There is a growing awareness in China of the products and services that offshore centres – such as Guernsey – can provide to Chinese high net worth individuals (HNWIs), particularly in the provision of family office solutions. A family office is used to describe the employees of an ultra-HNW family that help an entrepreneur to run a business empire or their family’s property and liquid wealth, and attend to the needs of individual family members with a concierge or lifestyle service that can, say, find a student a place at Eton, or offer full visa services to live and work in a foreign country.
Guernsey’s popularity within the family office sector is driven by a combination of factors. Guernsey has its own elected parliament, a stable system of government and a mature and sophisticated legal system that provides certainty and predictability in terms of the ownership and operation of wealth structures.
The island’s close proximity to the City of London and mainland Europe, as well as its convenient time zone and tax-neutral environment, is also advantageous, as is the fact that Guernsey, with more than 50 years’ experience of servicing private and corporate clients, has unparalleled capability in dealing with family office structures.
While many in China still equate offshore with BVI and Cayman, Chinese clients and advisers have begun to understand that offshore extends beyond the Caribbean jurisdictions. Not only are there other international finance centres, but these can offer a very different and often better proposition. For example, Guernsey is recognised by international organisations as meeting robust standards in terms of regulation and tax transparency – attributes with added significance following the global financial crisis. In addition, our understanding is that while initial, upfront costs of doing business in the Caribbean may be less, over the longer term, the expense is broadly comparable.
Global cross-border private wealth structures
The island’s 150 licensed fiduciaries range from multinational organisations to independent, boutique operations, all specialising in the preservation of individual and family wealth. These fiduciaries are complemented by Guernsey’s broader financial services industry and a strong network of professional support services, including multi-jurisdictional law firms and global accountancy practices.
In addition to the well known trust route, family offices can structure their wealth via corporate vehicles including the private trust company (PTC) and managed trust company (MTC), which are utilised to hold assets and investments of all types, particularly where there is a desire to retain control. PTCs have become particularly popular in recent years as wealth creators seek to establish increasingly portable structures for their assets.
Another way is the protected cell company (PCC). The PCC concept, pioneered by Guernsey in 1997, is now used across the global finance industry. One of the most innovative applications of this tool has been in the field of family wealth planning.
The PCC allows for the creation of any number of individual cells within a single corporate entity, each of which is statutorily ring-fenced from the PCC core and its other cells, meaning the assets of one cell cannot be used to meet the liabilities of another. It therefore provides a cost-effective means of isolating investments without the need for separate holding companies. The structure can be applied for the purpose of allocating assets, via separate cells, among different members of the same family without risking liabilities incurred on behalf of one contaminating another. Furthermore, the PCC operates with a single board of directors, allowing a principal family member to exercise a degree of control across the family. The PCC’s single corporate identity can deliver considerable savings in terms of directors’ fees and administration costs. A pertinent benefit of the PCC is it allows for consolidated reporting, which means that the head of the family can have one report showing his or her wealth and its sources.
Legislation introducing Guernsey foundations also came into force in January 2013. The foundation is an important wealth management vehicle and another tool for our service providers, and we have seen a steady inflow of foundations into Guernsey since its introduction.
Private wealth investment
Wealth management encompasses not just preserving, but also increasing wealth, and therefore many family heads and families wish to invest in high-yielding investment funds. As such there are a large number of family offices seeking the right proposition.
Guernsey has a thriving investment funds industry with platforms managing investments across the globe. For example, UK investment manager Stratton Street Capital launched the first Chinese currency-focused bond fund outside of China as a Guernsey structure in 2007. The Renminbi Bond Fund has assets under management of US$385 million.
Similarly, International Administration Group (IAG), which has its headquarters in Guernsey and an office in Hong Kong, has had a partnership with Shanghai finance firm Exceedor since 2011 that allows IAG to offer onshore RMB-denominated private equity fund administration services in China. IAG recently announced two further joint ventures with the Tricor Group to provide fund administration services in Hong Kong and Singapore.
Several other Guernsey-based firms also have an Asian presence. Law firm Ogier has offices in Hong Kong and Shanghai, while Mourant Ozannes is established in Hong Kong. Wealth managers Louvre, Nerine and Newhaven have offices in Hong Kong, while Richmond Fiduciary Group is in Shanghai.
The island’s representative office in Shanghai often acts as a first port of call for clients and advisers who want to know more about Guernsey’s offering. Since its opening in 2007, Guernsey has achieved milestones working in co-operation with the Chinese authorities. The Guernsey government signed a tax information exchange agreement with the Chinese central government tax authorities in October 2010, as well as a memorandum of understanding (MoU) with the Shanghai Financial Services Office in November 2010. The Guernsey Financial Services Commission (GFSC) signed a statement of co-operation with the China Banking Regulatory Commission in November 2011 and an MoU with the China Securities Regulatory Commission last year.
Perhaps not surprisingly, given these milestones and the number of Guernsey-based firms establishing offices in Asia, GFSC figures show wealthy Chinese individuals and families becoming an increasingly important market for Guernsey’s wealth management community.
Fiona Le Poidevin is chief executive of Guernsey Finance, the promotional agency for Guernsey’s finance industry. She can be contacted on +44 1481 720071 or by email at [email protected]