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With the arrival of the Alternative Investment Fund Managers Directive (AIFMD), many were quick to bemoan what they saw as the inevitable loss of their favoured route to market; the use of national private placement regimes in the key European markets to raise capital for a Guernsey fund vehicle. With the passing of a few more years, a Brexit referendum and more than a little regulatory delay, it is becoming increasingly clear that not only does this route still work, it is becoming increasingly advantageous when compared to the alternatives.
At the time of its introduction, Guernsey's dual AIFM regime was expected to provide great flexibility for fund promoters working from the island; those Guernsey managers marketing into Europe would ultimately enjoy the benefits of the EU-wide passport through the equivalence regime, those marketing entirely outside of Europe would have the flexibility to operate under Guernsey's existing rules without the need to comply unnecessarily with the AIFMD regime.
Whilst Guernsey's regime has been approved as having deemed equivalence the passport has not yet been extended to third countries due at least in part to the effects of the Brexit referendum. With negotiations now underway in light of the UK triggering the Article 50 process, the failure to extend the passport to third countries has meant that the use of the applicable national private placement regimes for third country funds must continue. From a Guernsey perspective, this cloud has turned out to have a definitively silver lining.
Nicholas Hofgren, director of Guernsey-based manager GFG Limited, notes that for him the issue of jurisdictional choice remains unchanged by recent events saying: “GFG analysed five EU jurisdictions and the Channel Islands when AIFMD was initiated. We considered Guernsey the optimal home state for cost, security and transparency. If we had to make the choice today, we would still choose Guernsey.”
Whilst political delay is always frustrating to those looking to move forward, this delay in itself has created an additional flexibility for managers seeking options around marketing into Europe. Managing using an EU entity allows, and indeed ordinarily requires one to use, the AIFMD passport. Managing from Guernsey by contrast still allows managers to use the existing and familiar private placement regime.
Martin Scott, Director of IAG Private Equity Limited, commented: “Whilst the Brexit vote has undoubtedly created uncertainty in the investment fund sector, the likely continuation of the popular and straightforward national private placement regimes provides an opportunity for fundraising by reducing the marketing costs and easing the reporting burden for GPs until an agreement on financial services is in place between the UK and the EU."