Hawk-i Newsletter - Winter 2011

Issue 1 | December 2011

Fiduciary Family Office Wills & Probate Succession Planning Employee Solutions Funds Advisory Media & Sports L-S&S GmbH

part of the Hawksford Group

Thinking

beyond

tomorrow

In this issue page 2

A welcome to Hawk-i from Peter Murley

page 4

Image rights – Guernsey's brave new world

page 6

Client insight research: Why do it? What did we learn? How are we using the results to improve our client service?

page 8

Guest column: Intelligent insights – Sebastian Dovey, Scorpio Partnership

page 9

United Arab Emirates and Switzerland offices – market update

page 10

The rise of the esoteric asset class in Jersey funds

page 11

Meet the Hawksford Funds team

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December 2011

Welcome to the first edition of Hawk-i, which aims to provide you with regular, informative and topical articles as well as updates on our business – a business driven by client needs and one which, I believe, is actively supported by a really great team of professional staff.

Our aim is to always deliver excellent service and to go the extra mile. Please let me know when you feel we achieve this and equally, when we don’t.

I hope you find our inaugural newsletter an interesting read. We’ve waited until now to let you know something of what’s going on because we wanted to make the first newsletter representative of our new branding – we all think it’s fresh, creative and exciting, and above all, underscores the way we do and want to continue doing business.

Our new brand The Hawksford brand was refocused and launched last month and based on feedback so far, I am very excited with the results. Our research told us that clients and advisers wanted to know about our full range of services; our new branding helps us to communicate this. The black and white images on our website (and in our advertising) are all of people undertaking activities that reinforce our key theme, thinking beyond tomorrow, a theme that runs through the entire business. We are not just building our own business for the

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future but more importantly, focusing on preserving and enhancing our clients’ wealth, anticipating their future needs and providing the right solutions for them and their families.

I am extremely fortunate to have been CEO at Hawksford for almost two years now. New to the business and new to Jersey but very much sharing established values and passions and building a sustainable future for everyone – clients, staff and stakeholders alike. Personal relationships are at the very core of what we do, will always be so and will always differentiate us. That will not change.

Moving with the times As we have been shaping our business for the future, change over the last 18 months has been considerable, with our prime focus continuing to be the leading independent trust company and to consistently provide the most professional advice and offer the very best service.

To help us achieve this we invested in a really important piece of client insight research at the beginning of 2011, which was carried out by Scorpio Partnership, an independent research firm. We are

one of just a handful of businesses in our sector that have asked clients and their representatives what they think of us. There was good and not so good feedback but we can’t change and exceed your expectations unless we know both sides of the coin.

Many of the clients and advisers we work with were interviewed either face-toface or on the telephone and asked for their honest opinions of our capabilities and service, and what we could be doing to add value. We have shared the headline results of this survey later in the newsletter and have a clear action plan for improvements, which we are already working through. This newsletter is itself a response to the feedback as the clients and advisers who were interviewed told us that they wanted more communication about our business. The client insight work will be repeated next year to ensure we continue to improve and involve our clients in helping shape our business.

This year we have supported a number of charities, organisations and events, which have made a real difference in the community and we have more planned

Peter Murley Chief Executive Officer T: +44 (0) 1534 740132 E: peter.murley@hawksford.com

for 2012. Next year also promises to continue the theme of change, as we are investing a significant amount of time and resources in the introduction of a new client administration system that gets to the heart of what we do. This will benefit everyone as not only have we streamlined our internal processes over the last 12 months but by the middle of next year we will have a new system

that will enable us to work much more efficiently and effectively. You can read more about this in the next edition.

Expanding into new offices In March we opened an office in Dubai to service the growing needs of clients in the Middle East, India and elsewhere and in July we acquired L-S&S GmbH, based in Zurich, Switzerland and its New

Zealand trust company. This acquisition is a significant part of our growth strategy, which we will continue in 2012 and beyond. Our growth and the changes in the business are intended to provide clients with a choice – a choice of jurisdictions and a choice of capabilities.

They will also provide staff with wider career opportunities and develop greater experience, which is beneficial for all of us.

Feedback and feature articles We appreciate that your time is precious and that not all articles in Hawk-i will be of interest to everyone. From the research we understand that we need to communicate with you more often, highlight our full capabilities and listen to our clients and advisers, understanding better their situations so that we can strengthen relationships and share our knowledge further.

If you have any feedback on the newsletter or any topics you would like us to address in future issues, please email Matthew Morel, Head of Marketing: matthew.morel@hawksford.com.

Similarly, we would love to hear from you on how we can improve our service to you or your thoughts on our new branding. So, much has happened but there is very definitely more to come. Thank you and all the best.

With that in mind, Hawk-i will provide examples and mini case studies of the type of wealth structuring solutions we can set up and manage. Client information will naturally be kept confidential, but the scenario and solution will be shared.

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December 2011

Image rights Guernsey's brave new world On the 28 September 2011 the States of Guernsey approved the introduction of specific legislation to protect image rights. The proposal approved by the States will establish in Guernsey an Image Rights Register, which will make Guernsey the first jurisdiction in the world to create a framework for the protection of image rights.

Image rights (or what has become known in the US as ‘personality rights’) are the rights of an individual to control the commercial use of his or her name, image, voice, or some other distinct aspect of their identity.

It is not unusual for people whose careers make them internationally mobile to make use of offshore centres to manage their commercial arrangements. At Hawksford, we have set up various structures for sports stars keen to place their sponsorship and licencing agreements offshore prior to taking up employment in a new jurisdiction. The idea that a person should seek to protect the intellectual property unique to their image, an aspect that adds significant value to those agreements, is not new. However there are numerous obstacles in affording that protection, particularly in the UK, due to a lack of statutory recognition of such rights.

Image rights have been shown to be extremely valuable commodities. In 2006 the cricketer Sachin Tendulkar reportedly sold a bundle of his image rights to a subsidiary of Saatchi and Saatchi for a sum of £22m. In 2011 CKX, the entertainment rights group, who had majority stakes in businesses that managed the rights to the names and images of Muhammed Ali and Elvis Presley, was sold to Apollo Global Management for US$510m.

In terms of a celebrity’s commercial arrangements there is a great deal of value to be attributed to their image and the way in which it is managed and controlled. In 2005 Sir Alex Ferguson failed in his effort to register ALEX FERGUSON as a trademark in the UK in an attempt to stop his name being used on unauthorised posters. It was rejected because it was already a widely used description on many traders’ goods taking the form of photographs, posters or prints.

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Michael Shenkin Associate Solicitor T: +44 (0) 1534 740108 E: michael.shenkin@hawksford.com

It should be noted however that protection was afforded to former Formula 1 racing driver Eddie Irvine in his case against Talk Sport Radio under the tort of ‘passing off’. In effecting a claim for ‘passing off’ the person concerned must be trading and Irvine was able to show that he had substantial goodwill invested in his image that was a business commodity to him. The new Guernsey legislation will similarly intend that image rights will only be enforceable for commercial purposes.

France and Germany both have laws relating to image rights but these stem from privacy laws relating to the individual rather than as concepts of commercial image rights.

Guernsey is boldly seeking to remove some of this uncertainty.

The legislation commissioned by the States will have the following key features: • Establishment of an Image Rights Register and a Registrar of Image Rights • The creation of a right for a qualifying personality to be registered on the Image Rights Register (a ‘registered personality right’). Register features of a qualifying personality will include a personal name and any other associated distinguishing indications (such as voice, signature, photograph, character or likeness) which identify the personality uniquely • Qualifying personalities will include any living or deceased natural person and could extend to some non-living entities, such as fictional characters • Creation of an appeals mechanism relating to decisions of the Registrar of Image Rights • A registered personality right relating to a living personality will have indefinite duration and can continue to exist after the death of the personality subject to regular renewal/validation of registration on the Register of Image Rights • There will be creation of exclusive ownership rights which may be enjoyed and protected by the holder of a registered personality right and which may be assigned and otherwise dealt with as personalty, subject to relevant registration requirements

Through Hawksford Media & Sports and our other Hawksford Group business lines, we already provide clients with a range of specialist solutions.

We work with a Top 4 English Premier League club and its players, and have

set up an offshore company for a top flight footballer who was domiciled in Europe. The individual in turn owns his image rights on all contracts outside of the UK. The player also retained exclusive territory in Europe for his image rights, which he assigned to the Jersey company. All revenue earnings from image rights in the UK are paid to a UK company wholly owned by the player, which is charged to corporation tax. The player receives funds from the company through a silent partnership.

• Exceptions and limitations to the exclusive use of rights will be created to ensure that images may be used where it is in the public interest to do so, for example legitimate news coverage • Only distinctive images will be enforceable. Distinctiveness will ultimately be a matter for the Courts to decide • All infringements of image rights will be actionable as civil, not criminal, matters • In an action for infringement of image rights all such relief by way of damages, injunctions, accounts or otherwise will be available to the plaintiff as is available in respect of the infringement of any other intellectual property right • The rights will be designed to be fully compatible and integrated with modern media including broadcasting, satellite transmission, the internet and other electronic communications. This will be particularly important in providing protection in the mass media market Regardless of the particular right itself, it is interesting that the proposal seeks to offer the opportunity to protect a registered personality right forever, and that it may be extended to some ‘non-living entities’. Will it really be possible for Sacha Baron Cohen to protect the voice or image of Borat? At first glance, it seems surreal but when one thinks of the global commercial value tied up in a fictional character like Borat, you can see the void that Guernsey is looking to fill. The proposal is not specific as to what type of fictional character can be protected and makes it clear that many of the provisions of the new law will be based upon the principles of other Guernsey intellectual property legislation, in particular the Trade Marks Ordinance. This leaves the law draftsman with an unenviable task given the conceptual differences.

The proposal identifies certain risks associated with the introduction of image rights legislation. The most obvious risk being that of acting against the public interest in respect of freedom of expression and the freedom of the press. To put it another way, ‘privacy legislation by the back door’, as acknowledged by the proposal. The new law is intended to safeguard against this to ensure that various types of unauthorised use of an image are permitted where they are in the public interest. This includes freedom of the press, educational and private use.

Hawksford also acted as trustees for an African domiciled footballer. His image rights were transferred to a company owned by the trust (which was also administered by Hawksford) and the company contracted with this club and the player’s other sponsors in relation to the use of his image.

For more information about what solution we can provide visit www.hawksford.com/mediaandsports

California enacted the Celebrities Rights Act in 1985 but it has found itself in constant conflict with the First Amendment to the US Constitution (protecting rights such as free speech and freedom of the press) and competing IP rights. The Guernsey proposal does acknowledge that image rights could conflict or overlap with other IP rights vested in other people, such as copyright, and that in the case of such conflict or the strength of complementary rights, it will be a matter for the courts to decide.

There is an element of uncertainty as to how a foreign court will perceive an image right within its own jurisdiction. While most are familiar with copyright and trademarks through their own domestic legislation it is uncertain what approach, for instance an English court, would take to enforcing a property right (be it an injunction or a claim for damages) that had no equivalent existence within its own jurisdiction.

If we think about 1970s long distance runner David Bedford and his claims against the 118-118 advertisements, OFCOM agreed that 118-118 had breached the Advertising Standards Code by using a caricature of Mr Bedford, but declined to award him any compensation because he had delayed in making his complaint and there were no findings that he had suffered any financial harm. He would have had to cross more significant hurdles in the High Court in order to establish a successful claim for ‘passing-off’, including demonstrating that 118-118 had taken his image without his permission, that the public thought Mr Bedford was endorsing 118-118 and that as a result he had suffered financial loss. If Mr Bedford had been able to avail himself of a registered image right in Guernsey and subsequently brought an action for breach of those image rights (rather than the tort of ‘passing-off’) in the High Court, we can only speculate on how the High Court would have approached such a claim.

The drafting of the new law is being given high priority with the intention to have it in force before the Olympic Games 2012 and the start of the European football transfer window. There is of course a risk with any piece of legislation being rushed through and a higher risk of creating problems with pioneering legislation, but judgement is best reserved until the first draft of the new law is available for review. Guernsey is to be commended for taking a lead in this often complicated and controversial area and perhaps its approach is best summed up by the words of the American poet Ezra Pound, ‘make it new’.

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Client insight research: Why do it? What did we learn?

How are we using the results to improve our client service?

Thinking beyond tomorrow is more than just a mission statement.

It is fundamental to the way we do business in order to deliver exceptional client service and flexible wealth structuring solutions that stand the test of time. This is what will differentiate us from our competitors. We took the business decision to ask you your views to understand what you think we do well and what areas you think we should focus on and improve as we build our business for the future.

At the beginning of 2011, we appointed Scorpio Partnership, an independent research consultancy, who undertook research work on our behalf. Over a six month period, a total of 63 respondents had been interviewed either face-to-face or over the telephone.

“They should be in Switzerland. That would give them more diversity..."

CHO ICE

I AT

What respondents said |

S

"…one weakness of Hawksford is the firm’s inconsistency to communicate its proposition. The firm’s future success will be the review and reinvigoration of its entire approach to communicating its proposition to its target intermediary networks…”

ON

What respondents said |

“The firm’s entire approach to pro-active communication whether for relationship management or business development needs to be revamped…”

IC

Creativity & Innovation

UN M

What we are doing about it | Modernising the brand and refreshing it has allowed us to redevelop our communication channels. We have developed a new website, www.hawksford.com, that delivers extensive information on what we do and who at Hawksford is responsible for each business area. By evolving the brand we can now highlight our capabilities to help clients with a variety of backgrounds including:

• Media and sporting professionals • Entrepreneurs • Complex corporate organisations • Large family businesses

Communication & Capability

M CO

What the research told us | To communicate more effectively through a wider range of channels to highlight our full capabilities and service offering.

CAPA

BILIT

Y

“…illustrating who at Hawksford does what, how, what experience etc. is also very important…”

& IVITY CREAT TION A INNOV

What the research told us | To introduce more transparency into our billing process so that it is easier to understand.

What we are doing about it | We have created new service lines that will be promoted in all of our communications to show

We are re-designing our bills. In future, we will list what we have done and what we will be doing on a project by project basis, including routine work.

What respondents said |

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U N TS

G

What we are doing about it | We are looking at negotiating fixed fees with all clients for the provision of agreed services. This gives certainty to you and to us.

“…more information on the structures and further explanation of fee charges…”

CO

IN

What the research told us | We need to differentiate ourselves better and communicate our full service offering so that we can help you in other areas.

Fees, billing, accounting and bookkeeping

Client I

AC LL BI

what we do and change perceptions that we only provide trust structures.

Some of our new business lines include Hawksford Advisory, Hawksford Media & Sports and Hawksford Succession Planning.

N TIO

EEPIN G

"They need to look at complementary jurisdictions…”

What we are doing about it | We will continue to expand our footprint through a focused acquisition strategy. We have already opened up our UAE office in Dubai in May, and a Swiss office in Zurich in July, which was the result of an acquisition of L-S&S GmbH.

We are also committed to sharing our knowledge with you more frequently. One channel we are looking to develop is a dedicated client and intermediary extranet portal, so that information can be shared with you on a more regular basis.

BOOK K

What respondents said |

What the research told us | To provide you with a choice of solutions and jurisdictions and to open up new channels of communication where possible.

COMMUN ICA

Choice (Communications and Pro-activity)

As an established research organisation, Scorpio Partnership complies with the Market Research Society’s Code of Conduct and treats client confidentiality with great importance. The results we have received are therefore completely anonymous Key findings We were delighted that much of the feedback we received was very positive and highlighted many of the things we do well. The findings also highlighted 15 key areas that we needed to focus on. These areas can be categorised under three key themes:

What the research told us | We should introduce and involve a wider range of our people in client and adviser business affairs and communicate with you more frequently.

As our graphic shows, we needed to understand the exact issues to implement effective changes and improve the service we provide to you.

background, experience and expertise.

We know that we need to communicate better with you on a more regular basis. This is why we will commit to more regular meetings through a channel which best suits you i.e. face-to-face meetings, video/telephone calls etc.

We will also be introducing our client service teams more often as they are the people you are likely to work with most.

Continuity / Meetings What respondents said |

“Hawksford must remain strong at keeping their best staff and continuing to develop them. It is the administrative layer that matters to private clients and therefore their advisers”

Reciprocity / Involvement

EE TIN

GS

CON

TIN

CHOICE

UIT

Y

What we are doing about it | The research told us that even though you are happy with the client directors’ service, you would like to know more about the supporting client service team members – their

• Communications • Proactivity • Client accounting and billing

M

What respondents said |

C RO

IP REC

PR

VITY CTI OA

EMENT INVOLV

&

“… what we all want is reciprocity; regardless of whether it is a client or knowledge sharing..”

100% of clients asked would be willing to take part in any future client insight/ experience process.

CLARITY

Insights

I BILL

ITY

What the research told us | To build closer relationships with our client and intermediary networks. To also continue our research programme so that Hawksford’s development is shaped by your evolving needs.

What we are doing about it | We are establishing a preferred suppliers list for a wide range of external services: tax services, accountancy/audit services, legal services etc.

We are committed to carry out our research annually to ensure continuous improvement. If you are interested in taking part please get in touch with us.

SPE

ED

NG FE

ES

What the research told us | To provide you with a more transparent service. To be more pro-active with your business affairs with regards to, for example, billing and communication.

ING

UNT ACCO

What we are doing about it | Based on the research findings, we are creating Service Level Agreements (SLAs) for every client relationship. These will ensure that we have in place a set of transparent guidelines for all clients.

Would you like to get involved?

We are reviewing our internal processes and procedures together with the implementation of a new administration system which will help us to achieve greater efficiencies.

Clarity / Speed What respondents said |

“…Any nuggets of new information could be useful. Do they have specialist skills set, special case experience, how have they solved one-off situations. This sort of stuff is interesting and gives you ideas…”

“If I had to suggest a change it would be they have a button to press to make things faster.”

We intend to continue our research programme on an annual basis to ensure we are able to provide clients and their advisers with a first class service and continue to improve. If you are interested in participating in the next survey, we would very much like to hear from you. Please email matthew.morel@hawksford.com with your details. The next research programme will begin in March 2012.

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December 2011

Intelligent insight - the future difference between winning and taking part

By Sebastian Dovey, co-founder of Scorpio Partnership

Usain Bolt did not blow away the world record purely by running fast.

Sounds strange when you think about it, doesn’t it?

The reality is he became the fastest man on earth through insight.

The aim of the approach is to build a comprehensive base of understanding of the key ingredients for its success – just what are the clients and intermediaries thinking right now and beyond tomorrow? How should the firm train, how should it be equipped, where should it race? Armed with this information, the business can accurately plot a way forward that will make it different from the competition and will generate new business.

Granted, Bolt accepts speed is essential.

Knowing how to use that speed is critical X-factor stuff. To be a world class winner, however, Bolt and his coach state that his success is down to detailed on-going insight assessing the attributes of speed, form, diet, physique and competitors.

This makes the crucial difference. A difference of less than a quarter of a second – or about 25 wing flaps from a small humming bird. Without it, he would be chasing shoelaces.

The insight so far has been hugely encouraging. From the first round, the response from those that took part was commercially interesting, and not just because of the information they provided.

All stated that they would do it again.

From our experience, this is the highest accolade a firm can receive in this type of process. Bluntly, Hawksford’s clients and its supporting intermediaries want Hawksford to win.

What on earth has this to do with Hawksford? A lot.

Today’s trust industry is filled with competition and challenges. All firms are sprinting, but most appear to be going in no particular direction. Yet, we live in an age where it is not just a case of running faster, but knowing how to run faster and then doing it. This is strategic focus. This is intelligent intelligence. Insight.

Another reason for this support, in our opinion, based on nearly two decades as a lead coach for elite industry players that want to improve their business, is that the Hawksford network recognised this interest in understanding their own needs heralds a different approach to the race. They appreciate this and remarked that they do not get the same sense of commitment from other operators.

To that end, Hawksford completed its first insight assessment earlier this year.

We were honoured to do it. Such a comprehensive exercise has not previously been done in the trust industry sector. So Hawksford is already out the blocks faster than the pack and the future program of insight work is going to keep them strides ahead of the next fastest runner.

In terms of outcomes from this initial process, it has already helped lead to the development of an award winning new identity and distinct vision – thinking beyond tomorrow. It is now also providing the foundations of a strategic purpose for quantifying opportunities, targeting new geographies and identifying specific niche new business segments. Further, it

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is assisting with an identification of the ideal service solutions and products for today’s markets, as well as anticipating commercial trends that Hawksford can prepare for.

In addition to all this, the firm now has a basis by which it can and will track its future success. To that end, the actions taken by the firm in the coming year will be evaluated by this same audience to see what difference it made and what more can be done in the future. Sadly, it is not going to be easy. There is not going to be that Bolt moment in Beijing where he could wave to the crowd while smashing the world record. Indeed, the process of self-improvement is never ending for the winners. Ask Bolt, ask Djokovic, ask McIlroy. Their view, like Hawksford, is that competitors may be in the same race, but they do not, and will not, have the same leading intelligence.

Scorpio Partnership designed and implemented the insight program, and is now an adviser to the board on strategy and global business development initiatives for Hawksford. The firm is an award-winning international specialist in developing differentiated new ways to win market share in industries that target wealthy clients and their advisers.

Market update UK and Switzerland tax agreement update –––––––––––––––––––––––––

6th October 2011 saw the publication of the much-heralded UK-Swiss tax agreement. Subject to ratification by both parliaments, it will come into effect in 2013 and will apply to UK resident beneficial owners of Swiss bankable assets. But what does it achieve? It is neither a double taxation agreement nor an exchange of information agreement, nor is it a disclosure facility. Rather, what it does is to allow holders of Swiss bank accounts to maintain anonymity, whilst enabling the UK Revenue to claim tax on Swiss assets. The tax charge is essentially in two parts: there is a one-off charge (expected to amount to 20% to 25% in most cases) to cover past taxes due, although it does not offer guaranteed immunity from prosecution; and there is a withholding tax on income and gains going forward. UK resident non-domiciles are not exempt from the agreement, but are subject to modified rules that will limit their exposure in some cases.

The way in which the agreement will be enforced is that the Swiss ‘paying agents’, generally the banks, will be required to identify which of their customers are covered by the agreement, calculate what tax is due and write letters to them advising them that their accounts will be deducted accordingly. They will then make a bulk payment to HMRC without naming individual account holders.

Whilst the agreement has already been signed by both countries, there are still a number of areas awaiting clarification. For instance, there is currently some concern that certain non-UK resident British passport holders might inadvertently be caught up by the agreement. What is clear is that if someone receives a letter in February 2013 advising that their Swiss assets are to be subject to the terms of the agreement, then doing nothing will

result in a sizeable tax charge being levied by the bank, regardless of whether or not that person is already tax-compliant. Account holders will have to choose whether to allow their bank to disclose their details to the UK Revenue or whether to accept the charges in return for maintaining anonymity. Other options range from closing any Swiss bank accounts before 2013 to voluntary disclosure instead through the Liechtenstein Disclosure Facility. Ultimately, however, this is a complex agreement that is likely to affect all UK residents holding bank accounts in Switzerland. Such people would be well advised to consider their positions carefully between now and 2013 in order to assess and minimise any potential financial impact.

L-S&S GmbH, part of the Hawksford Group, is based in Zurich and can provide advice on all aspects of private wealth planning. For further enquiries, please contact:

Grant Osborn-Smith Senior Manager T: +41 (0) 43 500 3875 E: grantosbornsmith@ lssgmbh.ch

Dubai –––––––––––––––––––––––––

Dubai is the second largest land territory by area, after Abu Dhabi, of the eight emirates in the United Arab Emirates (UAE). It is located south of the Persian Gulf on the Arabian Peninsula with an estimated population of two million, 17% of whom are Emirati. Dubai and Abu Dhabi are the only two emirates to have veto power over critical matters of national importance in the country's legislature. Dubai City has emerged as a global city and a business hub enabling local and international

companies to serve their clients around the region. Although Dubai's economy was built on the oil industry, the emirate's model of business drives its economy, with the effect that its main revenues are now from tourism, real estate, and financial services, similar to that of Western countries.

Hawksford Dubai was launched in May 2011, when a branch office licence was granted by the Dubai Multi Commodities Centre (DMCC), the licencing authority for JLT Free Zone - one of the largest mixed use free zone developments in Dubai. As a wealth structuring specialist, we are able to bring extensive Employee Solutions expertise to the Middle East and provide this service to corporates and institutions looking to attract and retain skilled professionals to help them grow their businesses.

Other areas we are focusing on in Dubai include the provision of wealth structuring solutions, for HNW and UHNW individuals, that withstand the challenges of today's demanding global environment. We are able to focus on larger and more complex situations, working closely with both private and commercial clients and their advisers to administer sophisticated, effective structures.

Furthermore, we aim to provide additional support to these clients by assisting them in building a suitable Corporate Governance framework that will enable their business to grow and prosper.

For further information on our Dubai operation or to arrange a meeting, please get in touch with:

Lynda O'Mahoney Business Development Manger - Middle East T: +971 50 8595564 E: lynda.omahoney@ hawksford.ae

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December 2011

The rise of the esoteric asset class in Jersey funds

An esoteric or emotional asset is a tangible asset that has the potential to appreciate in value over a period of time because of three factors: rarity, condition and beauty in the eye of the investor, or a combination of these. Tangible assets are less dependent on leverage and less affected by credit cycles for their returns.

History shows us that in periods of rising inflation, real asset-backed and tangible assets perform better than financial or paper assets. Traditionally, investors have gravitated towards commodities (such as gold) during periods of rising inflation.

From what we have seen at Hawksford Funds in the last couple of years, there appears to be increasing demand from fund promoters who are keen to establish structures that invest in real and tangible assets which demonstrate good inflation hedging properties. This interest, we believe, will attract more investment funds into this emerging asset space.

Over the past few years there has been a significant increase in the number and range of esoteric funds being launched, with the most popular seeing investment into fine art, photography, stamps and diamonds.

Although similar in nature, what all of these funds have in common is that they claim ‘new asset class’ status for their respective category and area of focus. It is difficult to place an accurate figure on the total size of the market, as

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measured by assets under management, but it is estimated to be in the region of hundreds of billions of dollars. Even though the investible universe of these funds remains relatively small, it is likely to witness growth in assets under management in coming years as a significant number of investors grow increasingly disappointed with the low and volatile returns from cash and the traditional asset classes.

Experts cite several reasons as to why the market in esoteric asset classes appears to be bucking the trend. In part, this derives from the considerable wealth which has been created in emerging economies such as Russia and India. In the UK, the simplification of pension rules and the increased popularity of Self-Invested Personal Pensions means that fine art, antiques, wine and even classic cars potentially offer interesting investment opportunities. Esoteric assets can be an attractive addition to a well diversified portfolio, and have the added dimension of interest and the potential to generate long-term wealth appreciation.

At the present time, collective investment funds exist or are in the process of being established in Jersey investing into the following emotional asset classes: • Art • Photography • Rare Stamps • Diamonds • Musical Instruments • Rare Coins • Wine • Vintage and Historic Cars At Hawksford Funds, we are currently administering or in the process of

establishing art, diamond, fine wine and a vintage and historic car fund.

This article will focus on three categories of esoteric investment, based on our experience: Art The art market is arguably the largest of the emotional asset sectors and (like other assets in this space) the existence of market inefficiencies makes the art world a potentially profitable opportunity and an interesting area, especially for investment strategies seeking to add value.

There have been a number of art funds established over recent years. The focus of these funds has been on contemporary art and artists from emerging economies with strong artistic heritages like China, India and Russia.

Diamonds Diamond prices tend to be consistent around the world despite the industry being part of a global market, and are universally quoted in US dollars removing any currency effects for investors. The diamond mining industry is highly concentrated with five major mining producers who set rough diamond prices according to supply and demand.

The majority of the diamonds are sent to cutters in low cost labour markets for polishing (especially in India), with the larger stones going to Antwerp or New York. Once polished, the stones will typically be sent to a limited number of polished wholesale centres.

The ‘Four Cs’ (namely cut, colour, clarity and carat weight) provide a grading system that forms the basis for pricing the finished product.

Experts cite several reasons as to why the market in esoteric asset classes appears to be bucking the trend. In part, this derives from the considerable wealth which has been created in emerging economies such as Russia and India…

High value diamonds are becoming harder to source, while demand remains high from a global base of high-end consumers wishing to acquire larger stones. The traditional way to invest in diamonds is through the acquisition of shares in diamond mining companies or jewellery retailers, neither of which is optimal and each has its own risks. A diamond fund allows the investor to acquire an interest in a larger portfolio of diamonds.

Vintage and Historic Cars Rare and historic cars have bucked the trend of falling asset prices in recent years and prices continue to rise as investors seek out new investment opportunities. Cars with specific history, unique characteristics, limited production, racing pedigree, and specialist provenance are sought out by collectors globally.

This continues to drive prices up. A good example would be the sale at auction in October of what has been dubbed ‘The Most Famous Car in the World’, James Bond’s Aston Martin DB5 which went under the hammer for £2.6 million.

Conclusion It is increasingly difficult for investors to make the right selection as to where to put their hard earned cash. For those high net worth investors who are looking to diversify their portfolios, there appears to be increasing opportunities to invest in esoteric asset classes through investment funds such as a Jersey Expert Fund.

Jersey is, perhaps, a natural home for funds investing into these esoteric asset classes, which are aimed at the sophisticated investor. At Hawksford Funds we believe that the rise of the esoteric asset class is an exciting opportunity for the Jersey funds industry, and long may it continue!

For more information of our fund services or to arrange a meeting, please get in touch with one of our team.

There is the potential for excellent returns and at the same time adding personal interest and excitement back into their portfolio.

Meet the Funds team:

Colin Borman Director T: +44 (0) 1534 740 264 E: colin.borman@ hawksford.com

Charles Millard-Beer Head of Fund Administration T: +44 (0) 1534 740 260 E: charles.millard-beer@ hawksford.com

Justine Brawley Assistant Manager T: +44 (0) 1534 740 137 E: justine.brawley@ hawksford.com

Mark Gransbury Senior Fund Administrator T: +44 (0) 1534 740 138 E: mark.gransbury@ hawksford.com

Carl McConnell Lawyer T: +44 (0) 1534 740 262 E: carl.mcconnell@ hawksford.com

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December 2011

Fiduciary Family Office Wills & Probate Succession Planning Employee Solutions Funds Advisory Media & Sports L-S&S GmbH

part of the Hawksford Group

15 Esplanade, St Helier Jersey, JE1 1RB Channel Islands T +44 (0)1534 740 000 F +44 (0)1534 740 074 www.hawksford.com

Hawksford Group Jersey | British Virgin Islands New Zealand | Singapore Switzerland | United Arab Emirates Hawksford Group (and Hawksford International) are the Registered Business Names of Hawksford Trust Company Jersey Limited which is regulated by the Jersey Financial Services Commission.