A LEADING study on the future of investment management has highlighted significant challenges facing the funds industry in Guernsey. The latest report on global investment management by KPMG and Create-Research focuses on convergence and divergence and looks at how the alternative investment industry is reshaping the investment world.
Nearly 350 executives from 28 jurisdictions, including the Channel Islands, which had a total of US$66 trillion under management and administration, took part in the research. Its key findings show that 40% of fund managers across the world have diversified into long-only funds and 30% of traditional managers have moved into alternatives.
KPMG Channel Islands director Neale Jehan said the global trends in the report had a direct impact locally where service providers have to cope with their clients’ diversifying investment strategies.
‘Investors are clear in their demand for products focused on private equity, property and infrastructure assets.
‘These will continue to be important to the island. However, there will be increased demands placed on providers for additional services and transparency and that will be a challenge for us.
‘The island will need to continually review its approach to these sectors to ensure it remains a best fit for the future.
‘In contrast to investor demand and in providing a mismatch of priorities, fund managers want to launch exotic structures and strategies to push the boundaries of hedge fund techniques.
‘These in themselves will pose a challenge to hedge fund service providers.’
The global fund industry has become increasingly complex through innovative structures, the demand for additional high-value services such as asset valuations and risk analysis and through increased information and disclosure requirements.
Mr Jehan, pictured left, believes that may drive demand for high value services and skill sets which are not yet abundant in Guernsey.
‘This presents both an opportunity and a challenge for the industry as we need to develop these services and train our staff to ensure that we can offer expertise in these areas.’
There is also a large shift in the global administration industry coming as the prime brokerage industry expands its service offerings to include administration.
The report highlights an expected bifurcation into a two-tier system of global and niche administrators. Each tier would have different operating models and have different demands on regulatory structures, staff skills and service providers in their jurisdictions.
‘While Guernsey’s hedge fund industry is currently focused on the fund of funds sector, there are a number of directly invested hedge funds in existence,’ said Mr Jehan.
‘It is possible that the larger hedge funds may gravitate towards the one-stop shop prime broker and administrators, who may not be present in the island.
‘This is obviously a threat to continued growth of this sector and it is therefore key that Guernsey is seen as a competitive domicile in terms of our regulatory structure, capacity and the quality of high-value services going forward.’
Mr Jehan warned that the island needed to be proactive in facing these global trends to ensure that it remained competitive.
‘Growth in our local economy in recent years is clearly linked to the success of the fund industry and for this to continue, we need to be aware of the challenges we will face and the opportunities they might pose.’
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