Published : 4 years ago, on 11/11/2020

By Nir Sadeh, SVP, Head of Private Banking, Butterfield

2020 has been a trying year for the wealth management industry. Even before the COVID-19 pandemic, 2020 was already gearing up to be an eventful year with the US presidential election and the UK’s departure from the EU. The coronavirus has naturally posed its own set of challenges, bringing sectors and industries to a standstill and undermining the long-term economic growth of established and emerging economies.

In response, investors and wealth managers have been keenly searching for markets that can offer resilience, stability and security during these uncertain times. But, given the unrelenting nature of the COVID-19 pandemic, finding markets that exhibit these qualities while also offering a diverse range of investment opportunities is by no means an easy undertaking.

Take the UK as an example. The country has established a reputation as a leading investment and wealth management hub, backed by a transparent judicial system and stable political system. However, with the UK suffering the fifth highest mortality rate from COVID-19 and currently on the brink of another full-scale lockdown, we are only just beginning to realise the long-term ramifications of the pandemic on the economy.

What’s more, we must not forget that the UK is scheduled to leave the EU on 31 December. At the moment, negotiations are stuck in deadlock and the chance of a no-deal is growing. This only adds to the clouds of uncertainty currently hanging over the UK.

All that being said, I do not expect investors and fund managers to actively seek alternative investment destinations at present. The UK will remain a leading destination for global investment, and I do not see this changing anytime soon. Nonetheless, at this moment it is also helpful to consider other jurisdictions that can also offer investors safe and favourable conditions, particularly when shielding against current market uncertainty.

Nir Sadeh

Based on the conversations I have been having, The Channel Islands is a region I believe will only grow in popularity over the coming years.

Guernsey and Jersey as destinations for wealth managers

When it comes to alternative economic jurisdictions, Jersey and Guernsey offer interesting case studies due primarily to their unique governance structures. Although still constitutionally ruled by the British crown, both these isles are categorised as self-governing “Crown Dependencies”. This means that they are entirely separate from the UK’s political and financial institutions.

With a total population of less than 200,000 people, the governments of these Crown Dependences have been able to effectively position their markets as viable international investment hubs. This has been achieved through the careful construction of flexible regulatory systems that accommodate, and actively encourage, flows of foreign capital. Modern and progressive financial services legislation, which includes unique trust structures, is complemented by mature and professional legal banking funds and fiduciary services sectors. It is for this reason that Guernsey and Jersey are regarded as major asset management and wealth centres.

And over the past decade, this economic strategy has proven extremely successful. The total value of funds located in Guernsey rose from £132 billion to an impressive £269 billion between September 2009 and 2017; with funds in Jersey growing from £163 billion to £265 billion over the same period. In 2020 alone, Q2 saw the total value of regulated funds located on Jersey and Guernsey rise to £361.7 billion and £233.2 billion respectively; representing a £20 billion rise on Q2 2019.

What’s more, external investors are seeking approximately £100 million of real estate investment in Jersey and Guernsey as part of a strategy to hedge against current market uncertainty. In my mind, these statistics alone demonstrate the longstanding popularity of these islands.

Looking for stable markets

As financial professionals come to terms with the uncertainty caused by COVID-19 and other geopolitical events, I anticipate the Channel Islands to remain a top destination for those seeking stable jurisdictions. Both islands have done an admirable job containing COVID-19 within their borders and are effectively open for business as usual. Already, research commissioned by Guernsey’s government shows that funds on the island are attracting increasing private equity investment from the US.

I am confident that the attractiveness of Guernsey and Jersey for wealth management will continue to grow. The governments of both jurisdictions are aware of their advantages and have demonstrated the flexibility and willingness to adapt to the changing needs of the businesses and fund managers based there. In doing so, The Channel Islands provides a stable political and economic environment, as well as a wealth of investment opportunities.