The Channel Islands jurisdiction's report about the value such an IFC brings to the UK comes at a time when such locations continue to promote their "value-added" status in the global economy. The report also coincides with a difficult period for the UK public finances when there's demand for inflows of capital.

Guernsey-domiciled funds are driving international capital into the UK at twice the pace of overall foreign direct investment (FDI), according to a new report by Frontier Economics, commissioned by Guernsey Finance.

“The report from Frontier Economics demonstrates the role Guernsey plays in supporting the UK’s ambitions for sustainable economic growth,” Rupert Pleasant, chief executive of Guernsey Finance, said. “Guernsey is a big contributor to the UK economy. Around £58 billion ($79 billion) is invested into the UK on an ongoing basis, investing in UK businesses, infrastructure, housing and clean energy.” Pleasant spoke to WealthBriefing to discuss its report, entitled The Value of Guernsey's Funds Industry To The UK's Growth Ambitions.

The comments in the report highlight how such international financial centres, sometimes assailed by critics of their offshore status and low taxes, point out that they can be important channels for investment into larger, "onshore" jurisdictions such as the UK. Guernsey's neighbour and Channel Island rival, Jersey, argued in 2022 that it contributes positively to global value chains, for example. 

Sustainable angle
The Guernsey funds sector has recently developed a specialist expertise in sustainable finance. There are 11 “Guernsey Green Funds,” with a gross asset value of £6.1 billion. The Guernsey Green Fund aims to enhance investor access to the green investment space, in line with the UK’s ambition for the financial system to play a part in the delivery of the UK’s net zero target and for a ”nature positive” future.

Around half of Guernsey funds’ investment into the UK relate to private equity or venture capital. The Guernsey private equity funds provide direct investment into a range of UK businesses, including biotechnology, green energy, digital, financial services and retail sectors, amongst others.

The Cibus Capital Enterprise Fund, for instance, invests in companies that are transitioning the food and agriculture value chain to a more sustainable model. This includes investments in Nourished, a foodtech company based in Birmingham that specialises in personalised nutrition.

Cibus Capital is an investment advisory firm focused on sustainable food and agriculture. It manages four funds domiciled in Guernsey with about $1.3 billion in managed assets. A quarter of these assets is held in venture capital funds, and the remainder in private equity funds. Cibus’ Guernsey-domiciled funds invest in Europe and particularly in the UK. The Guernsey Green Fund offers a regulated, jurisdiction-level label for environmental sustainability, giving Cibus an externally recognised way for evidencing Cibus’ impact thesis, the firm said. See more about Cibus here.

Infrastructure and housing also account for at least one third of Guernsey fund investments in the UK. Guernsey-domiciled Gresham House, for instance, a specialist asset manager focused on sustainable and alternative investment strategies, is investing in a range of infrastructure assets including a national network of landscape-scale habitat banks to drive biodiversity, vertical farms to boost UK food security, and regional fibre-optic networks across the country.

It manages eight private market funds domiciled in Guernsey across its flagship British Sustainable Infrastructure Funds I, II and III (BSIF) alongside their five co-investment vehicles. Collectively, these funds manage about £1 billion in AuM sourced from local government pension scheme funds and family offices. See more about Gresham House here.

Non-UK investors
“Almost 90 per cent of Guernsey-domiciled funds' AuM is sourced from non-UK investors, supporting foreign investment into all four nations that comprise the UK, amplifying our ability to invest in areas that matter most,” Pleasant said.

Investors from a total of 63 countries invest over £50 million (each) in Guernsey-domiciled funds, and 87 per cent of AuM was sourced from investors based outside the UK. Pleasant told this news service that the largest market is the US at 24 per cent, followed by Europe at 22 per cent, and Asia at 13 per cent.

Since 2021, Guernsey-domiciled funds have grown their UK holdings at an average rate of 7 per cent per year, about double the pace of broader foreign direct investment into the UK. “If this growth continues, Guernsey’s contribution to the country could exceed £80 billion by 2029 – an additional £23 billion which itself would be enough to satisfy the private financing needs of the UK Government’s National Wealth Fund,” Pleasant said.

Pleasant also highlighted that UK-based fund managers and issuers benefit from Guernsey’s lower cost, faster time to market and deep fund infrastructure expertise. "Over a 10-year lifetime, establishing a fund in Guernsey rather than Luxembourg could save investors €2 ($2.3 million) to €3 million,” Pleasant continued. “It benefits small and medium sized enterprises, in particular.”

“Guernsey is delivering international finance to all four nations of the UK, and across all regions of England, in a range of sectors where it’s most needed – and it is doing so at scale and speed,” he said. Pleasant will also be engaging with MPs to discuss the results of the report.

Guernsey Finance is a joint government and industry initiative whose remit is promoting and connecting Guernsey as an international financial centre.