South African investment fund managers are moving fast to meet investor demand for offshore diversification – and competition is growing from international financial centres keen to persuade South African investment managers to domicile their offshore products in their particular jurisdiction.
Demand to invest offshore is being driven by geopolitical uncertainty and a weaker rand, as well as the generally accepted wisdom that investments should be diversified across geographies and asset classes. Regulation 28 of the Pension Fund Act now allows institutions like pension funds to have up to 30% of offshore exposure and individuals are able to externalise assets of R10 million per annum.
James Travers, Technical Manager of Guernsey Finance, the promotional arm of Guernsey’s financial services industry, says that in choosing an offshore financial centre, it is critical that investment managers – and their clients – discern carefully about which jurisdiction to choose.
“Fund managers need to look for a stable and secure environment and remain mindful of the reputation for international compliance, cooperation and transparency of their chosen offshore centre. Equally, they require a robust legal environment and flexible and responsive regulation.
“Guernsey has a long tradition of dealings with South Africa, with some fund managers, like Investec, having had a presence there for decades. Guernsey is a mature investment funds jurisdiction of “substance” a term that South African investors are likely to become more familiar with,” he says.
Other local companies active on the island include Momentum, Peregrine and First Rand.
Guernsey Finance has conducted several successful South African roadshows in recent years, speaking both to South African investment managers and wealth managers.
Along with Ireland, Luxembourg and Jersey, Guernsey is one of the top jurisdictions for South African offshore funds.
According to Travers, Guernsey investment funds are frequently registered for sale in South Africa under the Collective Investment Schemes Control Act. Essentially these are offshore funds which are registered and approved by the Financial Service Conduct Authority. Guernsey has 37 such FSCA-approved funds, the vast majority of which are managed in South Africa.
Maitland, the global fund administrator and advisory firm founded by South Africans in Luxembourg in 1976, has a full-service offering in Guernsey. Ian Horswell, Senior Business Development Manager at Maitland in Guernsey says that an offshore management company (ManCo) is generally required for a South African investment fund to administer a fund in Guernsey. Such a ManCo can also facilitate further growth into additional markets in the EU.
Horswell says: “Going offshore inevitably adds an addition layer of complexity for for South African managers. Our aim is to remove complexity by providing a turnkey offshore ManCo solution that can simply be plugged into the fund manager’s existing business.”
David Crosland is a partner in the market-leading funds team at Carey Olsen in Guernsey. Crosland says: “Distribution is key. Marketing Guernsey fund products in South Africa is a well-trodden path, but Guernsey can also provide the perfect stepping-stone to international markets, with deep and longstanding ties to the City of London and other international financial centres. These distribution capabilities come without the burdensome regulation of a UCITS product, allowing managers to benefit from the speed and flexibility of the Guernsey regime.”
Travers says that the principal aim of the current roadshow to South African investment fund managers is to demonstrate that setting up offshore structures need not be complicated nor overly expensive. “Guernsey offers a faster, less expensive and more flexible”, he says.