By Nir Sadeh, senior vice president and head of private banking, Butterfield
2020 has been a choppy year from the perspective of the wealth management industry. Back in January, the US presidential election and the UK’s departure from the EU were touted as the big-ticket events that would invariably affect the financial markets.
None of us were expecting that we’d also have a global health pandemic to contend with.
It has been a challenging period, with wealth managers having to navigate market uncertainty and attempt to predict the future performance of certain assets. And now, even as we enter the final stages of 2020, there is nothing to indicate that market volatility will subside anytime soon.
Nir Sadeh
The Covid-19 pandemic remains a top political issue and we are only now beginning to understand the long-term economic repercussions it will have on established and emerging markets.
In response, wealth managers and investors are actively on the lookout for markets that are secure, stable and resilient. The challenge is finding markets that not only exhibit these qualities, but at the same time, provide a diverse range of investment opportunities.
If we look to the UK as an example, we are well aware of its reputation as a leading destination for international investment. Backed by a politically stable government, alongside accessible and diverse investment opportunities, there’s a reason why the UK is a global investment hub.
However, with the Brexit deadline fast approaching (31 December) and the likelihood of a deal between London and Brussels fast diminishing, the UK’s position could well be under threat. Even if an agreement is reached and a no-deal situation is avoided, the current uncertainty poses its own complications.
The question naturally beckons: Which other jurisdictions are able to offer the same favourable investment conditions as the UK? In my mind, there are two in particular that warrant attention: Jersey and Guernsey.
The Channel Islands
The Channel Islands provides a fascinating case study when it comes to understanding the legal status of non-conventional jurisdictions.
In the case of The Channel Islands, of which Jersey and Guernsey are a part of, we use the term “Crown Dependencies” to define its legal status. What this means is that both Jersey and Guernsey are not part of the UK but are rather self-governing dependencies of the Crown. They each possess their own directly elected legislative assemblies as well as independent fiscal and legal systems and their own courts of law.
Over the last few decades, we have seen the governments in Guernsey and Jersey actively promoting international investment and wealth management by creating flexible regulatory systems that effectively cater to the needs of investors.
Both jurisdictions boast modern and progressive financial services legislation and unique trust structures, complemented by mature legal, banking, fund and fiduciary services sectors. As a result, the majority of the world’s leading banks and wealth managers have an established presence here, leading to strong professional networks that would be difficult to forge in big cities like London.
As a result, between September 2009 and September 2017, the total value of funds in Jersey rose from £163 billion to £265 billion. A similar spike trend was recorded in Guernsey, with the total value of funds rising from £132 billion to £269 billion over the same period.
More recently, it was revealed that the total net asset value of Guernsey funds has increased in Q2 by £5.5 billion to £233.2 billion. This is an impressive statistic, given it represents an increase of £16.4 billion in the 12 months following 30 June 2019. Similarly, the total net asset value of regulated funds in Jersey at the end of Q2 2020 was £361.7 billion. This is approximately a £20 billion increase on last year’s same quarterly figures.
Even in the face of a global pandemic, capital inflows into The Channel Islands are rising. I believe this will remain the case for the coming 12 months, as both jurisdictions serve as trusted and stable domiciles for private funds. This is an extremely important point, particularly in light of the current situation.
With so much uncertainty hanging in the air and big-ticket political events threatening to perpetuate and initiate market volatility, stability is a characteristic that should not be taken for granted in the current context.
In addition, the Channel Islands have done an excellent job containing Covid-19 within their borders, with the effect that they are nearly open for business as usual, while much of the rest of the world continues to grapple with lockdowns.
Shifting interest towards The Channel Islands
There’s no denying the comparative advantages on offer from Guernsey and Jersey as investment hubs.
With Brexit on the horizon and the Covid-19 pandemic threatening to downgrade the economic growth of established and emerging markets, The Channel Islands provide the security and assurances those in the wealth management industry are clearly seeking, and I see no reason why this will not remain the case in the long term after the current political, economic and social events have passed.
Nir Sadeh is the senior vice president and head of private banking at The Bank of NT Butterfield & Son Limited (headquartered in Bermuda with operations in ten jurisdictions). Mr Sadeh also leads Butterfield's International Wealth Banking unit, which provides bespoke banking services to international families with interests in multiple jurisdictions.
