The European Union's (EU) alternative investment fund managers (AIFM) directive has caused uncertainty but Guernsey law firms such as Carey Olsen, Ogier and Mourant Ozannes predict industry growth.

Where funds are structured and domiciled, law firms will thrive. That has certainly been the case in Guernsey, which boasts a number of growing and internationally recognised legal practices.

Despite the effect of the financial crisis on hedge funds in the past two years, Guernsey’s law firms report continued strong activity with other work keeping them busy.

At Carey Olsen funds partner Ben Morgan reports “quite a bit” of restructuring and refinancing work during the past three years for existing clients.

Roger Le Tissier, a partner at Ogier, believes restructuring did not create the same work flows for his firm as a result of the crisis.

“In Guernsey we haven’t seen the kind of restructuring issues that we have seen in other parts of the world. Restructuring happens all the time for all sorts of reasons,” notes Le Tissier.

Lawyers believe Guernsey’s hedge fund industry built up momentum during the years before the crisis hit, particularly in 2005-06. This helped carry the island over the past two years.

Morgan points out Guernsey suffered no jurisdictional damage. Unlike other countries such as Luxembourg, there were no Guernsey funds exposed to the Madoff fraud and the island has developed a robust regulatory regime.

At the top of lawyers’ current regulatory concerns is the European Union’s (EU) alternative investment fund managers (AIFM) directive.

“I think we have got to be very careful about the AIFM. The only certainty is that there still is uncertainty,” says Mourant Ozannes partner Gavin Farrell.

The main issue surrounding the AIFM as far as Guernsey lawyers are concerned is how the directive deals with the marketing of funds domiciled outside the EU. Farrell thinks a continuation of the current private placement regime would be the best outcome for the island.

While he says Guernsey should in theory be able to comply with any equivalency criteria agreed by the EU during the final stages of negotiations, Farrell warns the island cannot rest on its laurels.

“I do not think we should be complacent. The AIFM is creating difficulties for well regulated offshore centres like Guernsey. We shouldn’t be unrealistic about that, but we can’t be rabbits in the headlights of a car and simply hope it will pass away,” Farrell says.

He thinks lawyers and their clients have succeeded in keeping business going as usual through the drawn-out debate over AIFM.

“The uncertainty was a much bigger issue a year ago but people have come to terms with the fact that we always strive to find a solution to deal with problems,” Farrell remarks.

Le Tissier says he does not believe the AIFM held up the flow of business to Guernsey. “I do find that there are plenty of projects and transactions on the go,” he adds.

According to Morgan a number of enquiries have come from fund managers and promoters who are new to Guernsey. He also believes Guernsey’s funds of hedge fund niche will remain strong both in closed and open-ended products.

Morgan says he is observing launches of funds in new sectors such as clean technology, agriculture and “anything for which there’s still investor appetite for money to go in”.

He believes listed funds, for which Guernsey is well-known, have found the volatile market conditions difficult. Carey Olsen has advised on some listed fund launches recently. Morgan says a return to normality could be slow.

“If we’re at the start of a double-dip recession, we have to get out of that double dip before listed funds return to what they were,” he notes.

Le Tissier is a little more optimistic. Both he and Farrell expect the markets could support some C‑class share issues later this year.

Farrell reports a “continued number of limited partnership” fund launches as well as interest from managers in Switzerland, Germany and Scandinavia.

Work is also coming to the law firms from different sources. A major development in Guernsey’s fund industry, and one welcomed by many, has been the increase in the number of alternative investment management companies basing part of their operations on the island.

Earlier this year hedge fund manager BlueCrest relocated its headquarters to Guernsey. Farrell was part of the legal team advising the company on the move. “It was a major coup for Guernsey,” he says.

According to Farrell the BlueCrest migration kept a corporate section of Mourant Ozannes busy for several months. Lawyers were needed to advise not only on the company and fund issues arising from the move but also on property matters relating to the company’s new premises, employment issues and private client advice for those BlueCrest staff members looking for housing and tax guidance.

Farrell says the Guernsey Financial Services Commission (GFSC) was “incredibly helpful” throughout the process. He believes the co-operation between the regulator and the various service providers involved is an example of the way the Guernsey industry is able to work closely together.

Despite this high-profile move, he does not think BlueCrest will be followed by widespread migration of other hedge fund managers.

“I don’t think it’s going to be the opening of floodgates. You need to have sufficient structural tax and cost savings imperatives to justify the big move to a place like Guernsey,” Farrell says.

He does expect a small number of hedge fund companies to set up administration or other management centres in Guernsey to take advantage of the island’s “robust” reputation as a financial -services jurisdiction.

Le Tissier points to factors such as Guernsey’s timezone, English-language culture, UK-style legal system and its “real and proper” but light-touch tax regime as drivers for managers to move to the island.

Morgan notes that law firms’ business is transaction-driven and for practices to thrive they need the day-to-day work of launches to keep rising. Nevertheless, he welcomes the arrival of managers to Guernsey.

“The attractive thing of having managers here is that it means we have greater depth and diversity in what we do. It attracts other like-minded people to think about moving to Guernsey,” Morgan says.

Managers based in Guernsey are also more likely to establish their funds on the island and promote it as a domicile for both management companies and funds elsewhere. In the current economic climate it is more important than ever for the jurisdiction to market itself, lawyers say.

“Guernsey has always been really quiet about its success. The business has just come to it,” notes Morgan.

Farrell agrees. “We always used to benefit from the trend or well-trodden path,” he says, explaining if one manager chose to domicile his operations or fund in Guernsey others would follow.

Lawyers believe there is now more competition in the global industry from other offshore jurisdictions and onshore domiciles like Ireland, Luxembourg or Malta as well as emerging markets.

“The best you can do as a service provider on the island is if you see a trend go out there and push it. I think in an ideal world we would be marketing ourselves very heavily in Asia because they have still got money and we haven’t,” -Morgan says.

“We all know that there’s a flight to the East. I think that we have to go out there,” says Farrell.

Le Tissier is proud Ogier has already done this. “As a firm we have taken a more advanced course than the rest of Guernsey and we have moved a Guernsey partner to Hong Kong to take the Channel Islands to Asia. That’s a first-move in so many ways and is a very exciting move indeed,” he says.

Marcus Leese joined Ogier’s small Hong Kong office earlier this year as its first lawyer admitted in Guernsey. The other three partners are all admitted in England and Wales, the British Virgin Islands and the Cayman Islands.

The idea is for Leese to engage more closely with the firm’s clients in Asia as well as to work alongside Guernsey Finance’s promotional efforts in the region which include a Shanghai representative office.

Le Tissier thinks Ogier also has an advantage over its competitors in the way it is structured. As a global partnership in which all partners share profits equally, lawyers are able to be agnostic about where they advise clients to establish funds.

“If you have the proper structure as a partnership where it doesn’t matter to a partner where a transaction is done, then we can give a client perfectly clear unbiased advice as to where to do it,” Le Tissier says.

Ogier has the widest international network of the well-established Guernsey law firms, although Appleby’s move into the market is being watched with interest. Appleby opened its Guernsey office in early 2010 with the hire of four associates from Ozannes and the relocation of partner David Clark from London. The development came four years after the firm established a Channel Islands base by merging with Jersey firm Bailhache Labesse.

The other major development in Guernsey’s legal scene is the recently completed merger between Mourant du Feu & Jeune and Ozannes, creating Mourant Ozannes. Ozannes was previously larger in Guernsey than its new partner firm but smaller in Jersey.

Farrell says it was important for both firms to concentrate on being legal service providers before the merger took place. Mourant sold its administration arm to State Street while Ozannes formally disassociated itself from Legis Fund Services, with which it had an -historical relationship.

According to Farrell the firms wanted to focus on their core legal services. “It gives us a great opportunity to consolidate a very strong platform in the Channel Islands together with a mid-size but growing office in Cayman and a London office and to use that as a very good springboard to develop further,” says Farrell.

He admits merging two firms of a similar size has posed challenges but believes Mourant Ozannes will be able to build on the merger.

However, the Guernsey legal community does not expect to see many more new entrants to the market as the number of firms and lawyers is naturally limited due to the island’s size.

Whereas in the boom growth years many lawyers practising in Guernsey hailed from other parts of the world, particularly Australia, New Zealand and South Africa, firms are now developing schemes to support Guernsey students through qualification in the UK and attract them back to the island. Mourant Ozannes offers training contracts for would‑be lawyers.

Farrell notes retaining intellectual talent on the island is crucial. Guernsey will always have the draw of being a nice place to live, he says. “People come here because they may not necessarily want to be in London,” he adds.

It is likely to take some time for the Mourant Ozannes merger and the new Appleby office to bed into Guernsey’s legal scene but both moves are indicative of the sector’s continued health.