Guernsey fund administrators to benefit from AIFMD

It is safe to say that the investment community has not, on the whole, welcomed the EU's Alternative Investment Fund Managers Directive (AIFMD). But some industry professionals are eager to start.

When partnered with increased reporting requirements and more complex transaction structures, several GPs are moving away from keeping everything in-house and are pinning their hopes onto fund administrators to share the burden. For fund administrators, AIFMD's silver lining is clear.

But while increased regulation may place an unwanted burden on their day-to-day jobs, GPs are not entirely immune to its charms. Yesterday, Silverfleet Capital agreed to buy fund administration services firm Ipes for £50m from RJD Partners.

"The outlook for outsourcing of private equity administration is very positive as funds have to manage increasing regulatory and investor demands which are costly to provide in-house," said Silverfleet partner Ian Oxley in a statement. "Legislation including AIFMD, FATCA and Dodd-Frank will generate significant new reporting requirements and this in turn will create an opportunity for Ipes as it works with fund managers to ensure compliance with these regulations."

David versus Goliath
Ipes is planning to develop its services on the back of AIFMD. Whether they like it or not, private equity houses will soon have to appoint depositaries. As a result, several fund administrators have spoken of expanding their service offerings.

This is a new business line we have decided to pursue," explains Barry McClay, COO at the firm. "With a new investment, we already look to see if it complies with the investment restrictions, to see if it is somewhere the fund is allowed to invest, so a lot of the checks and balances are already happening," he adds. Of course, the larger one-stop shops will not have to make much of a change to remain competitive, but their advantage may be short-lived.

"Inevitably with increasing regulation and the burden on administrators, the big players are well positioned in terms of critical mass," explains Fiona Le Poidevin, chief executive of Guernsey Finance, a joint industry and government initiative to promote the island's financial services.

"But at the same time independent players are very popular because they are so specialist. And with some administrators looking into depositary functions, they might actually become a one-stop shop," she adds. "I spoke to one of the independents recently, and they are looking for acquisition targets. So we might see some consolidation in the market in the near future."

Goliath will retain his clout, but David looks set for a growth spurt. Silverfleet plans to grow Ipes both organically and through acquisitions on an international scale. With cash in the coffers, consolidation in the fund administration market may be imminent. Perhaps the oft-discussed battle of one-stop shops versus independent boutiques is edging its way towards the history books.

Fund administrators are not the only ones to welcome AIFMD with open arms, predicting growth on its back. As the deadline for transposition into local legislation looms, the industry at large remains unsure of the effect the directive will have. But amid the haze, one jurisdiction has made its intentions clear.

The middle road
Guernsey, the birthplace of Ipes, hopes to offer two parallel regimes: one will be fully AIFMD-compliant, while the other will allow for the continued existence of non-compliant funds. Over the years, the island has been home to a number of success stories: BC Partners raised more than €6bn for the Guernsey incorporated BC European Capital IX; the listed fund KKR Private Equity Investors LP raised more than $5bn before launching on the Euronext Amsterdam and Jon Moulton's Better Capital became the first closed-ended PCC to have two cells, both with full LSE listings.

Supported by several law firms and fund administrators, the local industry is well developed. And as fundraising remains challenging and power becomes concentrated in the hands of ever-more discerning LPs, it looks set to grow on the back of its dual regime.

"In terms of work outside Europe, we see Guernsey funds attracting US investors," explains Guernsey Finance's Le Poidevin. "Cinven, for example, recently raised €5bn for its fifth fund; around 50% of those LPs were from the US. So I think we might see managers setting up parallel structures; one that is AIFMD-compliant and one that is under the existing regime for non-EU investors," she adds.

"If there are managers looking to attract North American money and European money, Guernsey is a nice fit between the unregulated Cayman environment and the European environment," explains Barney Lee, partner at offshore law firm Appleby. "A number of US managers have done that, saying they want to attract European LPs this time around, but those LPs have said they won't go to Cayman. The GPs have reacted saying they won't go to Europe, but they will meet in the middle road, in Guernsey," he adds. As fundraising remains a struggle, GPs cannot be picky. They have to go where the money is, even though its global scattering may place multiple requirements upon the fund structure.

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