Brandon 0:05
Hello and welcome to the Guernsey Finance Podcast. I'm your host Brandon Ashplant. This podcast features interviews with leaders from across the global finance industry, sharing perspectives on the issues and innovations shaping the future of finance. As a leading international finance centre overseeing more than 1 trillion pounds in assets, Guernsey is known for its expertise, innovation, and global connectivity. If you'd like to explore our commitment to sustainable finance, you can also tune into our Sustainable Finance Guernsey podcast channel. Today, I am pleased to be joined by Kate Solway, Managing Director at Hedosophia in Guernsey. We'll be discussing key trends in private capital and alternative investment funds, the wider role of Guernsey's funds ecosystem, how the product known as the Lux Sleeve is being used, and broader routes to market through Guernsey. Kate, it's great to have you on the podcast. Thanks for joining us.
Kate 1:02
Thanks for having me.
Brandon 1:03
Awesome. So, firstly, could you just tell us a bit about yourself and your career today? Yeah.
Kate 1:08
So, I am a chartered accountant by background. I qualified with PwC here in Guernsey before moving to London and then to Sydney, where I worked in private equity, private debt, and infrastructure, and I moved back to Guernsey and joined Hedosophia in 2021, and I'm now the managing director here.
Brandon 1:34
Okay, so for listeners who you know perhaps don't know about the firm, how would you describe what Hedosophia does, and also you're clearly managing director, but where you sort of sit within the sort of global wider sort of ecosystem?
Kate 1:45
Yeah. So Hedosophia is a global investment and venture capital firm. So it provides funding to early and great stage companies specializing in in fintech and technology. I oversee the middle office, so I sit between the the deal teams and the legal teams on one side, and then the service providers, our administrators, and the back office on the other side. I've got a team of around 15 people working alongside me, and we oversee everything: investment operations, deal doing, structuring, taking in investors' money, and paying out their money as well.
Brandon 2:27
Brilliant. So so clearly, Hedosophia has established a significant presence here in Guernsey on the island. What operations do you sort of run from here? And I suppose why did you choose Guernsey as well as an organisation?
Kate 2:39
Yeah, Hedosophia actually chose Guernsey before my time, so in 2012, when it was founded, and I think that's probably a combination of the the sort of regulatory and favorable sort of regulatory and tax regimes, as well as the deep ecosystem of fund administration and fiduciary services on the island. We from Guernsey we actually run the full middle and back office operations, which I think is quite unusual. It's a real privilege to be able to run all of these operations from Guernsey. So we, as I say, we oversee the fund administration, investment operations, technology, and data. A lot of that infrastructure is done in Guernsey, and as I say, it is absolutely great for all of us that work there to be able to have such close connection to the to the business from Guernsey.
Brandon 3:39
Yes. So earlier in the year, you joined us at the Guernsey Funds Forum. You appeared on a panel session. So thanks for joining us for that. That was a great day. And it actually was really interesting to sort of hear that panel session you were part of. And I wanted to sort of ask you a bit more about a couple of the points you made on that day on that during that session. You know, you told the Funds Forum you have over 200 vehicles in Guernsey. I think it is, from carry vehicles to co-invest funds, SBVs, holdcos, GPs, you name it, the kind of whole roster. How did an estate that size sort of build up? I suppose, and what does running it actually look like? You know, day to day, week to week. You know what?
Kate 4:24
Well, I actually had to go and double-check my numbers, so that was probably Q1 that I got that over 200 number. We're now rapidly approaching 300 vehicles. It just grew up really organically, I'd say. So we typically set up anywhere between two and four fund funds in a year. So that comes that brings with it, you know, carry vehicles, special limited partnerships, GP sales, nominee cos, whole co's, and then we set up. Whole raft of co-invest vehicles, which we can we can talk about. I don't know, 10,15, 20 in a year. So that number quickly gets to obviously 300. In terms of how we run it, I would say day to day, no day is ever the same. We can only really run it by me being surrounded by two exceptional teams. So one, my own internal team, and the other one at my administrator, Gravity. We, I suppose, we separate what we do into two stables. So, one, the kind of recurring task that we've got for all of these entities, so that's quarterly reporting, tax, financial statements, audits, investor queries, and then on the other side, actually doing the deals, putting the new fund structures in place, opening bank accounts, etc.
Brandon 5:57
And one of the points you made at the Funds Forum was actually that, which was you know, you go about sort of setting up co-invest vehicles ahead of when they're needed, and then obviously sort of you know open up the bank accounts for them, and then mothball them until an opportunity sort of lands. You know, I suppose where did that idea come from, and how much time does it buy you for when a deal sort of comes down the track? You know, is it is ensuring you can close a deal in a short period of time a big competitive advantage for you?
Kate 6:26
Yeah, I think it probably came from one too many late nights scrambling to try and get a bank account open and a vehicle open in order to be able to close a co-invest. So when we had the opportunity to step back, we'd call those summer projects. Step back and think about it. We came up with this, you know, thinking outside the box together. Let's actually set them up before we need them. There is a bit of speaking to your administrators. We have arrangements so that we can have them sort of sitting on the shelf. We've got a certain number on the shelf at all times, and when we use them and put them into action, then we set up another raft, three or four at a time. It has just it's really front-loaded the work, so we don't have to be on the phone to the bank. Please, can you open an account in a short space of time, we can say take all the time that you need, so that if we do have a sort of emergency situation, we've kind of kept our powder dry for those situations. I think it's really has given us a true competitive advantage. Speed is really important in the sorts of deals that we're looking at. Sometimes they're they're highly competitive, so us being able to put our investors' money to work really quickly is really, really beneficial to us as a firm.
Brandon 7:49
And some you know rather large figures were raised at the Funds Forum, and huge savings alluded to as well. And Hedosophia has made significant savings in choosing Guernsey as well compared to say a Luxembourg or other sort of domicile structures. Can you take us through what sits inside it? So you know AIFMD costs, depository, higher administration time. You know how do you highlight the cost savings and therefore I suppose the importance of choice of domicile on then the investors?
Kate 8:21
Yeah, I mean, it's not just one number. It's all of the things that you said. So AIFMD costs, depository, actually higher administration costs in Luxembourg. So it's all of those numbers that you see on an invoice. But more than that, it's actually my time and my team's time and the extra layers of approval and following up and making sure that everybody is on the same page and working to the same timelines, because Guernsey generally, I'd say, is a faster jurisdiction and kind of they get the hustle. So it's those numbers as well, and the cost of all of our work that you don't see on an invoice that I think that I think really counts for investors. The way that I frame it is that the choice of your domicile isn't just a sort of legal, regulatory, tax matter. It's actually the cost of doing business, as you say, and as I spoke about the Funds Forum. Are they happy to have their returns eroded by the higher costs of doing business in Luxembourg?
Brandon 8:44
And I suppose we are going slightly off script here. But is there any are there any particular say costs or fees that come to mind say when you when you look beyond Guernsey that sort of really pull the overarching sort of cost?
Kate 9:36
Yeah, I mean it's AIFMD and depository costs, both things that you know we don't need to consider due to the regime in Guernsey. So they're the ones that really bring it up, and a bit the way that the costs themselves are structured. So the more money you put to work, the higher your fees are going to be for not necessarily a lot more work.
Brandon 9:56
Sure. So when an investor demands. Say that it has to be another domicile, such as Luxembourg, and in a Lux vehicle. I understand from what you talked about the Funds Forum. You then sort of strip fund operations back to what generally has to, or sorry, genuinely has to happen, and then sort of delegate and I guess outsource everything else to Guernsey or the or the Guernsey office from a Hedosophia perspective, how do you sort of determine which functions genuinely need to be Lux and which can be sort of carried out here in Guernsey?
Kate 10:28
Yeah, we've got quite a well-trodden path now. So when investor demand truly dictates that we need something in Europe, Luxembourg tending to be always actually being being the one that we end up with. We take we'd call it a lux sleeve approach. So we've actually got parallel partnerships. So a Guernsey and Luxembourg partnership. We strip fund operations back to the things that legally need to be carried out in Luxembourg, so that is the AIFMD piece. Certain board decision-making. We've got a separate board in Luxembourg for these funds, and any EU-facing sort of reporting that we need to do. Everything else gets delegated back to Guernsey, and then that gets done with our sort of our main administrator, who knows how we work, and that way we can also sort of you know pull along the speed a bit and smooth out the differences between the two.
Brandon 11:32
You also talked about the LP investors saying they, you know, they definitely need a European fund. You challenged the room on, well, I suppose you're trying to get the room to specifically talk to your fund manager peers to ask those investors. You know, do they really need a European fund as well? And what should a manager consider in that? So I guess to put that question back to you, what should a manager ask an LP before conceding that point? And have you ever changed an investor's mind to that end?
Kate 12:00
I think my challenge to the room is to really unpack what it is that they need. Why do they need to be in Luxembourg? So is it truly a sort of distribution, a kind of marketing piece? Is it comfort and familiarity? That's what we've always done. That's what we want. Go back to my earlier point. You might want it. Are you happy for your returns to be eroded by whatever amount or percentage that is? Really, very frequently, it's the latter. So it's just no. We always go to Luxembourg. There are very few occasions where they actually really need to be there. So that is a challenge for all of us to be changing people's mind, always sending the same message, beating the same drum over and over again, Guernsey can do all of this for you. I don't. I don't have a specific example of some a time we've changed investors' minds. What I will say is that is a pretty low proportion of our overall AUM that sits within those Luxembourg sleeves.
Brandon 13:03
Sure. So you've done a good job on the front end to make it make it happen here.
Kate 13:08
Yes.
Brandon 13:09
Just sort of shifting gears, then I suppose something that we also actually, funnily enough discussed at the funds for them was the rise in funds focusing on sort of defence infrastructure and defence-minded strategies, and how Guernsey is sort of carving out a position in the kind of global funds ecosystem in this space, and that's obviously on the back of governments across NATO, not just the UK, sort of seeking to increase defence spending while facing budget constraints and clearly a cost gap there. What role can private capital, from your perspective, and a jurisdiction like Guernsey as well, play in sort of bridging that funding gap that's emerging.
Kate 13:45
Yeah, I mean, as you say, governments are across NATO are being asked to increase their defence spending at a time when their budgets are, you know, fairly challenging. So, private capital naturally comes to bridge that gap. A jurisdiction like Guernsey in indicating that it is open for business and open for defence business, has got a huge part to play there. We've actually seen this firsthand, so we've recently stood up a defence technology fund based in Guernsey, and we were all really impressed with how open and flexible, the regulator was, and also given that this is a new sort of sector, how quickly we were able to turn things around.
Brandon 14:30
And what makes the island such an attractive jurisdiction for defence fund managers, and why? Well, I suppose what what does what value does Guernsey bring in terms of the regulation, the good governance, the fundraising, and the broader access to international capital as well.
Kate 14:46
Yeah, I think Guernsey brings proportionate principle-based regulation from the GFSC, really really deep and experienced fiduciary and fund administration ecosystem to support all of that. That is used to complex, sensitive structures and genuine speed to market, as we've talked about. On the governance side, we can put in institutional grade oversight, IC processes, board reporting, deal tracking, without the time costs of a more prescriptive and formal regime, and through the private placement regime, we can actually get access to capital from you know over 50 jurisdictions. So managers will find that they're not trading away distribution to get access to this you know more favorable regulatory environment.
Brandon 15:41
And do you think that's a symptom again going slightly off script here but of a wider sort of culture outlook here in Guernsey of this idea that we're sort of more open to business than say other jurisdictions without naming them?
Kate 15:53
Yeah, I mean I don't know how long the GFSC were talking about this before the first fund sort of showed up. I think there were probably three or four that have now got licenses. We were the second, so you know somebody had been paving the way before us. But yeah, as I say, we were really surprised with how open they were. I've seen other conversations they're having. There's a lot of interest here, and yeah, a lot of people are choosing Guernsey because other places are pretty much closed for business.
Brandon 16:27
And actually, to that end, it means that there's a well-trodden path now. And like most things in Guernsey, whether it's the rise of sort of sustainable funds, you know, back in the sort of late 2010s, and then now with defence, there's actually a well-trodden path that you know, people can go down that journey on, sort of replicate as well. I imagine. So that gives certainty to the service provision. Just to change track slightly, where is the friction today? You know, is it is it the register, the transfers, capital calls, reporting, or is it just sort of getting a co-invest vehicle into the investor's hands as quickly as possible. You know where is where are the challenges?
Kate 17:04
I think all of the things that you mention on their own are not problematic, but it is just that so transfers, registers, capital calls, all of it they they tend to exist in different systems. So the real challenge is getting those to speak to one another. KYC is obviously a big hot topic at the moment. I think tokenization here is interesting because it addresses that at source. So a tokenized register can make transfers and onboarding, you know, close to instant. And I think again, Guernsey's regulator has been really on the front foot about having these discussions, genuinely forward-leaning on digital assets. So I'm really excited to see you know where this conversation goes.
Brandon 17:54
Yeah, it's very exciting. And again, is that something that you maybe see those challenges as being slightly different with other jurisdictions you've perhaps worked with or against in some respects.
Kate 18:06
I'm not sure the conversations that other jurisdictions are having on tokenization. I'd say they're possibly not there yet, but you know this is not my area of expertise.
Brandon 18:15
Sure. So just to end then, what's I suppose one key message about Guernsey that you would like to sort of leave in the minds of, I suppose, namely fellow managers, but also those operating in the you know global ecosystem more broadly.
Kate 18:30
Yeah, my message is don't sort of default to a more expensive, slower jurisdiction because it feels like a safe or familiar choice takes time to really look at what Guernsey can deliver. So the same institutional-grade governance, the same international reach, which is where we've really got to get that message out there. You know the stats on AIFMD and how many countries people actually access it is not actually doing what people default to thinking it does. So you can get all of these things faster and at a fraction of the cost. And then there's also the professional community here. People genuinely want you to succeed, and anybody that you need is actually, you know 10 minutes away and happy to have a coffee with you. So people here genuinely want the success of the funds industry.
Brandon 19:33
Excellent. Well, thank you, Kate, for joining us today.
Kate 19:36
Thanks very much.
Brandon 19:37
And thanks to you for joining us today to find out more about Guernsey's investment funds offering. Head over to Guernseyfinance.com. You can find more episodes on the Guernsey Finance podcast on your preferred podcast platform. We also have links to Kate and Hedosophia in our show notes, so go to those to find out more from them. We look forward to bringing you the next. Episode, but until then, it's goodbye from Guernsey.
