Private Investment Funds and Their Benefits for HNWIs

ZEDRA is an international provider of Global Expansion, Active Wealth and Fund solutions.

The firm’s experienced teams deliver tailored high-quality solutions to clients who include high-net-worth individuals and families seeking diversified active wealth solutions alongside companies of all sizes, asset managers and their investors. ZEDRA’s full range of services is designed to protect the real value of their clients’ assets and their entrepreneurial outlook supports businesses in unlocking their ambitions for growth and expansion, no matter how complex their challenges might be.

What has been keeping the ZEDRA Team busy over the past year? What have you been working on?

Since its establishment in 2016, the Guernsey Private Investments Fund (PIF) regime has proven to be a popular solution for Fund Promoters. We have seen an increase in demand for the product over the past year from new Promoters who are looking to launch their first fund in a well-established, reputable jurisdiction, and also from existing Guernsey Managers who require a simple, quick to market regulated fund solution.

The ZEDRA Team has been busy working with a number of new to island promoters on the launch of their first Guernsey PIF. With a wealth of experience in establishing and administering PIFs, the team is well placed to provide support and guidance to our clients on all aspects of the process. This includes managing the regulatory approval process and incorporation of entities, through to implementing appropriate and bespoke operational, compliance and governance frameworks to ensure that the PIF meets regulatory requirements on an ongoing basis.

We have also seen an increased demand for the establishment of funds with an Environmental, Social and Governance (ESG) investing mandate, which has led to some exciting conversations about the Guernsey Green Fund, an innovative, world-first regulated green fund product which was launched in July 2018. The aim of the Green Fund is to enhance investor access to green investing through the provision of a transparent and trusted product which contributes towards global objectives of mitigating environmental damage and climate change.

From your experience, why are HNWIs increasingly considering private fund structures? What are their benefits?

Since the global financial crisis in 2008, private wealth has doubled in nominal terms and there has been a trend amongst HNWIs to increasingly diversify their investments away from volatile equity and bond markets towards alternative investments, such as private equity, private debt and real estate, as well as more esoteric asset classes.

Unlike traditional funds, private funds offer HNWIs with a greater degree of flexibility. The Guernsey PIF regime caters for both open and closed-ended structures, which can be established as corporates (including cellular companies), unit trusts or limited partnerships and there are no restrictions on the types of investments that can be held.

With a regulatory application process of one business day and no requirement to produce a prospectus, other clear benefits of PIFs include the relatively low cost and speed to market of establishing a regulated fund structure. The lighter touch regulatory approach is proportionate to HNWI and sophisticated investors who have a close relationship with the Manager.

Recent changes to the Guernsey PIF regime have made the product even more attractive to HNWIs and Family Offices, with three different routes available. The original route requires the appointment of a Guernsey licensed Manager, who is responsible for making declarations regarding the investors’ ability to suffer financial losses. There is however no requirement for a manager to be appointed under routes two and three, which brings obvious advantages in terms of cost and simplicity.

Route two is available to investors who can be classified as Qualifying Professional Investors, which effectively means that they are able to evaluate the risks and strategy of investing in the PIF and are able to bear the consequences of any resulting losses.

There has been a noticeable increase in demand amongst HNWIs for the companies that they invest in - not only to produce good returns, but to also incorporate positive practices with respect to ESG issues.

The third route is the family relationship PIF, which is suitable for investors who share a family relationship or are employees of the family.

Have you found that more and more HNWIs are looking to use their investments to actively contribute to a more sustainable future?

There has been a noticeable increase in demand amongst HNWIs for the companies that they invest in - not only to produce good returns, but to also incorporate positive practices with respect to ESG issues.

There is evidence to show that this shift in attitude is predominantly being driven by millennials, who in contrast to preceding generations, no longer view ethical investment as a ‘nice to have’ option, but see it as a core factor in how they invest and perceive value and risk.

The momentum for sustainable investing is building as the demographic changes and a greater number of millennials start to become HNWIs, both through inherited family wealth or from wealth generated in their own right.

In addition to generational attitudes, the arrival of the COVID-19 pandemic also appears to have had an impact on HNWIs’ focus on ESG issues and has increased their desire to use their investing power for the greater good of society.

How is ESG shaping the future of funds and investment?

Assets under management with an ESG mandate are growing exponentially, with global assets worth $160 trillion expected to be managed in the region under some type of sustainable investing mandate over the next 15 years.

Investor demand for more sustainable and responsible investing is being driven by heightened social awareness and concerns about environmental issues and climate change

The global asset management industry has responded to the demands of their investors through the increased implementation of ESG risk and opportunity factors into their investment decisions and more active engagement with their investee companies regarding ESG considerations.

These trends are expected to accelerate in the future, as investor decisions are increasingly influenced by sustainable credentials. This is likely to result in a greater demand for specific ESG focused products, such as the Guernsey Green Fund, and will no doubt result in higher standards of transparency and reporting around ESG topics across the industry in general.

What is making Guernsey a popular destination for private investment funds? Do you think that the trend will continue?

There are a number of factors that have contributed towards Guernsey’s continuing success as a popular jurisdiction for PIFs, not least the wide-ranging expertise and experience of service providers within the sector.

Our regulator, the Guernsey Financial Services Commission, also plays a key role in ensuring that the Island is well-positioned to provide the type of structures that are attractive to fund promoters and investors alike. I believe that their approach of working alongside industry (as demonstrated by the recent changes to the PIF regime), will ensure that our regulatory environment continues to evolve and innovate, which will stand Guernsey in good stead as a popular destination for private funds, both now and into the future.

ZEDRA Fund  Managers  (Guernsey)  Limited  is  registered  in  Guernsey.  Registered  Number:  3371.  

Registered  Office:  Third  Floor,  Cambridge  House, Le Truchot, St Peter Port. Guernsey GY1 3WD

ZEDRA Fund Managers (Guernsey) Limited is licensed by the Guernsey Financial   Services   Commission   under   The   Protection   of   Investors   (Bailiwick of Guernsey) Law, 1987 as amended.