already operates – should also be incorporated.

CONTRIBUTIONS AND FINANCING The agreement should state each party’s initial and ongoing contributions – be that cash, assets, facilities or intellectual property. If the contributions create associated legal relationships, such as the licensing of intellectual property or secondment of employees, the terms of those relationships should also be stated, possibly by separate agreement. Any third-party financing or supporting security over company assets should be recorded. If shareholder guarantees are required, that will, to an extent, undermine a limited liability company’s effectiveness to ring-fence economic risks of the venture.

CONTROL Identified as a key area of friction, it’s critical that the agreement identifies the respective shareholders’ powers. If equity in the business isn’t to be divided equally, minority shareholders will often seek protections, giving them a veto on critical

Unrealistic profit expectation is another common cause of discord. Care should be taken before recording a commitment to fixed dividends in the JV agreement. Pursuing a speedy return on investment may have to be tempered by the need to meet third-party financing obligations or reinvest into the business.

EXIT The agreement should also address how a shareholder will be able to exit the joint venture and in what circumstances it should terminate, as well as the consequences of termination. Those might include forced buy-sell mechanisms aimed at achieving a speedy determination of share value if deadlock arises on exit from the venture. The parties will also want certain provisions of the agreement to survive termination – for example, confidentiality and non-compete/non-solicitation clauses. The above elements are by no means exhaustive. Among others, issues such as tax, dispute resolution mechanisms and employment matters may well have to be catered for. However, if the JV agreement addresses these core aspects it should provide an informed basis for operation of the venture. n

Mason Birbeck can be contacted at mason.birbeck@parslowsjersey.com or on +44 1534 630530. www.parslowsjersey.com

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Getting heard above the

noise

BL’s recent Channel Islands Funds Forum brought together leading figures from the funds industry for some insightful, thought-provoking and informative discussions

When the islands receive their AIFMD passports they could go head to head with Luxembourg

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this is something for which we should come together and work together to be as well prepared as we can.” Following a brief discussion about cybersecurity, it wasn’t long before the conversation switched to an analysis of the threats posed by a range of international pressures. Robins asked whether there was increased evidence of pressure coming from the onshore world. The consensus was that Luxembourg poses the biggest competitive threat to the Channel Islands funds industry, but Andrew Whittaker said the small European state also had drawbacks for fund managers. “Whilst the market is pushing towards Luxembourg, there are problems on the tax side, which we hear clients talking about,” he said, suggesting that the Channel Island’s funds industry “needs to create more cost-effective propositions over here” to increase the islands’ attractiveness vis-à-vis Luxembourg.

BREXIT REACTION Robins then brought the conversation back to Brexit, asking whether the UK’s leaving the EU will be a shock to the Channel Islands. In general, the panel felt that Brexit fitted into the category of a serious challenge that held the potential for many opportunities, particularly once the issue of passporting is resolved. “The passport is in the lap of the gods. Whilst the second wave [of assessments] went well, it’s down to politics now,” explained Mike Jones. “They’re not just looking at AIFMD and AML processes, in which the islands have stellar scores, so we must engage with them in order to make our case.” After the Brexit discussion, the conversation moved on to the new products being introduced to the islands, including Jersey’s new private funds regime and Guernsey’s manager-led product, both of which the panel felt should benefit the existing product portfolios by giving fund creators greater flexibility in the range of options available to them. The conversation then moved to regulation with King saying that it can be difficult “for some people to understand our high regulatory standards”. This prompted Whittaker to say that a practical approach to regulation was required to ensure that standards are maintained whilst also remaining understandable to clients. Robins rounded off the discussion by suggesting

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Words: Kirsten Morel Pictures: Glen Perotte

BREXIT AND THE Panama Papers have dominated the media over the past year and caused people to question the value of international finance centres like Jersey and Guernsey. With the focus on one of their most successful sectors – the funds industry – speakers at BL Global’s annual Channel Islands Funds Forum attempted to determine whether the islands really are making themselves heard above all of the noise. Held at the Radisson Blu Hotel in St Helier, Jersey, on 28 September, the Forum, organised in partnership with PwC, was attended by 150 leading members of the Channel Islands’ funds industry. The event was sponsored by Appleby, Hawksford and Optimus Group, and supported by Altair, Puritas and Rossborough Professional Risks. The day kicked off with a session examining the past 12 months in funds. Ben Robins, Partner at Mourant Ozannes, acted as moderator to a panel comprising: Fiona Le Poidevin, CEO of the Channel Islands Securities Exchange; Mike Jones, Director of Policy at the Jersey Financial Services Commission; Simon King, Private Equity Director at Aztec Group; and Andrew Whittaker, Chair of the Guernsey Investment Funds Association and Managing Director of Ipes, Guernsey. When asked about the response towards the islands following both the Panama Papers and Brexit, Fiona Le Poidevin felt the issue of communication was paramount. “Jersey and Guernsey are still well respected, but Europe doesn’t necessarily understand our relationship with the UK,” she said. “It’s tough. Brexit isn’t helping and there’s no doubt that we need better engagement.” The need to engage and communicate was also at the forefront of the panel’s thinking when Ben Robins sought their views on cybersecurity in the wake of the Panama Papers revelations. “There’s no doubt that cyber threats are there,” said Simon King. “As an industry, we’re dealing individually with the threat, but

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CURRENT TRENDS

Evelyn Brady, Partner at PwC in Guernsey, and Stuart Pinnington, Group Head of Institutional Client Services at JTC Group, followed the opening panel with a presentation on current funds industry trends. In a world of political uncertainty, both felt Jersey and Guernsey are well placed to continue developing their funds industries because of the quality of the “people, the service and the environment”. Brady felt Brexit offers an opportunity for the islands to move their focus from Europe to the rest of the world and, whilst agreeing with this, Pinnington added that the strong progress with European passports will mean the islands are particularly well placed to benefit from Brexit. This line of thinking was extended to take into account last year’s launch of a number of ManCos (management company solutions) in the islands’ regulatory regimes. Pinnington said the islands could “exploit the non-EU/EU split. When we receive our passports, the islands could go head to head with Luxembourg”. Looking at trends in interest in the islands, Brady explained that whilst “some bumper funds have launched in Guernsey, we can’t expect others to automatically follow because every fund considers its jurisdictional options. We are seeing particular sectors like healthcare and smaller niche funds coming through”. In Jersey, Pinnington said that “real estate business continues to flow into the island but the flow of expert funds isn’t happening in the same way”. He also said that private equity funds are “still strong in Guernsey, which has a great background in the area”.

REGULATION, LEGISLATION AND TAX The day’s third session provided an update on regulation, tax and legislation. Opening this session, Andrew Weaver, Partner at Appleby in Jersey, gave an update on the past year’s regulatory developments. In what had been a busy year, highlights included ESMA’s announcement that there should be no obstacles to the islands receiving their AIFMD passports and the Moneyval reports, which showed the Channel Islands have “mature legal and regulatory systems”. Weaver noted that both islands have issued guidance on their

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approach to risk-based supervision and there are slight differences between them. Whilst Jersey sees the potential impact of a risk being a function of its footprint and its severity, Guernsey also factors in the probability of a risk occurring. Interestingly, cybersecurity has been identified as a growing threat, with areas of risk being identified as the potential for data loss, financial loss and DDoS attacks that affect the ability to do business. Robert Mellor, European Alternatives Leader at PwC in London, followed on to cover the tax issues. In his update, he said BEPS had become a reality and, along with new ‘anti-hybrid’ rules, would naturally affect the ability of firms to limit tax losses. As a result, “you’ll see more tax leakage at the portfolio level”. In general terms, Mellor explained, “there’s a huge amount of legislative change going on at the moment” and that companies “have to be on top of these changes”. “Tax authorities are sharing data a lot more, so you need to have a consistent view of your business,” he warned. “If what you say to investors, the market and the regulator is inconsistent, then you’ll be on the back foot.”

Tax authorities are sharing data a lot more, so firms need to have a consistent view of their business

RISK MANAGEMENT The next panel – and the close of morning sessions – looked at risk and risk management, and comprised: Brett Allen, Head of Product and Client Solutions at BNP Paribas Securities Services; Pippa Davidson, Head of Funds at Fairway Group; Justin Partington, Global Head of Funds at Sanne Group, who also acted as moderator; and Sarah Sandiford, Compliance Officer at Langham Hall Jersey. Partington began by saying there are three main areas of risk within a business: AML compliance, the integrity of any given tax structure, and staffing and recruitment. Sandiford followed by complimenting Jersey’s compliance standards. “We’re pretty good at AML/CFT controls and should remember this ourselves,” she said, before Allen made a point about the need to automate processes wherever possible. Whilst automation is important, risk assessment will always have an element of subjectivity. Davidson suggested it can often be easier for smaller firms to be flexible and make quicker decisions. The panel agreed that people are vital to effective compliance. In response to a question about the effect of NEDs on compliance standards, Sandiford said third-party NEDs are a risk and therefore compliance officers should take the time to get to know

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that the islands’ funds associations may be needed to make the case for using the Channel Islands because larger, multijurisdictional companies have to maintain a neutrality to provide their clients with the services they need.

Funds

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Funds them. Davidson added that someone external with the relevant industry experience can be a great help, but that doesn’t mean Jersey-based people aren’t suitable. “We shouldn’t undersell ourselves; our experience in Jersey is important,” she said.

INVESTMENT OPPORTUNITIES Brexit and the US elections weighed heavily in a presentation by Mark Rawlins, Group Partner at law firm Collas Crill, and Scott Spencer, Portfolio Manager for Ravenscroft Investment Management, which looked at where the money flows are coming from in the year ahead. Again, the feeling with regard to Britain leaving the EU was one of opportunities being created. “There’s the possibility of, let’s call it a ‘Brexit Opportunity Fund’ that takes advantage of currency volatility,” said Rawlins. As Spencer pointed out: “If you’re a dollar investor in the UK, you’ve just been given a huge discount on your purchases.” He suggested one reason for the slowdown in IPOs during 2016 was the upcoming US election. “We can’t invest on a political outcome, we just have to work with the existing conditions. Post the US elections, 2017 could be a very active market for IPOs,” he said. Looking at the EU, Rawlins made it clear that the Channel Islands need to make sure they are close to both the UK and the EU following Brexit. The presentation then moved to Asia and the Middle East, which were characterised as being the regions in which new wealth is being created. China’s infrastructure was highlighted as being a key driver for growth, with it being 20 years ahead of India and 50 years ahead of Africa. On Africa, the pair explained that there are opportunities but that a trust issue had slowed investment. However, the growth in transport links is “opening up opportunities” and “Africa should be on everyone’s radar.”

ISLAND INNOVATION The penultimate session of the day focused on innovation in the funds sector. Mike Byrne, Chair of the Jersey Funds Association and Partner at PwC in the Channel Islands, and Frances Watson, then a Partner at Ogier in Guernsey, examined the sectoral landscape. Luxembourg and Ireland were noted as threats to the

There’s the possibility of a ‘Brexit Opportunity Fund’ that takes advantage of currency volatility

Channel Islands’ funds industry because they can compete on people and scale. That said, Byrne noted that the Channel Islands still have “five or six times the value of private equity funds” compared with Dublin, while Watson pointed out that the “Channel Islands have always been innovative”. The role of the regulator as a catalyst for innovation was brought to the fore, with Byrne saying: “We’re unique in our ability to interact with the regulator.” This was reinforced by Watson, who said that “for innovation to work, you have to have clear regulatory guidelines”. Fund administrators were praised for their ability to “turn regulatory burdens into opportunities” and KYC was highlighted as an area that could become “a huge competitive advantage” if a firm found a way to “crack the nut of clients having to give their KYC to every service provider”. Debt funds were described as “having their moment” and sympathy was expressed for the regulator faced with pressure to move quickly in the untried and untested cryptocurrency space.

WHAT NEXT? The day’s final panel session saw Lisa Cawley, Partner at Kirkland & Ellis in London, moderate a discussion entitled ‘What Next for Funds?’. Other participants included: Amy Bryant, COO at Jersey Finance; Gavin Farrell, Partner at Mourant Ozannes; Giles Johnstone-Scott, Director at Elian; and Dominic Wheatley, CEO of Guernsey Finance. While Wheatley saw Brexit as making it possible to become “more aligned with London”, Farrell pointed out that London could become a Channel Islands competitor. However, he reiterated a theme of the day – that Luxembourg was the main threat. In response to a question from Cawley about costs, Bryant saw wage inflation in small jurisdictions as an issue but also explained that regulatory costs may rise among the Channel Islands’ competitors as they attempted to achieve the same regulatory standards. On products, Johnstone-Scott said the Jersey RAIF (reserved alternative investment fund) would be very marketable. This was backed up by Bryant, who said Jersey Finance is constantly “scanning our competitors to see what they are doing and whether we are doing enough”. When asked why clients should see the Channel Islands as being the right place to set up funds, Johnstone-Scott pointed to the “good people, systems and processes”. Farrell said: “Our track record, high intellectual capital and the fact that we are a welltrodden path are all qualities that are valued by fund managers.” Wheatley highlighted tax neutrality as well as future-proofing. “Not only do we have a good track record but we’re currently in a great place and will continue to be in the future,” he said. On a question about how she pitches the Channel Islands to clients, Cawley rounded off a highly informative day saying: “The islands are perceived as a great place to do business. Ultimately, it comes down to whether there is enough of an upside to deal with the islands rather than lower-standard regulatory regimes.” n KIRSTEN MOREL is a freelance finance writer

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Opinion

my opinion…

Malcolm Lewis, Proprietor of the Longueville Manor hotel in Jersey, believes it’s about time a career in hospitality stopped being seen as a poor relation to a career in finance

Illustration: Marthinus Slabber AT THE TENDER age of 13,

I was sent to boarding school. Like most kids at that age, focusing on the future wasn’t an issue until the crunch came. It was clear, to me at least, that I should do the ‘right’ thing and one day join the family hotel business. My best friend, Sinclair Beecham, had absolutely no idea what to do, so it wasn’t long before he was advised that banking would be his best bet. Sinclair left school with a congratulatory pat on the back, destined to become a high-flying banker, and I left in shame – I was going into ‘catering’. Sadly, hospitality being considered a poor cousin to finance, law and medicine is just as prevalent today. The issue is deep rooted within the psyche of society – the misplaced opinion that an industry that serves should be held in lower regard is preposterous. It upsets me that this view remains. If we don’t tackle it, we will be stifling the fastest-growing industry on the planet. The problem, particularly in the Channel Islands, is fundamentally down to the poor image of tourism and its dramatic decline over the past 20 years. The message is that tourism is a failure and a dead duck; we’ve had our heyday and we should just get over it. Local government and a tourism body that has managed our industry into this decline must be held to account. It’s now a major struggle for the industry to convince its audience that it’s worth bothering with. The lack of support from our education system for the industry is another hurdle. What are we trying to teach our children? That it’s worth becoming a number in a massive finance office and working all the hours under the sun for a wad of

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cash? I would be far more comfortable suggesting to my children a hospitality route that offered fantastic career progression, worldwide opportunities, job satisfaction and long-term prospects. The finance industry may put out a sexy story, but at what sacrifice? We need to start creating hospitality leaders of the future – and the Channel Islands are way behind the curve. In France, Michelin-starred chefs rub shoulders with leading politicians and are awarded the country’s highest accolade of achievement, the Légion d’Honneur. I would love to see this level of respect return to our local industry. Another stigma that I encounter is that the hours in hospitality are crazy. It’s true that you may work some weekends, or you may work split shifts, but what many people don’t understand is that this also has its benefits. Our restaurant staff cherish the fact that they have time to go surfing, hit the shops or pick up the kids from school every afternoon. I’m starting to think that the work/life balance achieved by those in the hospitality industry is the best-kept secret on the planet! After all these years, I still meet up

regularly with Sinclair – who became one of the country’s most successful modern-day entrepreneurs, having dumped his banking career and created Pret-a-Manger. When we do meet, we share notes on hospitality. One thing we never fail to agree upon is that our success is founded on our well-trained staff. But while relying on these people, there are simply not enough of them. And this has become a global issue, not just a local one. The challenge for the industry is clear – it has to approach the recruitment crisis with determination. It needs to coherently articulate the excellent career prospects available and overturn some of the inherent stigmas and unfounded reputations that still prevail. Today, the industry has never been in a better position to overcome the challenge. Job titles range from Mixologist to General Manager, from Spa Therapist to HR Manager, and from Sommelier to Sales and Marketing Manager. And recent employment legislation, coupled with much-improved working conditions and excellent career and remuneration prospects, offer young people opportunities never seen before. To my great relief, the vision of the new Visit Jersey is now clear to us all – and they really seem to get it. However, its success can only come about by the ongoing development of Jersey as a high-quality destination, driven by highly trained, highly professional and highly motivated people. The island’s government, trade associations, schools and, not least, the residents of Jersey themselves must support the challenge by falling back in love with tourism. Maybe ‘catering’ isn’t such a bad career option after all. n

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Innovation

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Marcus Leese, Practice Partner in Ogier’s Guernsey office, examines how the Channel Islands are innovating in the funds arena IF YOU LOOK around the world at

countries, regions or cities that have become leading locations for innovation in any field, there are themes that come up again and again. Whether it’s Silicon Valley, the City of London or Estonia, innovation centres emerge where there is: ● A highly skilled and educated workforce ● An environment that people will choose to live in ● A pragmatic approach to regulation that makes it easy to do business ● Opportunity for investment. The existence of those four pre-conditions isn’t solely down to government, regulators or industry, but a combination of the efforts of all three (and, arguably, nature and geography too). Similarly, the success of innovation in the Channel Islands depends on whether those pre-conditions are met. And clearly, they are – the islands have a highly skilled workforce; natural features and culture make them a desirable place to live; the attitude of government and regulators is business-friendly; and there’s ready access to capital for investment. The Channel Islands’ funds sectors are themselves a product of the innovation this environment has created, born as the finance industries in the islands sought to diversify from banking and trusts in the ‘noughties’ to establish a presence in the alternative investment funds market. Jersey’s Expert Fund regime, for example, established in 2004, was followed by exchange-traded funds, and then the private placement regime in 2012. And the trend continues. Guernsey has already adopted an innovative manager-led product (MLP) that reduces compliance

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duplication by focusing attention on managers, not underlying funds – which is itself based on Luxembourg’s reserved alternative investment fund (RAIF). Jersey is set to consult on a similar scheme in the coming months. That MLP could be another gamechanger in reducing costs both at the fund formation stage and throughout the life of the fund. At the same time, it gels with the EU’s shift in focus to regulating the managers of investments, not the investments themselves. The underlying work of the funds sector can also have an innovation theme. Just this year, Ogier has been involved in a wide range of work: the establishment of Medicxi Ventures, one of Europe’s largest life sciences-focused venture firms; collaboration with our real estate structuring team to assist Paloma Capital on a UK-focused real estate investment fund; and work with our Luxembourg office on AEW Capital Management’s new fund targeting retail and office assets in Asia. But is there a tension in a regulated industry between innovation on the one hand, and necessary checks and balances on the other? In the Channel Islands, the relationship between the two might be better described as a state of healthy equilibrium. The willingness of regulators and governments to make regulatory and legislative amendments to enable innovation to take place – not to mention the constructive attitude in terms of employee licensing – is matched by clear endorsement from international bodies. Just this year we’ve seen pleasing reports from Moneyval on both Jersey and Guernsey, and an

indication from ESMA that there is ‘no significant obstacle’ to the granting of an AIFMD passport to both islands. Both developments indicate that the appetite for innovation in the islands isn’t at the cost of proper regulation and supervision. The next big test for regulators comes in the form of virtual currencies. How will they apply the same checks and balances to currencies outside of the traditional banking framework, in which transfer of value from one jurisdiction to another is almost instant? Jersey’s response is worthy of note. It created a ‘regulatory sandbox’ allowing the experimentation and development of virtual currency applications without heavy regulation up to a £150,000 turnover threshold. On a related note, Guernsey has recently launched a consultation to establish a regulatory structure for crowdfunding platforms and similar retail-focused alternative funders – recognition of an unquestionably growing area. A final thought: innovation isn’t just increasingly important, it’s increasingly rapid. The term ‘Silicon Valley’ was coined in the 1970s, long before it became what it is now. In 1980, the population of Shenzen, China, was around 30,000, slightly more than St Helier; today, it’s a technology and manufacturing hub with an estimated population of 11 million. And while Estonia’s embrace of a digital future only began with the Tiger Leap project in the 1990s, the nation’s digital sector today contributes some 15 per cent of GDP. The changing factor is technology – and the key point isn’t just that it’s accelerated the pace of change and innovation, but that it continues to do so. The future for the Channel Islands may be closer than we think. n

ABOUT THE AUTHOR

Marcus Leese is a Practice Partner in Ogier’s Guernsey office. He can be contacted on 01481 737152 or marcus.leese@ogier.com

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The Middle East Andrew Maiden, A Funds Director at Moore Management, examines why commercial property in the UK and Europe is more attractive than ever to investors in the Middle East WITH THE SAGA of Brexit still unfolding and the run-up to the

presidential election in the US proving to be the most newsworthy in recent memory, if not in history, it’s no surprise that many in the West have had their eyes focused on affairs close to home lately. Brexit and the US election aren’t typically front of mind for most in the Middle East – the region has endured more than its fair share of uncertainty in recent years, with oil prices persistently low and an unstable geopolitical situation casting a long shadow. However, for Middle Eastern investors, what’s happening in the West is very much on their radar. These investors have massive spending power and, with so much uncertainty at home, those seeking long-term capital appreciation and regular income are increasingly looking further afield to new alternative assets in order to diversify their portfolios, gain better returns and, ultimately, preserve their wealth. Top of the list of targets is commercial real estate, on which Middle Eastern investors are expected to spend US$180bn outside their own region over the next decade. The main destination is Europe – 80 per cent of that $180bn is earmarked for investment there over the next 10 years. Close to $85bn of that will flow into the UK, with $60bn directed at continental Europe, where France, Germany, Italy and Spain are among the key target markets. These are sizeable figures and they provide a real opportunity for the Channel Islands, which have a proven track record of providing a route to such markets. For a sense of the potential impact, let’s look at the UK, whose property market is regarded as a safe option for Middle Eastern investors. There are plenty of high-profile examples – Qatar’s sovereign wealth fund alone owns several London landmarks, including Harrods department store and London’s Olympic Village. Middle Eastern investors bought at least £5.9bn of UK property in 2015, in a bid to offset losses from the slump in commodities. Since then, however, the UK market has seen great upheaval of its own, with analytics firm Real Capital Analytics reporting that

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investment volumes into London real estate were 50 per cent down in the first half of 2016 compared with the same period in 2015, driven largely by the UK’s falling economic growth. Since then, the shock of June’s Brexit referendum, in which the UK voted to leave the EU, has led to a third of ongoing property deals either collapsing or having to be renegotiated. Yet it appears there’s a massive opportunity here too. At the time of writing, sterling has plummeted to a 31-year low against the dollar, giving cash-rich Middle Eastern investors the chance to secure discounted prices for the country’s highly desirable real estate. These investors, many of whom put very little weight on whether the UK is part of the EU or not, will find property 31 per cent cheaper than it was during the last market peak in Q3 2007. And any US dollar or UAE dirham investors will find the price of an average prime central London residential asset $96,000 (Dh350,000) cheaper than it was on 20 June 2016. This isn’t mere speculation. In August, a consortium of Saudi and UK investors bid $1.3bn for London’s Grosvenor House hotel. Meanwhile, Abu Dhabi Financial Group is planning to bid on Hyde Park Barracks in Knightsbridge, a prime London site owned by the Ministry of Defence. It’s not just a matter of the headline purchases, either – UK and European real estate lot sizes in the office and retail sector tend to be below €100 million, which may suit Middle Eastern investors whose own assets have taken a hit from declining oil revenues. Yet the largest growth in investment may well come from the

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looks West region’s sovereign wealth funds, which commonly find equity markets too volatile and its sukuk (sharia-compliant bonds) markets too low yielding. Traditionally, sovereign wealth funds have focused on larger lot sizes (above €150 million) in the office sector, so it’d be no surprise to see further headlines about more of the UK’s eye-catching infrastructure being snapped up in the coming months. It’s fair to say, then, that we may be about to see a significant resumption in property investment activity in the UK. As for the longer-term implications, it’s probably too soon to assess. However, we may start to see the unlocking of London’s stalled residential property market, with investors entering and exiting the market, as we head towards a period of demand volatility. This is where the Channel Islands come in. This rise in demand overall is sure to have huge implications for international finance centres, particularly those offshore. Real estate investors are increasingly structuring investment in infrastructure and property indirectly through offshore real estate investment vehicles, which can provide tangible benefits when acquiring and holding property in the UK and Europe. With more than 50 years of handling international transactions under their belts, Guernsey and Jersey have built a cast-iron reputation as leading offshore finance centres with a specific focus and expertise in UK and European real estate. They offer political and economic stability, a highly skilled workforce and a sophisticated and comprehensive legal infrastructure underpinned

by a robust regulatory framework – all with transparency standards that have been publicly lauded by international bodies such as the World Bank and the OECD. Crucially, Channel Island professionals understand Middle Eastern investors. The islands have longstanding relationships with many intermediaries and ultra-high-net-worth individuals and families in the region, and their wide range of investment structures are perfectly built to support the ambitions of its investors. If these investors do choose a fund structure domiciled in the Channel Islands, it will come with an innovative and flexible regulatory regime, tax neutrality, professional expertise from renowned law firms and auditors, fiscal efficiencies and proximity to London and Europe, whose professionals are more than familiar with the Channel Islands’ companies, unit trusts and partnerships. All of which, in a period of such upheaval, is precisely the kind of security Middle Eastern investors are looking for. n

SPEAK TO MOORE

Andrew Maiden is a Funds Director at Moore Management and has more than 18 years’ experience in offshore fund administration, with particular expertise in listed and private alternative asset class funds, including real estate and private equity. To find out how Moore can help you with your funds requirements, call Andrew on 01481 231868 or email andrew.maiden@mooremanagement.com

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GDP

debt

Credit

Inflation

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retail

Trade

Economic indicators: help or hokum?

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Unemployment

Predicting the future success and failure of economies and stock markets is often pinned to certain indicators – but how accurate are they in doing their job?

Income

Finance

Words: Chris Menon

Bond yields

largely ignored the role of credit and its counterpart, debt, as well as asset prices and the financial sector more broadly in macroeconomic modelling, including forecasting,” he explains. “A false division was drawn between the real economy – involving labour, exchange and trade – and the financial economy, which was seen to be relatively neutral in the long run, with credit and money ‘oiling the wheels’ of the real economy. “The financial crisis is the classic example – the huge build-up of mortgage credit and corresponding increases in house prices was largely ignored because modellers were focused on consumer price inflation (in the ‘real’ economy) and GDP growth, both of which seemed relatively healthy.”

Economists typically tend to use a wide variety of lagging and leading indicators to try and ascertain what’s happening with an economy. Lagging indicators shift after the economy changes. Although they don’t typically tell us where the economy is headed, they indicate how the economy changes over time and can help identify long-term trends. Some of the most popular lagging indicators include changes in GDP, the consumer price index (CPI), income and wages, unemployment rates and the balance of trade. Leading indicators tend to predict future changes in the economic cycle. They include indicators measuring consumer confidence, IHS Markit’s Purchasing Manager’s Index (PMI), bond yields and stock market performance. Anyone who watches the investment markets knows that they move up and down on a whole series of economic data. This is both hard or quantitative data – such as employment and unemployment figures, interest rate changes and manufacturing stats – and soft data, such as surveys giving an indication of business sentiment. However, the feedback loop between the two is complicated by the fact that the economic cycle doesn’t coincide with that of the financial markets, whose participants are continually attempting to second guess where an economy is heading. According

Manufacturing

UPS AND DOWNS

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LET’S FACE IT, we’d all like to see into the future. But as we’ve not yet worked out how to build a Tardis, that’s unlikely to happen any day soon. In the meantime, we have to rely on supposed expert opinion to predict what’s going to happen in certain areas of life. No one’s perfect. On the evening before the Great Storm of 1987, weatherman Michael Fish famously noted during a weather report: “Earlier on today, apparently, a woman rang the BBC and said she’d heard there was a hurricane on the way... Well, if you’re watching, don’t worry, there isn’t!” That evening, the worst storm to hit south-east England for three centuries caused record damage and killed 19 people. Despite a wealth of economic indicators to draw upon, it seems most economists and financial commentators are just about as successful as Fish when it comes to predicting recessions and recoveries, never mind stock market falls. A 2014 study by two IMF economists, Hites Ahir and Prakash Loungani, found that none of the 62 recessions that occurred around the world during 2008 and 2009 had been predicted by mainstream economists by September of the previous year. Justin Oliver, Deputy Chief Investment Officer at Canaccord Genuity Wealth Management, believes this is perhaps not a wholly fair representation. He argues that some economists who have in the past spotted problems were derided or ignored. He cites Tony Dye of Phillips & Drew in the 1990s, and William White, Chief Economist of the Bank for International Settlement, before the financial crisis, as two such figures who did warn of imbalances. Of the handful of economists who did warn of problems prior to the great financial crisis of 2008/09 – including Steve Keen, Ann Pettifor, Nouriel Roubini, Dean Baker, Raghuram Rajan and Peter Schiff – most were outside the mainstream. The vast majority of economists and financial commentators somehow missed the warning signs of an impending financial crisis, never mind anticipating it leading to multiple recessions around the globe. Josh Ryan-Collins, a Senior Economist at the New Economics Foundation, believes the main reason for this lack of forecasting ability by most economists is the models they use. “Mainstream economics has

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Finance

to Andrew Lapthorne, Head of Quantitative Research at Société Générale: “Most economic leading indicators have bond and equity markets as the key indicator of future recessions. We find that, even if you knew the business cycle in advance, it lags the market cycle. As such, my view is that economic data isn’t that useful for market timing.” Possibly one of the most misleading stats regularly put out is on unemployment levels, as Professor Steve Keen, Head of Economics at Kingston University, attests. “It used to be that if you were out of work and looking for work, you were classified as unemployed. Now the International Labour Organisation definition requires that you haven’t done an hour’s paid or unpaid work in the previous two weeks, that you are available to start immediately, and many other extraneous points. “The US even drops you off their main measure – known as U3 – if you’ve been unemployed for more than a year. All these factors make modern unemployment statistics misleading, and hard to compare with historical statistics.” Still, there are economic indicators that apparently have a close correlation to recessions and recoveries. Albert Edwards, Global Strategist at Société Générale, has written: “It is the business investment cycle driven by the profits cycle that is, historically, the primary cause of recessions.” Thus, in a September 2016 note, he argues: “Our hypothesis that a US profits recession will lead to a collapse in business investment and take the economy into recession seems to be playing out.” On his reading, consumer consumption is all that’s keeping the US economy afloat.

READING BETWEEN THE LINES Given that in the short term much of this consumption is driven by increasing debt, Justin Oliver argues that in order to gain an idea of where an economy is heading in the short term, one of the best correlations is the ‘credit impulse’ – the rate of acceleration of credit or private debt in an economy. Keen elaborates: “The credit impulse leads changes in GDP and changes in employment, with the lead (in the US) being about two months in the case of employment and four months in the case of GDP.” Of course, given the complexities of economies and financial markets, no single indicator will tell you exactly what’s going to happen with either, so it’s difficult to spot precise tipping points. Still, Oliver believes a good forecaster can “accurately assess the direction of travel”. Derry Pickford, Co-head of Asset Allocation at Ashburton Investments, is slightly more cautious. “You can certainly identify risk, and you can sometimes identify direction of travel, but even direction of travel over shorter time horizons can be very tricky. If you’re just using quantitative data without any qualitative judgement, you can do longerhorizon forecasts, but they still have substantial risks around them. When it comes to shorter time horizons, quantitative data becomes less and less useful and you have to be more and more reliant on your qualitative analysis.”

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Nevertheless, Steve Keen is confident he’s identified that economic crises occur when the ratio of private debt to GDP is large, and is also growing quickly compared with GDP. By screening for countries where the privatedebt-to-GDP ratio exceeded 175 per cent of GDP, and where the increase in private debt last year exceeded 10 per cent of GDP, Keen came up with a list of the seven countries that are most likely to suffer a debt crisis in the next one to three years. They are – in order of likely severity – China, Australia, Sweden, Hong Kong, Korea, Canada, and Norway. However, he does admit: “Timing precisely when these countries will have their recessions isn’t possible, because it depends on when the private sector’s willingness to borrow from the banks – and the banking sector’s willingness to lend – stops.” The curse of Cassandra has historically led to the majority ignoring such warnings, even though conventional economic wisdom has proven to be inadequate. Perhaps, the last word should go to the great economist John Maynard Keynes, who observed: “Worldly wisdom teaches that it is better for the reputation to fail conventionally than to succeed unconventionally.” n CHRIS MENON is a freelance finance writer

UNUSUAL ECONOMIC INDICATORS New car sales If car sales are increasing, it shows people are confident about their jobs and promotion. If it is trending down, it could be a sign that they are losing confidence in the economy. Motor vehicle sales are good indicators of trends in consumer spending and often are considered a leading indicator at business cycle turning points. Underwear Index This can supposedly detect the beginnings of a recovery during an economic slump, as sales of men’s pants, which are a flexible necessity, increase during an upturn. It was once used by Alan Greenspan, former Chairman of the Federal Reserve, to predict market trends. Baltic Dry Index This provides a measure of the freight rates for moving major raw materials by sea. The BDI is considered by some people as a leading economic indicator because it predicts future economic activity – rising rates indicate increased demand and therefore future economic growth and falling rates indicate contraction. Skyscraper Index In 1999, economist Andrew Lawrence created the Skyscraper Index, which purported to show that the building of the tallest skyscrapers is coincidental with the onset of major economic downturns. Lipstick Index In 2000, Leonard Lauder, Chairman of cosmetics firm Estée Lauder, argued that increased sales of cosmetics, especially lipstick, could be inversely correlated with economic health. He argued that women would defer buying more expensive items such as dresses, handbags and shoes and instead buy lipstick in times of hardship. A more recent variant on the same theme is the Nail Polish Index.

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is for Disqualification ASK ALMOST ANYONE in Jersey’s or Guernsey’s financial services sector why people should use the islands’ services and all of them will, at some point, mention ‘world-class regulatory regimes’. This unusual selling point came about because of political decisions made two decades ago. They set the islands on course to develop financial models of regulation that would seek to meet standards set down by supra-governmental bodies such as the OECD and the IMF. At the time, the idea was simple – acquiescence to the will of the outside world to ensure the islands retain their standing as reputable international finance centres. Successive governments in both islands have maintained this stance and, as a result, the financial services commissions of Guernsey and Jersey (GFSC

Words: Kirsten Morel

and JFSC) have become the guardians of the islands’ reputations. They do this by implementing and enforcing the relevant laws created by the island governments, which are interpreted through regulations drawn up by the commissions themselves. At the macro level, the policy can be seen to have been a success. Both islands are thriving international financial centres and, over the past 20 years, have seen off a range of threats from the outside. They’ve done so principally by pointing to their strong regulatory environments and by introducing more regulation if needed. At street level, the view is more nuanced. Most people do believe that a reputation for regulatory integrity has been vital to the finance industry’s success. But some will also mention the M&A activity that’s led to many smaller finance firms disappearing over

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▼

the Channel Islands’ reputations are based on rigid regulatory frameworks, but what are the penalties if someone fails to comply?

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X X X X X the years. They will also point to the barriers to entry created by an ever-increasing regulatory burden and claim it stifles the emergence of new businesses on the islands. To some, the cost for smaller businesses is far outweighed by the benefits to the islands as a whole. However, John Harris, Director General of the JFSC, isn’t so sure that new companies are being held back by regulation. “The compliance burden is greater today than ever before – however, that’s not just down to the JFSC but the international environment,” he explains. “That’s why you’re seeing consolidation in the industry. There’s not a great deal we can do independently as the islands want to meet international standards. However, we see very little evidence that the risk of sanction and control is stopping people setting up businesses in Jersey.” The risk of sanction and control is a grave one for anybody working within the financial services system. The penalties for wrongdoing can, of course, include imprisonment for criminal activity but there are also sanctions at the civil level, including the disqualification of individuals from working in the finance sector. Interestingly, both islands have slightly different processes when it comes to investigating matters of concern. “There’s a close and constructive relationship between the enforcement divisions, but the islands have separate

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laws,” says William Mason, Director General of the Guernsey Financial Services Commission. “For instance, Jersey has only relatively recently brought in fines for firms. We’ve also moved to having UK-based QCs sitting alone and hearing our enforcement cases rather than a Decisions Committee comprising three of our Commissioners [as is the case in Jersey]. As the Executive, we plead the case against the person and they provide a defence with judgment decided by the QC. “Fraud has resulted in disqualification in a couple of cases following a Royal Court conviction, but other circumstances that could result in a disqualification include improper behaviour, dishonesty and poor conduct with a reputational impact such as a consistent and serious lack of appropriate competence, judgement and diligence.” In both islands it’s the Royal Court that has the power to disqualify a director, but the Commissions have the power to bar people from working within all or part of the industry.

ENFORCEMENT ACTION There are currently 41 people on Jersey’s Register of Restricted Persons and 13 who have received prohibitions that restrict their work in Guernsey (a couple of those on the list have been sanctioned in both islands). Ten of those restrictions in Guernsey have happened since the Enforcement Division of the GFSC was established in September 2013. “In terms of proportionality, we have around a dozen cases being looked at by our Enforcement Division at the moment,” says Mason. “Contrast this with around 150 or so issues that have been identified where improvements are required, and the firms in questions are working with our supervisory teams to make the necessary changes rather than finding themselves in enforcement.” Those that have already been dealt with and were found wanting have received sanctions ranging from their prohibition as a principal or registered person within the industry, all the way to a ban on being employed anywhere within the sector. “We’ve seen several financial penalties, but the naming of individuals is an effective penalty and can be more than enough in itself,” says Christopher Edwards, Litigation Partner at Mourant

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Ozannes in Guernsey. “We’ve also seen conditions attached that require notifications as to remediation progress to be made to the regulator, the requirement to engage and work with a compliance support firm that’s mandated to ensure the business becomes compliant or that processes are being adhered to.” Naturally, those convicted of crimes receive the strongest sanctions. But perhaps of most concern to people working in the industry is the possibility of being prohibited from working in the sector when things have gone wrong at an operational level rather than for any malicious activity. “It’s a small industry and so the consequences are felt more keenly,” explains Edwards. “If a person has been found to have fallen below the standard expected of them, it will be more difficult for them to further their career. It can be a fatal blow to a career and it can be difficult to retrain and find new opportunities in a small community.” All people working for the financial services industry within the islands are bound by the Commissions’ regulations, but the higher up the food chain you are, the more that’s expected of you. “The vast majority of directors take their responsibilities seriously,” says Howard Sharp, Founder of Jersey-based law firm, Ardent Chambers. “And there’s a lot of training out there that enables directors to fully understand their duties.” In fact, the islands can boast an entire training industry dedicated to helping directors and other sector workers achieve the levels of professionalism expected of them. That said, understanding your duties as a business doesn’t necessarily translate into easily being able to implement them. “If you’re a smaller company, then your ability to deal with the enforcement process is more limited,” says Edwards. “They can find it more difficult to deal with challenges when they arise.”

RAISING FLAGS There are basically two ways that a company or person can be investigated by either Commission. Either the entity in question alerts the regulator to a problem or the Commission finds out about the issue by themselves. “Most businesses or individuals may well find that they are better off facing up to the problem and sorting it out as soon as

practicable,” says Sharp. “Of course, there will be a worry when a business goes to the Commission, but as a general rule you are better off going to see them rather than them coming to you.” Handing yourself in, so to speak, is hardly an automatic instinct, which is why the regulator is keen to be viewed as a route to remedy rather than a path to punishment. “We always ask companies to come and work with us – the sooner we are aware of things, the sooner we can fix it,” says the JFSC’s John Harris. “If controls aren’t proper, we will work with them to remedy the issues. If a year later nothing has changed, then it becomes egregious. The systemic and wilful or the extremely reckless will almost invariably lead to sanction. “We know it’s a big ask to decide to speak to the regulator, but as soon as you do, it becomes mitigation – and that works hugely in your favour.” The threat of disqualification is one that all those involved in the Channel Islands’ finance sectors labour under. The reality, however, is that with just 54 people sanctioned in a decade it’s only a distant threat – one reserved for outlying incidents. The vast majority of cases worked on by either regulator are settled through the provision of advice, which must be followed by action. That said, some feel there is still a case to be made for the islands’ financial services commissions to reach out to the industry to allay nerves. “I’d like to see more actual cooperation by the regulator in engaging with the industry,” says Christopher Edwards. “We need to have a situation where firms feel they can approach the commission when something goes wrong, without fearing that they will immediately be subject to enforcement action.” n

We know it’s a big ask to decide to speak to the regulator, but as soon as you do, it becomes mitigation – and that works hugely in your favour

KIRSTEN MOREL is a freelance finance writer

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Business

The case against

Words: Jessica Furseth

brainstorming

Everyone’s prone to groupthink, even the boss, but There are better ways to get the best out of people – true innovation often emerges from moments of quiet IF YOU WANT your team to solve a problem, lock them in a room with a whiteboard and a pizza and don’t let them out until they have something. Or that’s the conventional wisdom at least. Brainstorming remains a go-to method for inspiring innovative thinking, and it sounds great, which is why pretty much everyone does it – by creating a relaxed environment, people can throw ideas around and see what sticks. Except there’s a problem: brainstorming isn’t actually all that effective. It’s a blow to companies that see themselves as a dynamic operation where everyone’s always available, but there’s a myriad of research on this topic that argues for the opposite approach – give people some quiet, and only then, after some alone time, put them together to share their ideas. The problem with brainstorming is ‘groupthink’ – people tend to fall into behavioural patterns in groups that have more to do with social dynamics than with innovation. It also doesn’t help that we’re drawn to people who sound confident, and there’s no evidence that the loudest person in the

room is necessarily also the smartest. The groupthink phenomenon can happen at any level of an organisation, including at the top, where you may think people would know better than to fall in line without merit. “In terms of a company board, groupthink means disparate ideas are less likely because people start to think of things in the same way,” says Richard Sheath, Partner at Independent Audit, a corporate governance consultancy that focuses on the effectiveness of boards. “They see things through the same lens, and over time they start thinking in the same way – rather than what they should

be doing, which is bringing their different experience and skills to the table.” This conundrum holds a clue as to why brainstorming, or group decision-making, remains so popular – it makes people feel connected. In her book Quiet: The power of introverts in a world that can’t stop talking, Susan Cain cites research studies where participants in brainstorming sessions often believe their group performed much better than it actually did. “Group brainstorming makes people feel attached – a worthy goal, as long as we understand that social glue, as opposed to creativity, is the principal benefit,” writes Cain. Add to this the tendency of some people to do most of the talking while others sit quietly, and the appeal of brainstorming

Business meetings to drive innovation starts to lose its lustre. Cain refers to studies that show how we perceive talkers as smarter than quiet types: “We see talkers as leaders. The more a person talks, the more other group members direct their attention to him, which means that he becomes increasingly powerful as the meeting goes on.”

In order to ensure no one railroads a meeting, you have to understand the dynamic of the group and be well prepared, says Ian Churchill, CEO of digital workflow software specialist BigHand. “When you get to know a group of people, you recognise their strengths and weaknesses. You have to make sure you engage the people who have a depth of knowledge over those who just have a strong view.” Churchill, who’s responsible for about 150 people, thinks large groups aren’t actually very efficient when it comes to solving problems. “I don’t particularly like big meetings. You get more done with four people than with eight,” he says. A gathering of a few people will be strongly motivated to solve a problem, says Churchill, but that’s less likely as the number grows. “Plus, the bigger the group, the more challenges you have with strong personalities,” he adds. Having good ideas isn’t solely reserved for those with the gift of the gab, so a key task for the person leading a meeting is to encourage participation from people who are naturally more

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THE IMPORTANCE OF LEADERSHIP

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Business quiet. “There are some really smart people out there who are quite shy, or who get intimidated by loud people,” says Mike Thorpe, a Director at the Janders Dean consultancy in Jersey. The most important person in the meeting is the one who’s leading it, says Thorpe. He recalls ITV newscaster Alastair Stewart moderating an event at the Institute of Directors. “You could tell he has years of experience. He was authoritative, knowing when to let people talk and when to shut them up.” The smartest employees are sometimes the quietest, says Thorpe – the people who just get on with their work. “Where companies have good moderators, or good leaders who allow them to speak, that’s when you get the most out of them.”

THE POWER OF QUIET Richard Sheath adds: “You need an awareness of what each individual is able to contribute to the discussion, and give them space to do so – particularly with different nationalities round the table.” Some cultures value assertiveness more than others, he says. The same can be said for gender. But it’s important not to be dogmatic about how meetings are run, says Sheath. “With time constraints, and a sense of needing to give everyone a chance to comment, it can become a bit of a go-around-the-table – a collection of disconnected comments – rather than a discussion of a theme.” Different personalities have varying approaches to discussions, so leaders need to be aware in order to get the best out of people. Susan Cain writes: ‘Extroverts think out loud and on their feet, they prefer talking to listening, rarely find themselves at a loss for words, and occasionally blurt out things they never meant to say. Introverts, in contrast… listen more than they talk, think before they speak, and often feel as if they express themselves better in writing than in conversation.’ Each type brings different strengths. Perhaps the best example of how powerful this combination can be is that it took extroverted Steve Jobs working with introverted Steve Wozniak to create Apple. To maximise the chances of hearing from quieter members of staff, it helps to prepare them, says Mike Thorpe: “If you want to get something specific out of a meeting, and you know the person you want to [speak] is a quiet person, you give them a heads up. Tell them: ‘I’m going to lead you into it’.” He emphasises setting an agenda for meetings. That includes taking a moment to wrap up at the end to make sure you got what you wanted out of the meeting. A far cry from brainstorming sessions, which end up with pizzasmeared Post-its all over the wall. And the research backs it up – the best ideas come when everyone has a chance to contribute, not just the loudmouths. n JESSICA FURSETH is a freelance business writer

How to avoid groupthink The theory of groupthink was developed by Irving Janis and is defined as ‘a mode of thinking that people engage in when they are deeply involved in a cohesive in-group, when the members’ striving for unanimity overrides their motivation to realistically appraise alternative courses of action’. Janis developed seven steps to help avoid groupthink: ● Leaders should assign each member the role of ‘critical evaluator’. This allows each member to freely air objections and doubts. ● ‘Higher-ups’ shouldn’t express an opinion when assigning a task to a group. ● The organisation should set up several independent groups, working on the same problem. ● All effective alternatives should be examined. ● Each member should discuss the group’s ideas with trusted people outside of the group. ● The group should invite outside experts into meetings. Group members should be allowed to discuss with and question the outside experts. ● At least one group member should be assigned the role of devil’s advocate. This should be a different person for each meeting.

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Leading by example

What happens if the leader is a quiet type too? Ian Churchill, CEO of BigHand, is reluctant to describe himself as an introvert – the term is often misunderstood to mean shy, and that isn’t a positive trait for a CEO. But Churchill is more than happy to describe himself as someone who listens. “I recognise I have a set of skills that are different from the other members of the team. To lead and make decisions, you have to assimilate a selection of opinions, and then distil down what’s the right way.” This is true for any leader, regardless of their personality type, and Churchill thinks the stereotypical ideal of a largerthan-life CEO is disappearing. “You have to engender respect to become a leader; you have to earn respect rather than demand it. But I don’t think you necessarily have to be charismatic to do so.” n

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Business

Just as employers are finally making sense of millennials, along comes the next, far-more-tech-savvy generation – so how can businesses be sure to attract the brightest and best? Words: Ben Jordan

THE MEDIA HAS a rather nebulous definition of ‘millennials’ – anyone born between 1980 and 2000 is breezily lumped into this chunk of the population. Derided as lazy, entitled narcissists who still live with their parents, Time magazine dubbed them the ‘Me, me, me generation’. But it’s a broad brush to paint with, as mid-thirtysomethings clearly have different drives and aspirations to teenagers playing Call of Duty in their bedrooms. Perhaps that’s why there’s so much confusion when it comes to understanding this catch-all generational term, and no surprise that we now have a different category to consider. The new kids on the block are post-millennials or ‘Generation Z’ – those born between 1995 and 2012 – who will be walking through the glass door in the next decade. And already we are mystified by their tech-savviness and the world they inhabit. The question for businesses is fast becoming how to attract these bright young things, especially at a time when they face the very real prospect of never needing a ‘proper job’. Take YouTube sensations Zoella and Alfie (Zalfie) - heroes to the younger generation through their wildly popular online vlog. Zalfie capitalised on their 18 million subscribers through a lucrative advertising partnership with YouTube. This September they were immortalised in wax at Madame Tussauds as part of a new ‘YouTube area’, leaving the rest of us asking ‘WTF?’. And you can forget pocket money – since e-gaming became a spectator sport through Twitch and YouTube, young gamers can earn intimidating sums of money before they’ve popped their last zit. By 2030, many of the world’s largest economies will have more jobs than skilled people. As a result, the talent market is going to be more competitive than it is today. Being able to predict the future workforce is more essential than ever. But just how will that future workforce think and operate? Will they disrupt the culture and conventions of the workplace by choosing to work remotely and being their own boss? Or will the

Hail the rise of

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EMPLOYERS: GET READY But there are plenty of Gen Zs who don’t want to break out on their own, so how do employers harness the creativity and tech understanding of this generation to empower their businesses? A company’s vision and clear communication of purpose and values is critical to Gen Z when choosing an employer, according to a recent Universum survey. It found that 39 per cent of those surveyed said vision, mission and values were the most important aspects in inspiring leadership, with 37 per cent calling for professional development, open communication and feedback. Silicon Valley companies such as Google and AirBnB have learned this lesson and are incorporating entrepreneurship in the workplace experience through ‘hack days’ and by improving the workplace culture with hands-off management and project work. “To stand out, employers need to think about their employee value proposition (EVP),” says Katie Faulkner, Managing Director of Excel Recruitment. “What makes you special as a company to work for? What are the unique benefits you offer in return for their skills, capabilities and experience? Companies need to define the essence of what makes them a great place to work, how they are unique and what they stand for. This can be discovered through workshops and focus groups with your existing staff, so you can effectively communicate your EVP through the right marketing channels.”

Generation

insta-generation be whimsical and easily distracted, chasing Poké pidgies around the copy machine? Gen Z are undoubtedly Techno Sapiens. At no time in history has technology moved so fast, and this bunch are digital natives. They’re the ‘always on’ generation, connected 10+ hours each day through high-speed mobile devices, allowing them to consume and share content with ease. They easily adapt to new technologies and implement them in their workflow. They’re very comfortable interacting online with their peers. Connectivity has been empowering for Gen Z as they’ve been able to enter the business arena much earlier. The anonymity of the internet and remoteness of online transactions affords them a credibility they simply wouldn’t get offline. People don’t stop to consider the developer’s age when using an app or online platform that adds value to their lives. George Streten, teen tech entrepreneur and a founder of start-up Space Lounges, says there are pros and cons of working at a younger age. “It has a major effect on people’s perception of you,” he says. “Different people deal with youth in different ways – some see it as being unique and fairly amazing that we have the motivation to be working off our own backs, others see us as being ‘children’ with no experience. The latter is something that we have to work especially hard to overcome. A major advantage, however, is the fact that people seem to be far more welcoming to support you… Entrepreneurial spirit at our age is a major factor in fast-tracking the processes that take far longer for traditionally aged entrepreneurs.”

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Business But what channels will Gen Z be using to search for their future employers? According to the Universum report, 60 per cent of Gen Z specifically search for an employer through Facebook, while 83 per cent of young students are open to the idea of being contacted on social media by a future employer. So how are recruiters adapting to this brave new world? Shelley Kendrick, Director of Kendrick Rose Recruitment in Jersey, says: “The focus of our business is digital. We’ve revamped our website this year and refocused our efforts on social media. In many ways it’s become an employee’s market now so we need to go where the people are by having a strong online presence.”

WORKPLACE CULTURE According to Universum, Gen Z’s greatest fear is being stuck in a role where they don’t fit and can’t grow. Thirty-seven per cent were concerned they wouldn’t find a job that suited their personality and 36 per cent were worried they’d have no development opportunities. The number one aspect for a personality match was ‘friendliness of people’. Katie Faulkner underlines this workplace culture issue. “Personal recommendations matter to young people. As we’ve seen on social media, young people tend to have shorter attention spans and are unlikely to watch a web video that’s much longer than 30 seconds,” she says. “But they’ll watch it if it’s been recommended by a friend. You can use the same peerto-peer network to attract and hire young talent. If you create a workplace culture that’s innovative, friendly and open, young people will refer your company to their peers.” In the finance industry, with vast amounts of capital administered in global markets, attention to detail is a key skill. The insta-generation is accustomed to split-second videos, condensed Tweets, skipping to the good bit. Should the finance sector be worried, then, about their levels of concentration? Shelley Kendrick is more optimistic. “Zeds favour speed over accuracy and organisations need to adapt to their style of working,” she says. “We’re already starting to notice new trends. The ‘workstation’ has been outmoded by hot-desking from hand-held devices, and meetings are being held virtually rather than face-to-face. The young generation can process information quickly and make swift decisions. Zeds will further set the pace.” She adds: “Businesses can invest ahead of the curve by working out the logistics of work sharing across virtual private networks. Data security will need to be a priority, especially in finance, but organisations must adapt and recognise that ‘Z’ is different.” Research has shown that a large proportion of Gen Z wants to join the workforce and bypass Higher Education – 62 per cent of those surveyed by Universum are open to the idea of going straight into work instead of pursuing university studies. Whether they’re trying to attract Gen Zs who want to go straight into work, or those that do want to go to university, where does all this leave the Channel Islands? “There will always be skills shortages because of the logistics of the island, housing

Gen Z are undoubtedly Techno Sapiens. At no time in history has technology moved so fast, and this bunch are digital natives

Gen Z by the numbers

62% are open to going straight into work and skipping university

60% use Facebook to search for a future employer

83% are open to being contacted about job opportunities on social media

43% want to start

their own companies to make a social impact regulations, five-year ruling, and so on,” says Kendrick. “It’s difficult to attract bright young graduates back to the island when 60 per cent of available jobs are in the finance sector. “Zeds are attracted by other industries, such as digital and tech. We are starting to diversify our economy with inroads in digital and non-profit sectors, but there’s still work to be done to stem a potential Gen Z brain drain.” Faulkner concludes: “There are steps a company can take to ready themselves for the next generation. They can provide bursary schemes to help with university fees, offer clear professional development and the opportunity to travel. There will always be generational differences but the greater proportion will want a secure, stable career with attractive prospects. We know what’s important to Generation Z; we just need to learn to speak to young people in their language.” n BEN JORDAN is a freelance business writer

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STRAIGHT TO BUSINESS Arrive in the heart of London. London City Airport from ÂŁ39.99 one way. flybe.com

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Words: Nate Jordan

When you enter a phrase in a search engine, you receive the results that are the most relevant to your request, yes? Well maybe notâ&#x20AC;Ś maybe completely different factors are in play

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â&#x2013;ź

HAS OUR DEMOCRACY BEEN HACKED?

Gino Santa Maria / JaysonPhotography / Joseph Sohm / Castleski / Rawpixel.com / Shutterstock.com

Technology

AN ASPIRING MUSICIAN searching for harmonica lessons online probably wouldn’t give much thought to what information comes up, provided they find a suitable teacher. They probably would assume major websites like Google present all the information in a neat, unbiased list, ready to be clicked. But what if major websites selectively manipulated the information they show us each time we searched online? Are the only factors in play what information is most useful to you or is something else at work? Cash, as ever, is king. Google delivers adverts through an auction-based system. Pay for an advert and a music school stands a better chance of being at the top of a search page. So a prospective student is more likely to visit the site of a school with deeper pockets over a poorer one with potentially more able teachers. But this is just market forces at work. Website owners also take advantage of SEO (search engine optimisation) to boost their listings in search results. A few of these techniques include cross-linking – providing links to other useful pages – repeated keywords and constantly adding new content. These techniques can also be used to promote spam, so search engines such as Google make use of algorithms to detect SEO abuse like duplicating content from other websites. This makes it more likely that a would-be harmonica player will find a genuine music school, but it can catch out websites that are simply trying to raise their profile. On Christmas Day 2013, the music lyrics website RapGenius found itself tumbling down Google’s search results simply because the owners had been sharing referral links via Twitter. Google also makes sure to tailor content based on sites you’ve visited and/ or your current location. Pam Cowburn, Communications Director of the Open Rights Group, which fights to preserve digital rights and freedoms, highlights the dangers of this ‘filter bubble’. “People only see news stories that reflect their own views and those of their social circle,” she explains. “This was apparent during and after the Brexit referendum where Remainers and Brexiteers appeared to occupy separate spaces on social media.” Google Shopping’s search engine, Froogle, does allow you to list products in order of price, but it openly admits that merchants pay to be listed in the results, and the filter bubble still applies.

subject. This didn’t stop opponents such as Rudy Giuliani from inviting others to search in Google Videos for ‘Hillary Clinton illness’ – the result being that anyone else typing in the incomplete search term ‘Hillary Clinton i-‘ at the time for would have likely seen an autocomplete search suggestion with the full phrase ‘Hillary Clinton illness’. As Nathan Nicholls, Digital Marketing Director at digital agency Switch, points out: “When you start a search on Google, you can find information faster by looking at search predictions provided by Google Autocomplete. There are a number of factors that influence the predictions Google presents, including a user’s search history, geographic location and what others are searching for. Automated filters may also be used to block any offensive or inappropriate content suggestion that doesn’t comply with Google’s policies and guidelines.” And what of search engines skewing search results to match their own political leanings. When Google spoke to the Wall Street Journal in June, it denied its autocomplete search field was biased in favour of Clinton, but did admit that it doesn’t allow negative search terms to be coupled with someone’s name – arguably a good thing for Donald Trump. This begs the question: can a search engine, particularly one as powerful as Google, ultimately influence the outcome of an election. Nicholls is doubtful. “Google is increasingly using a machine-learning artificial intelligence system called RankBrain to help sort through its organic search results. Machine learning is where a computer teaches itself how to do something, rather than being programmatically taught by humans.” In August, Robert Epstein, writing for Politico magazine, claimed to have run experiments on Google’s search algorithms. He named his alarming discovery the Search Engine Manipulation Effect (SEME). Epstein says that when he ran his experiment, Donald Trump was in the lead over other Republican nominees in 47 US states. This resulted in Trump appearing in Google Trends, which displays current news stories. Theoretically, this should have resulted in anyone typing ‘Donald Trump nomination’ into the Google search engine seeing a good deal more links to current news stories at the top of their search results. In practice, Epstein believes this is actually determined by how Google employees manually adjust results in its search algorithm. He also states Google admits to doing this around 600 times a year. Sometimes such changes are minor, such as a slight adjustment made by the search engine to boost the ranking of mobile-friendly sites. Some changes are more dramatic, such as Google Panda – a change to the search algorithm introduced in

People only see news that reflects their own views and those of their social circle

SKEWING THE RESULTS This kind of search manipulation is forgiveable to an extent, but what if much more crucial information is being distorted? An excellent case in point is Hillary Clinton’s recent attendance at the 9/11 commemoration ceremony, which was cut short due to sickness. Both she and her press team were tight-lipped on the

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Technology

2011 ostensibly to stop websites with too much advertising from appearing. This affected around 12 per cent of all listed websites. Because the search algorithms Google uses aren’t publically available, there’s no way to be certain that results are being maliciously manipulated. However, no matter how benign, such changes could result in a candidate’s news stories appearing in Google Trends but being forced down when people use the Google search bar itself.

HONEST AND OPEN? Pete Todd, one of the main developers of the cryptocurrency Bitcoin, believes there may be a resolution that could satisfy all parties. “Cryptography can be used to prove that a site content selection algorithm is being run honestly. Combined with a public algorithm, you’d have the ability to determine whether or not the content you’re being shown is an unbiased selection. Unfortunately, content selection algorithms are often considered highly proprietary ‘secret sauce’, so doing this would be a hard sell.” Social media giant Facebook also features trending news stories. Theoretically, these simply reflect the most shared links. However, in May this year, tech website Gizmodo published claims by former Facebook ‘news curators’ about the site’s own secret sauce. They suggested they’d removed stories about prominent conservative politicians such as Mitt Romney, as well as censoring conservative news outlets like Breitbart. A Facebook executive denied the claims made in the article, explaining that its digital trending module identified the stories and it was down to the news curators simply to give them an interesting description. If Google or Facebook are guilty of editorial bias, they have sinned no more than the newsroom of a print newspaper, which selects stories in line with the paper’s own political stance. Pam Cowburn also cautions: “When Facebook got rid of the team that curated its Trending News, a number of fake stories appeared. The internet is supposed to act in a more democratic way, with social media platforms acting as neutral intermediaries. But algorithms have inherent biases as well, even if it’s not obvious what they are.” As Pete Todd states: “I’m not worried about correctly labelled paid content; I’m worried about incorrectly labelled ‘astro-turfing’ [the practice of trying to make messages from a corporation or political body appear as if they originated from a grassroots movement], as well as what content is hidden from us.” So, has our democracy been hacked? The commercial interests of a search engine or the political leanings of a social media giant can undoubtedly interfere with the type and quality of information we receive. Clearly, neither Facebook nor Google are facing public pressure to mend their ways. Fortunately, for now, there are multiple search engines, social media websites and alternative news outlets to access unbiased information. n

OTHER SEARCH ENGINES Google and Facebook aren’t the only game in town. For greater transparency and control of your information consider these services: DuckDuckGo (duckduckgo.com) This search engine emphasises user privacy. It doesn’t record what you look for, so all search results are the same for all users. These come from crowdsourced websites such as Wikipedia and through partnering with other search engines such as Yahoo. StartPage (startpage.com) This search engine can display categorised and relevant Google results without a personalised ‘filter bubble’. There are also no annoying adverts. AdBlock Plus (adblockplus.org) This isn’t a website but an add-on that’s compatible with most web browsers. As the name suggests, it blocks adverts and code that attempts to track your browsing activity and filter your search results. Diaspora (joindiaspora.com) Diaspora is a decentralised social network. In plain English this means you can download Diaspora’s code and run your own social media ‘pod’, with posts, likes and reshares, similar to Facebook. If you do this, you will control what content is shared and with whom. If you don’t feel comfortable running your own server, sign up with one of the existing pods at podupti.me. GNU Social (www.gnu.org/software/social) This is a free and open microblogging platform similar to Twitter. As with Diaspora, you can install the code yourself on a server or you can sign up with one of the many GNU Social connected sites – or ‘instances’ – out there, such as Quitter (quitter.no).

NATE JORDAN is a freelance technology writer

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BL guernsey guernsey challenge threatens tax information agreement

whose affairs were being investigated by the foreign tax authority, wasn’t the recipient of the notice. The Royal Court further refused permission for judicial review on the grounds that the Director’s decision is taken pursuant to a binding international agreement. As such, it isn’t subject to judicial review by the courts. In any event, the judge said that the taxpayer has an alternative remedy – namely to challenge the issue of the request by the tax authorities of India in his home jurisdiction. At a sitting by the Bailiff as a single judge of the Court of Appeal the following day, the Bailiff granted the taxpayer leave to appeal the decision of the Royal Court regarding whether the issue of the notice is open to judicial review. But he refused an application to stay the operation of the notice. As a result, the recipient of the notice was still obliged to comply with the notice within the required time frame. However, the Bailiff granted an injunction preventing the Director of Income Tax from transmitting documents and information provided by the financial institution in compliance with the notice to the Indian tax authorities, pending the outcome of the appeal. n

Aurigny to post £4.6 million losses

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Startup Guernsey launches support programme

Funds grow yet again

he total value of funds business in Guernsey has increased for the fourth consecutive quarter, according to the Guernsey Financial Services Commission (GFSC). The regulator’s recently released figures show that, at the end of June 2016, the net asset value of all funds under management and administration in Guernsey stood at £247.1bn – an increase of £9.1bn (3.8 per cent) since the end of March this year. For the year ending 30 June 2016, the total value of funds in Guernsey increased by £27.2bn (12.3 per cent). Guernsey Finance Chief Executive Dominic Wheatley commented: “Exchange rate factors since Brexit have played some part in this increase, but we also saw some large fund launches in the second quarter. “What is equally encouraging is that closed-ended funds, open-ended funds and non-Guernsey schemes have all witnessed a substantial rise in their respective positions compared with the same point in 2015.” Guernsey closed-ended funds increased by £3.8bn (2.54 per cent) to £153.4bn during the first quarter – an increase of £18bn (13.2 per cent) for the year since June 2015. Guernsey open-ended funds increased by £0.9bn (2.2 per cent) to £41.3bn, an increase of £2.2bn (5.6 per cent) on the same period. Non-Guernsey schemes – funds not domiciled in Guernsey but which have some aspect of their management, administration or custody carried out in the island – now stand at £52.4bn. This represents an increase of £4.4bn (9.2 per cent) since the end of March 2016 and an increase of £12.7bn on the same point in 2015. In total, Guernsey’s financial services regulator approved 19 new investment funds during the second quarter – 13 closed-ended funds, one open-ended fund and five non-Guernsey schemes. The total number of funds currently approved for domiciling or servicing in Guernsey is 1,009. n

MoU signed with Abu Dhabi

Pictured: William Mason (left) signs the MoU with Richard Teng

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BL jersey Funding for new initiatives

Jersey’s contribution to UK and EU revealed

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BL Jersey

Report sets out vision for sport

Virtual currency regulation introduced

he Jersey Sport Shadow Board (JSSB) has delivered its initial report and recommendations to the Assistant Minister for Economic Development, Tourism, Sport and Culture, Connétable Steve Pallett. The JSSB is advising the Assistant Minister on the creation of Jersey Sport, which, in 2017, will take responsibility for the development of sport in the island. The Sport Report sets out a long-term vision for Jersey Sport, following consultation among Jersey’s sporting community and informed by international research. As an organisation that is independent of direct States control, Jersey Sport will play an important advocacy role, affecting and, where necessary, challenging public policy, and providing evidence of the value of sport and physical activity in Jersey. The establishment of Jersey Sport follows a Green Paper and consultation process in 2013, during which 64 per cent of respondents from the sporting community expressed a preference for a new body to oversee sport and bring fresh leadership. Connétable Pallett said: "A priority for me will be furthering our work in physical literacy and developing our children’s overall physical and mental wellbeing. In creating Jersey Sport as an independent organisation, we will be providing the new leadership, coordination and direction that the sports community needs." n

ersey has brought in regulation that will give the island more control over the way individuals and businesses exchange virtual and physical currencies. The regime, developed by Digital Jersey, the States of Jersey, the Jersey Financial Services Commission and Jersey Finance, as part of Jersey’s Digital Policy Framework, came into effect at the end of September. The aim is to create an appropriate business environment for virtual currencies and mitigate the potential risk of financial crimes such as money laundering and terrorist financing. Senator Philip Ozouf, Assistant Chief Minister at the States of Jersey, said: "Jersey is one of the first jurisdictions to establish a progressive regulatory regime for virtual currency. We've worked hard with industry and the regulator to create the right environment for Jersey businesses to thrive in the virtual currency space." n

Jersey set for tax amnesty

JFSC survey highlights terrorist financing risk

errorist financing and financial crime in general are the most severe threats facing firms in Jersey, according to the recent Risk Overview Survey from the Jersey Financial Services Commission (JFSC). More than 100 compliance officers completed the survey in June to establish the relative severity of impact risks to Jersey organisations. JFSC staff also took part. The regulator will use the results to inform its approach to risk supervision. The results show a clear alignment of opinion between the industry and regulator. Financial crime was the top concern, but other risks included financial failure, loss of confidential data, reputationally damaging products, market abuse, loss through malpractice or incompetence, and business disruption. Head of Supervisory Risk Andrew Garbutt said: "Knowing that the JFSC and industry have a shared view on which risks are the most serious gives us a sound platform for the further development of our approach to risk." The report is on the JFSC's website, www.jerseyfsc.org n

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THE AGENDA

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The Agenda is compiled by BL’s Fashion and Lifestyle Editor, Thom O’Dwyer, with additional material by Danny Cobbs.

1. SHOP TIL YOU DROP There are few places on Earth like New York at Christmas time – and when it comes to shopping, you could bankrupt yourself and a couple of small countries. While the big department stores provide glittering temptation, The Agenda recommends getting off the beaten track. For the guy or gal in your life who loves shopping, we’ve found the perfect present – an NYC Private Shopping Tour Special Gift Certificate. It’s unique, fun, screamingly à la mode and totally stress-free. No maps, no apps.

goes All American

The tour’s doyenne and guide is Barbara Hodes – fashion addict, designer and, for many years, the owner of her own popular private label brand. When it comes to shopping, Barbara knows what’s hot and what’s not. With her, you can experience the city like a native New Yorker. She’ll take you to the stylish specialist designer shops, the quirky boutiques and the hip gathering places, as well as the funky, out-of-theway vintage, indie and streetwear boutiques. Many flea markets are also dotted around the city and its environs,

as well as innumerable hidden artisanal food stores, overflowing with foodie delicacies, and other quirky lifestyle emporiums. Barbara knows all the Big Apple’s secret shopping gems, and you’ll visit places unknown to the casual tourist. Each tour is tailor-made for you via email or by phone, and can last up to four hours. At least two to three weeks is required to plan your personalised tour, so book early to avoid disappointment. Tours from US$225, www.nycprivateshoppingtour.com

INSIDE THE AGENDA: ACCESSORIES, CARS, DRINKS, FASHION, FOOD, FOOTWEAR, FRAGRANCES, FURNITURE, HOMEWARE, JEWELLERY Everything you need for a more stylish life.

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3. WHISKEY GALORE! Abram Smith Bowman bought Sunset Hills Estate in Fairfax County, Virginia, in 1927 and opened it as a dairy and granary. The farm was so abundant that there was a huge surplus of grain. Grain, of course, makes whiskey. But, this being the Probation era, no could do. In 1934, the day after the repeal of Prohibition in the Commonwealth of Virginia, Bowman built and licensed a whiskey distillery. It later relocated further south to Fredericksburg, Virginia, where its operations continue to this day. The John J Bowman Single Barrel Bourbon Whiskey pictured here is named after the great, great uncle of A Smith Bowman, Col John Bowman (1738-1784), an early pioneer who also served in the Revolutionary War. This bourbon ain’t any old hooch. It’s hand selected from some of the oldest barrels in the warehouse. When the time’s right, these prime barrels are carefully hand-bottled. Despite being 100 proof (ABV 50 per cent), this liquor is as smooth as an autumn breeze. Its fragrant nose is followed by hints of toffee, leather, figs and almonds with a long, dry finish. Best drunk straight or over ice. £75 75cl bottle, www.edencroft.co.uk

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2. TEXAS TUTTI FRUTTI To millions of foodies worldwide, Christmas simply wouldn’t be Christmas without a Collin Street Bakery Deluxe Fruitcake. Located in Corsicana, Texas, the bakery was founded in 1896 by a German immigrant master baker. The local bake shop’s big break came in 1914, when the Ringling Brothers Circus paid a winter visit to the town. The performers ordered dozens of its fruitcakes as Christmas gifts to send to friends and family in the US and across the globe, and did so religiously for years to come. Today, its list of customers reads like Who’s Who – a succession of US presidents, Hollywood stars, and Monaco’s Princess Caroline, who continues her mother Princess Grace’s tradition of sending the Deluxe Fruitcake to family and close friends. Each cake is the perfect balance of native pecans, shelled at the bakery, golden sweet pineapple, lush papayas and ripe red cherries. Refrigerated, the cake will stay moist and delicious for months. And the keepsake tin in which the fruitcakes come is just about as awesome as the cake! £31-£86, www.collinstreet.co.uk

4. NEW YORK STATE OF WINE Sit back and dream of Times Square with a glass of red or white from the new range of New York State Wines by Marks & Spencer. The perfect companion to wintertime dining, both wines come from the renowned Brotherhood Winery in upstate New York. Founded in 1849, it’s recognised as the oldest operating winery in the US. The soft yet full-bodied red has a fruity and spicy aroma, with the flavours of ripe red cherries and blackcurrant. It would make a perfect match for a juicy burger, or even a traditional New York hotdog. The white is crisp and full-flavoured with fresh lime and tropical fruit flavours. This young, vibrant and elegant wine is delicious ice cold on its own or with a splash of cassis as an aperitif. It’s also a worthy partner to spicy Southern fried chicken or a grilled pork chop. £8 per bottle or £48 for a case of six bottles, marksandspencer.com

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THE AGENDA

5. SOMETHING TO SNIFF AT With a rich heritage of superb craftsmanship and pure New York style, this year Coach celebrates its 75th anniversary. And it’s still top of the heap on the fashion radar. Originally known for its leather goods and handbags, in 2013 it brought in a new Creative Director – British designer Stuart Vevers. He transformed it from a stuffy, classic accessories brand into a top fashion brand that has women flocking in droves to its luxury clothing range. Coach Eau de Parfum is the latest scent to be launched by the iconic company, and it’s a winner. The fragrance – which was created by master perfumers Anne Flipo and Juliette Karagueuzoglou – is a sophisticated fusion of floral and oriental notes. The bouquet opens with bright, sparkling raspberry, pear and pink pepper that then gives way to creamy Turkish roses and gardenia, before drying down to sensual sandalwood and suede musk notes. It’s the very essence of the youthful, free-spirited all-American girl. £69 EDP 90ml, from department stores nationwide

6. GET A GRIP Founded in 1845 in Boston, Massachusetts, as a purveyor of carriage saddles and harnesses, Mark Cross was America’s first luxury goods label. In 2010, it was resurrected, transforming its dusty, démodé styles into modern-day must-haves. Combining vintage refinement with contemporary functionality, the quietly luxurious Grace Box Bag – part of its core collection of best-selling bags – has become a cult favourite with the A-listers. This season, the Grace Large Appliqué Box Bag is updated for a more modern aesthetic with a playful robot motif, in keeping with the sci-fi theme of the label’s new collection. Made in the finest Saffiano calf leather, it comes with a detachable shoulder strap and interior zip pocket, and is lined with soft lambskin for a luxe finish. The perfect accessory for any wannabe fashion princess! £1,860, www.matchesfashion.com

7. UPPER EAST SIDE LUXE The new autumn collection from Oscar de la Renta pays homage to New York’s Upper East Side – classically correct and dead chic. Think Ladies Who Lunch, the most beautiful, stylish, wealthy women in New York, the ones described by Breakfast at Tiffany’s author Truman Capote as ‘Swans’. Nothing epitomises the polished New York style better than de la Renta’s signature co-ordinating suit shown here. The collarless boxy-fit jacket is in the finest mid-weight Italian tweed, lined in satin silk. It has cropped three-quarter length sleeves, front slip pockets and, along with the ladylike decorative bow centre-front, is trimmed with black grosgrain ribbon binding. Teamed with the co-ordinating A-line skirt in soft autumnal hues and a pair of seductive stilettos for a contemporary finish, this look is about as classy as they come! Jacket, £1,940; Skirt, £965 www.matchesfashion.com

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9. LOAFING ABOUT If Brooks Brothers is the granddaddy of the timeless Ivy League preppy look, then Bass Weejuns – founded in 1876 by George Henry Bass in Wilton, Maine – is its kissin’ cousin. Bass came up with an idea to create a stylish spin on a Norwegian farm shoe designed for ‘loafing in the field’. He playfully christened the shoe Weejuns, the first penny loafers. Quality, comfort and durability are the hallmark of classic Weejuns. Michael Jackson wore a pair of black Weejuns in the famous Thriller video. And The Guardian style section recently gave them its seal of approval, noting that Weejuns cost considerably less than the Gucci kind. Although the original is always in demand, the shoemaker has adapted it to meet modern challenges. The cool Weejun Cup Larkin pictured here is a prime example of the fashion move forward. The classic high-shine leather Weejun-style upper layer is still there, but updated with the contrasting white rubber cupsole. Sheer genius! £120, www.office.co.uk

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8. PURE HORSE POWER There’s a perfectly good reason why American muscle cars haven’t been readily adopted this side of the Pond, and that’s because they fall way short of the European competition, writes Danny Cobbs. Now, however, you can own a great big hunk of all-American metal and not feel ashamed by your choice of sports car. And the car in question is the latest generation of Ford Mustang. It’s a triumphant return to form, and, as an added bonus, comes with the steering wheel planted on the right-hand side. It can be bought direct from your local dealer as a fastback coupe or a soft-top convertible. There’s a choice of two engines, too. In terms of running costs, the 2.3-litre 313bhp four-cylinder EcoBoost turbo petrol is the most sensible, but it does feel as though you’ve been invited to a really boring party. Opt for the 412bhp 5.0-litre V8 (which also features the famous GT badge and 19-inch alloys), and this engine brings the party back to life – even if it guzzles down fuel at 20mpg. A new rear suspension and stiffer chassis transforms the Mustang’s stability and ride control; it steers accurately and soaks up distance effortlessly. And its redesigned bodywork carries some neat retro touches, ensuring it remains true to its heritage and is instantly recognisable as the classic it is. Inside, the cabin is big, comfortable and well laid out, with two good-sized rear seats and a useful size boot. And while the overuse of cheap plastics tends to spoil the overall effect, let’s not forget that the 5.0-litre GT version, at £35k, is the cheapest V8-powered car currently on sale in the UK, by more than £20,000. Starts at £31,745, www.ford.co.uk

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11. MIX AND MATCH For 30 years, native New Yorker Marc Jacobs has unabashedly shaped the boundaries of American fashion. Having won just about every fashion gong going – including the distinguished French Chevalier dans l’Ordre des Arts et des Lettres – the designer has attracted a near-fanatical following, including some of the starriest names in show business. In addition to designing his own-label women’s and men’s collections, for 17 years Jacobs was Creative Director of the grandest of all French luxury brands, Louis Vuitton, where he launched the label’s first-ever clothing collection. Then in 2013, Coca-Cola called him in as Creative Director to give Diet Coke a stylish and light-hearted makeover. Busy man! Designer Karl Aberg is now at the helm of Marc Jacob menswear. This season he’s gone for a mellow, retro-inspired style, mixing bohemia with an urban American edge. Pictured here, a tactile blend of wool, baby alpaca and cashmere gives this rugged, Icelandicinspired, over-sized cardigan a classy, superlatively soft touch. £770, www.matchesfashion.com

10. PERFECT PRECISION Despite urban decay and the collapse of its automotive manufacturing industry, in 2011 Tom Kartsotis founded one of the most amazing success stories to come out of Detroit, Michigan, in recent years. His company, Shinola, started out producing a range of disparate, seemingly random items including upmarket bicycles, small leather goods/bags and stationery, and, most important, luxury watches. In recent months the luxury watch range has really hit the headlines. The New York Times called Shinola ‘the coolest watch brand in America’. The engine powering all its timepieces is the quartz aragonite movement, assembled by hand from Swiss-made components at their factory in Detroit. Each step of the manufacturing process is held to the highest standards, creating a timepiece of beauty and precision. Also every watch is guaranteed for life. The Runwell Contrast Chrono S0100075 men’s watch, left, has a steel case with PVD gun-metal plating. Ultra-chic women’s watch The Birdy S0200009, above, features a rose gold PVD steel case and is finished with a matching slender bracelet. Men’s watch, £840; women’s watch, £450, www.shinola.co.uk

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12. FESTIVE FABULOUSNESS Fashion designer Diane von Fürstenberg’s iconic jersey wrap dress revolutionised womenswear back in the early 1970s. Following its massive commercial success, in 1976 Newsweek magazine put her on the cover and in the accompanying article declared her ‘the most marketable woman [fashion designer] since Coco Chanel’. Relaunched in 1997, the wrap dress is now more popular than ever. Everyone from Michelle Obama and the Duchess of Cambridge, to megastars Gwyneth Paltrow and Jennifer Lopez have her signature frock in their wardrobes. DVF is, however, equally happy to pull out all the stops and go for real A-list red-carpet glitz. Pictured here, the designer’s opal Jesse Gown exudes opulent glamour. In silk-chiffon, it’s cut to a demure ankle-grazing length, and the fluid silhouette is accentuated with wide draped sleeves and softly knotted gathers at the cinched waist. The cut-out back adds a feminine allure, while the all-over sequin embellishment ensures a real statement is made. Want to make a massive impact over the festive season? Then this is the dress for you. £1,667, www.matchesfashion.com

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14 14. DOUBLE THE DELIGHT New York City native Alison Chemia is one of the hottest jewellery designers in town. Creative Director of the Alison Lou fine jewellery collection, her passion is creating covetable pieces of fine jewellery combining elegant materials such as fine enameling with stunning precious gems. Playful, witty and contemporary, each style is handcrafted in pure 14-carat gold. An inspired and cheeky innovation is her mismatched earrings collection. Pictured here are two of her most popular styles. The sparkling emerald-cut pink sapphires feature one surrounded by diamonds, the other by enamel. And a circular diamondencrusted earring is paired with a sweet red enamel heart shape that’s finished with a pavé of glittering diamonds. A cool concept that’s catching on! Circle and heart mismatched earring set, £858; pink sapphire mismatched earring set, £945, www.matchesfashion.com

13. GO NATIVE According to well-known online interior design forecaster Scarlet Opus, the hottest new upcoming interiors trend is Native – futuristic tech styling and the rusticity of traditional craft combined with contemporary folk influences; a perfect mix of one-of-a-kind and imperfect elements. Wanna go native? Why not go Navajo. Navajo rugs and blankets have been produced by the Southwestern Native American tribe for centuries. Originally made for utilitarian purposes, the textiles are now prized by collectors and interior design specialists worldwide. Hand-woven on upright looms with no moving parts, the average weaver, past or present, would take from two months to many years to finish a single rug. Their strong geometric patterning and simple, minimalistic beauty are perfect for today’s interiors. Should you decide to invest in an antique, or even a new Navajo rug or blanket, be sure to buy from a reputable dealer, as clever imitations abound. Pictured here is one of a large selection of Navajo textiles from 1st Dibs – a classic antique Navajo rug that’s a very modern mix of crisp bright colour and warm neutral tones. £6,363, www.1stdibs.com

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15. TOP TABLE It’s hard to be cooler – or more multi-talented – than Swedish-born Mats Christéen. As a teen, he became a professional pin-up ice hockey star. He then went on to set the fashion catwalks on fire with his jaw-dropping good looks as a top model. The next career change was perhaps the strangest of all – to furniture designer. In 2013, with little or no training, he opened a furniture workshop and design studio called Foundrywood in Greenpoint, Brooklyn, New York. After three short years, he’s been hailed as ‘the best custom furniture maker in NYC’. His work is a fusion of Brooklyn’s synergistic industrial edge and the pure, modern lines of Scandinavian design. It’s what’s currently being called rustic industrialism – artisanal furniture that amplifies the natural beauty of organic and often reclaimed materials, all sustainably sourced. The designer’s aesthetic ranges from immense salvaged beams suspended and bookended between two metal blocks as a bench or coffee table, to the visual and masterly puzzle of the Torsion Dining Table pictured here. The manually bent and welded nickel-plated steel frame protrudes through the 5/8-inch thick 52-inch diameter glass top to make this an organic piece that’s truly one of a kind. £17,900, www.1stdibs.com

15 16. ON YOUR TOES As American as blueberry pie, designer Joshua Sanders combines New York edge with exquisite Italian craftsmanship in his footwear and accessories. After graduating from the prestigious Parsons School of Design in New York City, Sanders moved to Paris, where he met Vittorio Cordella, with whom he founded the eponymous brand in 2012. His designs are a visionary mix of cutting-edge, urban New York street culture style, reworked with luxe material and beautifully crafted. His collections exemplify the brand’s simple but striking motto – Heart in NYC. The Big Apple Slip-On Trainers shown here are a street couture version of the classic skate shoe. Typically, it’s an homage to New York, with the Stature of Liberty motif embroidered on one foot and the famous New York yellow cab on the other. £245, www.matchesfashion.com

17. FIT FOR A PRESIDENT Brooks Brothers is America’s oldest surviving clothing retailer and men’s outfitter, but it’s much, much more. It’s an established American institution that’s become, for many, a way of life. For nearly two centuries now, Brooks Brothers has dressed the great (Abraham Lincoln) and the good (US soldiers in World War I), heroes (Charles Lindberg) and villains (Richard Nixon), the rich (the Vanderbilts) and the famous (Clark Gable), artists (Andy Warhol) and authors (F Scott Fitzgerald), presidents (Barack Obama, and most notably JFK for his wedding to Jackie) and performers (Winton Marsalis). Out of 44 past US presidents, 39 were sworn in wearing Brooks Brothers. No matter where men’s fashion may go, one thing will remain the same: real Washington men wear Brooks Brothers. Pictured here is the Regent fit multi-windowpane check sports jacket, made from finest Italian woven wool with a classic two-button closing and a full canvas construction. Team it with this paperclip tie bar (left), the brand’s witty alternative to the bog-standard accessory. Jacket, £698; tie bar £69, www.brooksbrothers.com

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