Funds industry must take "all necessary action" to capture share of global boom

Friday 09 March 2018

Channel Islands funds industries are in a strong position to capture a new wave of exponential growth, but need to act now to modernise and take a strategic view on how to remain relevant, according to the findings of a new report published by PwC in the Channel Islands.

The ‘Asset and Wealth Management Revolution: Putting the Channel Islands Centre Stage’ report predicts that alternative asset classes will increase sharply as investors diversify to reduce volatility and achieve specific outcomes. It also estimates that the alternatives’ share of global assets under management will more than double from $10.1trn in 2016 to $21.1trn in 2025.

It also anticipates that real assets will show the most rapid growth over the coming decade, with close to $78trn being spent globally on infrastructure between 2014 and 2025, real estate doubling by 2025 to $2.2trn, and private equity expanding annually by 9.8% between 2020 and 2025.

Pointing to the fact that funds in Jersey grew to £265bn in September 2017 and £269bn in Guernsey, Mike Byrne (pictured), PwC's CI Asset and Wealth Management Leader, commented: “The growing interest in alternatives is excellent news for Jersey and Guernsey, which have unparalleled knowledge and experience in close-ended, long tail investment strategies. This niche is the Islands’ greatest asset, and recent decades have highlighted the Channel Islands’ capacity for strategic agility and innovation.”

However, whilst the report predicts rapid growth, it also identifies four trends driving revolution in the sector and makes recommendations for the Islands’ future success. “If the predictions set out in our report come true, we’re set for a significant period of global growth in alternatives. However, there is no guaranteed right to share in this growth and the Islands must ensure that they take all necessary action to capture their fair share. We must continue to innovate with clear propositions and respond to the evolving market, with new, relevant products and refreshing existing solutions. Our high level of regulatory compliance and tax transparency will serve us well going forward, but we must get better at telling our story in a clear and compelling way. Undertaking detailed reviews of existing business models and products is vital to ensure that tax structuring, transfer pricing and governance remains fit for purpose," Mr Byrne explained.

“Meanwhile, we have a low penetration rate in key markets, specifically in North America, which accounts for over 50% of global assets, and Asia, which boasts the highest predicted growth rates. We must focus on these opportunities, whilst retaining focus on our existing markets of the UK and Europe. In new markets, we need a clear market entry study and be able to present a coordinated and compelling proposition on the relevance of our jurisdiction and how we can add value. The ability to distribute under private placement regimes has served us well post-AIFMD and we must continue to evolve our regulatory frameworks and invest in new and existing relationships with overseas governments and regulators to protect market access.

“As far as fee pressure and investor expectations are concerned, focusing on technology and automation to decouple growth in assets under management from cost increases is key. This focus clearly aligns with each Island’s population policies and the need to ensure good, sustainable growth. The Islands have a real opportunity to be an innovation sandbox for many of the large multi-national service providers that operate here and the governments’ abilities to offer incentives, such as tax
credits, to stimulate and support such investment is compelling. But we must act now.”

The full report can be found online.