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Welcome to the Guernsey Finance podcast page.
Our podcasts bring you all the latest news and insight from Guernsey, the global finance specialist, as well as audio from some of our online events.
brandon 0:05
Hello and welcome to the We Are Guernsey podcast where we bring you interviews with leaders from the global finance industry, as well as news and developments from Guernseys financial services sector. My name is Brandon Ashplant and I'm Strategy and Technical Executive here at We Are Guernsey. For those not familiar with Guernsey, the island is a leading global finance centre. The success of the industry here is underpinned by economic substance, political stability and asset security, and we are committed to the cause of sustainable finance. To find out more about Guernsey's success in sustainable finance tune into our sister podcast, the Guernsey Green Finance Podcast. Today ahead of our annual Funds Forum on the 12th of May, I am pleased to be joined by Damon Ambrosini, partner at BDO UK LLP. We will be discussing the investment funds sector globally. How various global events have changed the landscape in various markets and also delving into some findings from a recent research paper that Damon developed alongside Guernsey administrative solutions and fund launch services firm Carry. So without further ado, welcome Damon.
Damon 1:17
Thank you, Brandon. It's great to be here.
brandon 1:20
So Damon, firstly, to introduce your yourself to our listeners, just tell us a bit about yourself and in your career to date.
Damon 1:28
Yeah, so my story is relatively unique. I am the practice leader for videos London based US Business Tax Practice, the reason why we call ourselves that as we really focus on helping UK and European business entities with their US tax needs. I lead a team of about 10 people. And prior to that, I came over as a bright eyed and bushy tailed young child about two decades ago into one of the bigger accounting firms, US tax practices. We grew the practice from two partners 25 People in London to seven partners, 80 people in London, another 40 offshore in India that we're supporting our team. And really, people ask quite often why do we need so many US tax practitioners in London? And the answer is really based on the the story that we're about to talk about. When I came over to the UK. It was a time period when Asset Management and funds fund managers were really starting to pick themselves up and globalize. And we used to get random questions from clients who would call back then rather than email and say we've been asked by US investors for some type of reporting, we don't know whether to give it to him. We don't know what that'll cost we don't know what we're committing to. And that really developed into a business proposition where we could help clients understand all of these things really professionalise their organisation, as well as help them open up their channels to new sources of capital for them to manage. Because the the well trodden ones quickly picked up on the fact that if they were going to make the effort to entertain one or two US investors, they might as well go after a much bigger market, which the US offers. And so I would say again, the team that I lead is really just around helping UK and European based fund managers with their business.
brandon 3:26
Okay, interesting. So, just Firstly, it's been, you know, it's been a turbulent time in recent years with political chaos and Brexit, there's been a pandemic. Now, there's a war in Europe and all the economic ramifications that come out of these, but also feed into them across global events. As a BDO partner in London, how do you see the funds market at the moment? How have these crises changed the landscape?
Damon 3:54
I feel like every time there's a bit of turbulence in the market, people want to know if we're if we're going to survive, and we're going to make it through how will we deal with it? And I can definitely tell you having witnessed the end of the tech bubble, having witnessed a couple of recessions, certainly the impact of the financial crisis, I feel like the markets have seen worse than what we're seeing today. That's not to say that there isn't a certain amount of jitteriness in the market. If we talk to our clients that are working in the capital markets. There's definitely a concern around how long will the good times last? Will the will the increase in interest rates and the cost of borrowing have an impact that's going to cause the markets to go south for a while, and certainly we didn't even mention inflation to boot with all of the things that you just mentioned. So people are cautious. We are not seeing deals get done as quickly as we saw them get done in 2020 and early 2021. But people are being a little bit more thorough, being a little bit more careful and still completing transactions right now.
brandon 4:59
Okay, So you're an American, you're originally from the United States? And of course you have business dealings with American investors and their practitioners. How is the funds sector in Europe and the UK faring compared to the counterparts across the Atlantic?
Damon 5:14
Yeah, I have to say, first off that they are very different markets. I think if you go back in time to when we first went into a low interest rate environment, that stretch for yield caused a lot of the US asset allocators to really challenge themselves and look across the globe and say, Where can we get the best return for our money, because we need to do it, whether we're an insurance company that's underwriting policies, whether we are pensions provider and needing to pay out a fixed pension to our constituents. And so what that did was create the appetite to really go outside the US borders and go beyond in the Caribbean and, and really invest in particular markets. Europe has has offered a compelling business story we see on not only the American side, but for Asian investors. And I think that this, this has just led to a competitive advantage where people are interested in these markets interested in the returns that they can get from it, and are going to continue investing.
brandon 6:18
Interesting. So it sounds from your perspective, like things are, are not too bad or not too different. Between those two markets. You were recently involved in the developing of reports, in conjunction with a Guernsey firm Carey, which has been published was published at the back end the back end of last year. It was titled The unique appeal of Guernsey to US investors. Could you summarise some of the kind of key reports key findings?
Damon 6:47
Absolutely. The first I'd like to thank Carey for collaborating with us on this piece. This was an interesting study to put together and some of the things that Carey brought to my attention surprised even me. From my perspective, I felt like the tax section of that report was really a conversation I've had 1000 times over with clients that are interested in taking on US Capitol and trying to understand the commitments that they're making. But if we go back to what are were some of the really standout surprises, I was amazed to see that in 2019, US investors accounted for over 90% of the capital inflow to Guernsey domicile private equity funds, that was much higher than I would have speculated considering I'm working in these markets on a day in day out basis. I was also not surprised having heard that failure to understand that the amount of the fee size is generated by that investment was pretty staggering 267 million pounds. And I think that that's just an eye opening awareness to how important Guernsey is in the global playing field. I would say the bit that I contributed to that paper was really just to help people understand when you're going after US capital, we have to remember that the US market is one of the most one of the largest capital allocators in the world. It's a competitive landscape. And not only do we have the difficulty of getting a US investor and the regulatory definitions for who can market to US investors, the tax aspects can be quite complicated depending on which segment of the US investor market you're going after. And what we really tried to do was just raise awareness and the fact that you could broadly break it into two categories, US tax rules, and US tax exams. So who are the US tax officials, those are gonna be your insurance companies, those are going to be your family offices, your high net worth investors, who are the tax exempt. So those are your pension funds, your charities, your endowments, and even when you dig into any of those profiles, each of those profiles has a specific need or set of needs from a US tax perspective. And oftentimes, when we're taking managers to this journey of really trying to throw themselves into the US market and market their product heavily in the US. We help them one, clarify which market or population they're going after. And then we help design the fun structure that's going to accommodate that investor and help them with their side letter commitments and responsibilities. And so that that was really trying to glue together the value of the carrier was bringing together with what we see in the markets and replicate a conversation that we have, as I said quite often.
brandon 9:33
That's really interesting. It you know, there that there's there were some figures that the size of the figures and the volume of business flows that actually even surprised yourself. So that's, that's fascinating. So thanks for that. Looking to some of the specifics when within the report itself. It begins by detailing some of the islands key strengths the islands whitelisted status by both the OECD and the EU. How the island holds in a minus one Eating has been assessed by moneyval and has been recognized by various international standards and and supranational institutions for its strengths in the likes of AML, and so forth. We've already touched on some of the political and economic upheaval around the world. More broadly, what makes Guernsey stand out compared to other jurisdictions? Do you think it's Guernsey stability? Is that a factor? You know, during these uncertain times?
Damon 10:24
I think Guernsey has a reputation for stability. I think Guernsey has an advantage of having longevity in this space. We often talk to clients who are looking to launch a new fund or multiple funds about choice of jurisdiction. And quite honestly, from a tax perspective, we're pretty agnostic as to where the jurisdiction is for some of these funds structures. Really, we're looking for a tax neutral jurisdiction where we can achieve the same or similar tax rates that the investors would have suffered had they not gone through a pooled vehicle into the investments the fund is making. But Guernsey when I'm talking to clients comes up quite often in the sense that it has the track record of being stable. People have gotten extremely familiar with the rule of law there. I can remember the days when you had US investors coming European managers saying can we not have a Delaware limited partnership? Can we can we not have a Caribbean partnership. And actually, over time, people have gotten quite routinely used to dealing with Guernsey vehicles, and understanding the laws and the commonality of the drafting of the partnership agreements and all the structuring that comes with it. So I think Guernsey has that, in its advantage. It's also got the proximity of location. Certainly compared to the London market, we often have discussions with clients where they may say to us, we'd like to set up we're looking at possibly a continental based jurisdiction. And we say, again, this isn't a tax tax discussion. But have you really thought this through some of the continental jurisdictions would have an extremely competitive market in terms of attracting talent? Certainly every place requires substance these days. So you have to deal with how will you get the talent? How would you get the substance? What is the cost of doing business in that jurisdiction? What is your office space and footprint need to look like? What is your travel to that jurisdiction look like in terms of cost and time of your senior professionals. And really, I think people have waited up and looked at Guernsey and said, This is a pretty good option for us if we aren't going to put in all of the infrastructure that I just outlined in a different place.
brandon 12:34
That's interesting, because you do touch there on the stability factor. But also there are, there are many other reasons, as you say, to sort of look to Guernsey and Guernsey has been seen as increasingly a place to domicile and definitely to do business. And you did touch there on, as I say, stability. And these are kind of key to I guess the US clients that you deal with, and certainly that that are out there in the US. Are they? You know, do you think these drivers are specific to us managers? Or are they global in Outlook? Do they apply to, you know, clients in, you know, investors in the US, in Canada, or in Mexico and elsewhere? Or are they these kind of key drivers specific to the US the US investor base?
Damon 13:16
I think that's a great question. I think they really are global in the sense that some of the themes that I touched on any investor would be looking for, they want to know that their safety and security of the jurisdiction that they're operating in, they want to know that they'll be protected under the laws of that country. And that's not going to be different if you're American and Asian, South American, European. And so, again, when you look at Guernsey and you say what is the track record of Guernsey? And what, what have people been able to achieve there? I think there's a lot of comfort in that. There's also the scare factor of terms of if somebody is trying to promote a new jurisdiction, oftentimes, it takes a lot of effort to get that off the ground. And nobody necessarily wants to be the guinea pig in terms of moving to a new jurisdiction and trying out something only to find out. It works clunkier than the technology that already exists. Or it's more problematic for this reason, or that reason that was unanticipated. So again, guarantee offers unknown route, I believe, for fund managers.
brandon 14:22
And just a follow up to that question, I guess is, what fun types if you were talking to a US investor or a client out there, what font types are best suited to read on soiling to Guernsey for them? Is it you know, is it open ended closed ended? What would you say again, the work in the existing ecosystem what works best when you're looking to read domicile to Guernsey?
Damon 14:45
Yeah, from a broader than just US tax I definitely see managers interested in in liquid and illiquid strategies open ended and closed ended and I think burnsy has a balance to achieve for all of those types of Uh, needs. From a US investor standpoint, I would say from what I see in our client base, it's going to be more around closed ended, typically using a partnership, typically going into illiquid assets, whether it's UK companies or properties and or European based companies or properties. And that's where we tend to say,
brandon 15:24
okay, you know, I appreciate we're kind of coming to the end of the podcast, unfortunately here but, you know, we're here in Guernsey, we see the island as a leading center of green and sustainable finance, we see ourselves as a fourth the global goodness space, including in the Global Fund sector in which the island launched the world's first Green Fund regime back in 2018. What's the awareness among us managers and investors of Guernsey's track record for green and sustainable finance? Is there the awareness out there, as there is in other markets, you know, the UK or mainland Europe?
Damon 15:57
So Brandon, and I think that's a really interesting question. I think with the rise of ESG and ESG considerations, not only our fund managers looking at this, but certainly their investors, our, I can't think of a diligence I've seen that doesn't have some ESG aspect to it. So So when talking about green and sustainable finance, I really think guernseys places at least to be competitive in the world. And I think that's the perception that it gives right now, I often see it almost as the opposite side, if you can't demonstrate this capability, it could be a deal breaker in terms of someone picking your jurisdiction for their fun domiciliation. And that is something that we would just look at and say, green and sustainable finance, ESG sustainability, these are all non negotiables in today's world.
brandon 16:48
And that's interesting, but just just just a final question, then. If Guernsey is sort of well known, you know, globally for its green and sustainable finance status, you know, how can Guernsey improve on that status in the US, you know, within within American and American territory? I guess?
Damon 17:05
I think it's a balance of making sure that you're competitive, looking at what the other jurisdictions are doing and that you're on the forefront of it. And then promoting it with US investors to make sure that it isn't a question mark when it comes to them ruling out your jurisdiction for their next fun launch.
brandon 17:22
Okay, brilliant. Well, thank you, Damon for your time today. It was fascinating to hear you reasoning your reasoning as to why Guernsey appeals to us investors and fund managers and why they should be looking to Guernsey for for domiciliation thanks also to you for listening. If you enjoyed this discussion, we have a backlog of interviews and panel discussions on the way our Guernsey podcast channel, you can check them out by searching for we are Guernsey on your preferred podcast platform. To find out more about Guernsey and its specialist financial services sector. Head over to our website at www.areguernsey.com. We also have links to Damon and videos social media in our show notes please check them out to hear more from them. We also have the link to the paper that Daymond developed alongside Carey. We also hope that you'll join us on the 12th of May as our annual funds forum in London. You can find registration links also in our show notes. Thank you for listening for now. It's goodbye from Guernsey.
Transcribed by https://otter.ai