The trio explore key findings from the report - including the significant value that Guernsey-domiciled investment funds are making across the UK's four nations, the impact of private capital in aligning with the Government's key pillars for growth, and how finance centres such as Guernsey are necessary in the meeting of Net Zero by 2050.
Read the full report now: https://www.guernseyfinance.com/industry-resources/literature/general/the-value-of-guernseys-funds-industry-to-the-uks-growth-ambitions/
Brandon (00:00)
Hello and welcome to the Guernsey Finance podcast, where we bring you interviews with leaders from the global finance industry, as well as news and developments from Guernsey's financial services sector. My name is Brandon Ashplant and I am Technical Manager, Funds and Private Wealth here at Guernsey Finance. For those of you who aren't familiar, Guernsey is a leading global finance centre. The success of the industry here is underpinned by economic substance, political stability and asset security, and we are committed to the cause of sustainable finance. To find out more about Guernsey's success in sustainable finance, tune into our sister podcast, the Sustainable Finance Guernsey podcast.
Today, I'm delighted to be joined by Robert Woodhard and Charlotte Dalton from Frontier Economics. Robert holds a Master of Philosophy in economics from the University of Cambridge. He has worked at Frontier for almost a decade and his specialist area is assessing the business case for government policy options with a particular focus on Guernsey and Jersey here in the Channel Islands.
Charlotte also holds a Master of Philosophy in economics from the University of Cambridge and joined Frontier about three years ago. So one of Europe's largest economic consultancies, Frontier Economics has recently published a report titled The Value of Guernsey's Funds Industry to the UK's growth ambitions. The report outlines the value of private capital flows from the island into the UK, including across all four nations and regions.
In this podcast, we'll discuss some of the key findings from the report. We'll explore how the UK government's growth objectives are being supported, as well as how international finance centres like Guernsey play such a vital role as members of the British family in channeling international capital in the form of foreign direct investment into the UK. So without further ado, welcome Rob, welcome Charlotte.
Fantastic. So just to start off, could you just tell us a bit about yourselves and Frontier? Rob, should we start with you?
Robert Woodhard (02:11)
Yes, I'm very happy to give an intro and it's great to join you today, Brandon. So my name is Rob Woodhard. I'm a professional economist. I've worked at Frontier for almost 10 years now, as you said. My role is managing our teams and projects on public policy and regulatory work. In the policy space, that involves developing new government policy, assessing the business case for different policy options and then also evaluating existing government policy and understanding really what worked, why and for whom and whether value for money has been delivered. And as you said, it's also worth mentioning I've managed a range of policy and regulatory work across the Channel Islands as well.
Brandon (03:00)
and yourself, Charlotte?
Charlotte Dalton (03:03)
Yeah, thanks. for that. So similar to Rob, I'm also working as a professional economist. I joined Frontier around three years ago. Since joining, I've worked across a range of our different practice areas, from energy and public policy to strategy and competition. More recently, I've worked on quite a few projects looking at the transition to clean energy within the UK, as well as looking at which regions will need the most funding to be able to meet our net zero goals.
So similar to Rob as well, I've worked on quite a few policy evaluations most recently for the Motability Foundation and the Offshore Renewable Energy Catapult. I'm really looking forward to the conversation today.
Brandon (03:44)
Fantastic. So let's dive in. headline finding from the report is that Guernsey domiciled funds often channel finance towards UK investment projects and held investment positions worth £58 billion in UK assets as of early 2024, so last year. Additionally, Guernsey Fund's UK investment position is growing at double the rate of the UK's overall foreign direct investment, so FDI position as well. Rob, can you pick out and discuss some those key findings for us from the report?
Robert Woodhard (04:20)
Yeah, of course. I think you've done a pretty good job on picking out the potentially the top two there, Brandon already. But yes, as you say, there are some pretty striking figures actually in our report. The main one, as you said, is that Guernsey Domiciled Funds had an investment position of 58 billion pounds in UK assets in early 2022. And that obviously reflects a huge amount of ongoing investment in the UK economy. But I also think it's worth understanding what this investment really relates to. And it's in UK infrastructure. In our interviews, you know, we've heard about investment into UK hospitals, schools, utility companies, with telecoms in particular. It's into UK housing, and we've seen residential flats, care homes, student accommodation. It's into UK sustainable technology development. And here we've seen solar and wind farms and other investment in UK sustainable businesses. And it's also to do with venture capital and private equity investment. And that is giving UK businesses the financing that they need to grow. Thinking about what this could mean for UK growth.
So obviously investing in these assets raises the productivity of UK businesses and economic growth. But I think it's also important to understand there's a real local and regional dimension to this. So all of this is happening through investment in regional projects that is delivering regional economic development and improvements to living standards in UK regions.
And then, as you say, the other key finding is really how quickly Guernsey's investment position in the UK is growing over time. So what we've seen is over the last three years, Guernsey Domiciled Fund's investment position in UK assets has grown at 7 % per year on average. And for comparison, that's double the growth rate in the UK's broader inwards foreign direct investment position.
So what we're seeing is that these benefits from Guernsey in terms of investment to the UK, they're only increasing over time and they're growing at a quick rate.
Brandon (06:32)
Fantastic. And the report also found that 90 % of Guernsey domiciled funds managed assets are sourced from outside of the UK. So a clear injection of external international capital flows into the UK. How important are finance centres, particularly those that are members of the British family like Guernsey, in ensuring that international capital continues to flow into the UK?
Robert Woodhard (07:00)
Yeah, absolutely. So I think it's a reasonable question to ask, you know, where does this international finance come from that is held in Guernsey Domiciled funds before it then gets directed into the UK? And the answer, of course, it comes from all across the globe. And what we've seen is that investors from over 60 countries are investing into Guernsey Domiciled investment funds.
And actually the two largest contributors into the Guernsey investment funds are the US and Europe. And they account together for about half of the assets that are held in Guernsey Domiciled Funds. And then as you say, it's important to note a key stat is 90 % of Guernsey Domiciled Funds managed assets are from investors based outside of the UK. So these funds flows, the investment into the UK that we're talking about a very large amount of that is actually originating from outside the UK and coming into the UK is net additional investment.
And then we also assessed, you know, why is it that Guernsey sends this investment into the UK? And really it relates to Guernsey's geographical position to the UK, its common legal framework and language with the UK, its historical relationships, and it's also about international acceptance of Guernsey's regulation and legislation.
Now, several of these factors are related to Guernsey's status as part of the British family and its alignment with the UK. And that's really what leads to the outcome of Guernsey channeling a much larger proportion of its domiciled funds investment into UK assets than what would be expected coming from other international finance centres.
Brandon (08:49)
And the report contains several case studies exploring how the capital held in those Guernsey domiciled funds, you know, invest into a range of sectors and industries and across all nations and regions, which we've touched on, whether it's into student accommodation in the north of England, fibre optics infrastructure in Northern Ireland, or renewable infrastructure in Scotland and Wales as well. Charlotte, which case study stood out to you, particularly with respect to sort of closing the funding gap between, between regions.
Charlotte Dalton (09:25)
A case study that really stood out to me was the rollout of fibre technology in parts of the UK that have previously been underserved. this investment has been made possible through the Gresham House British Sustainable Infrastructure Funds. These funds are all Guernsey domiciled, and they've invested a lot of money in some regional, three regional telecommunications companies that have been expanding out these networks. These companies are focused in a few areas around the UK, so rural Cornwall and Devon, but also the Scottish Borders, and maybe surprisingly even corners of quite big regional cities such as Leeds and Manchester, which were previously poorly connected.
So these networks are enabling fast internet connection for both businesses and households. So I think this is something that's really, really important in the increasingly digitalised age to have these fast internet connections.
So this is enabling businesses in regions all around the UK to grow as well as creating jobs in these regions. So I think that's something that really shows how this investment through these guarantee-based funds is having a tangible impact all around the UK.
Brandon (10:38)
And the UK government, as most of us will know, has made several pledges regarding climate change as a key policy example, aiming to reach net zero emissions by 2050. How is private capital from the likes of Guernsey assisting in the delivery of this and ensuring that the government can meet its aims on this policy issue?
Charlotte Dalton (11:05)
Yeah, so meeting net zero by 2050, which is the government's current stated aim is going to require a huge, huge amount of investment. So the climate change committee has estimated that around 57 billion is going to need to be invested every single year to be able to reach these climate goals. So we've seen from our research that Guernsey is already contributing a huge amount to the UK sustainable energy sector.
I think £5 billion is already invested through Guernsey Green Funds. But we know this is only a small proportion of the total investment that Guernsey Funds are investing in the UK because of all the funds that are investing in British sustainability that don't have the green designation. Maybe looking a bit at some of the actual investments these funds are making, we've seen a huge range of things from solar farms being built in over 16 counties across the UK.
Onshore and offshore wind farms to also battery powered, big battery storage facilities, which are enabling the grid to take on more sustainable power and make sure there's no short-term surges. So these are some of the areas which we've seen, which is where Guernsey are making fantastic investments in the UK. And again, this is something that's not just in London and the Southeast. These investments are being made all around the UK.
And we've also seen venture capital funds investing in green energy startups, which is enabling the UK to stay at that real forefront of the green energy revolution.
Brandon (12:41)
The report sets out not only how Guernsey's funds industry is delivering value into the UK economy already, but also projects how future capital flows will deliver alignment against the UK government's sort of seven pillars for growth. Rob, can you talk about the findings here in a bit more detail?
Robert Woodhard (13:04)
Yeah, yeah, absolutely. And this really relates to the UK's current economic context, which is that, you know, the government is keen to raise economic growth and has been keen to do so for some time. And obviously, to some extent, that's true of all governments, but it's particularly true of this UK government right now. In terms of thinking about how the UK government is approaching delivering this increased economic growth, it's really through taking an investment led approach.
So we've already heard about several large scale flagship investment projects that are being given fresh impetus to go ahead in the UK. And the Heathrow Third Runway is one example of those. I think the key thing to note here is that, of course, those projects need to be financed in order to actually be delivered. And here, when you're talking about the large sums of financing that are required for these flagship projects, investment funds are actually a really strong financing option with the firepower to provide most or all of the financing that's needed for the larger projects.
So additional money from investment funds will be really important to deliver on these UK economic growth investment projects. And we've actually done some modelling around this as well. So we've looked at the historical growth in Guernsey Domiciled Fund's investment position for UK assets. We've projected using that growth trajectory, we've projected that Guernsey investment funds would or are expected to direct an additional £23 billion of investment into the UK economy over the next five years, so over the remainder of this parliamentary term. This is all assuming that historical trends continue and of course if the growth rate is higher than what it has been historically, then the UK would receive even more investment from Guernsey.
To demonstrate what this 23 billion pounds of additional investment could mean for the UK, well, for example, it would cover the entirety of the UK National Wealth Fund's private financing target. So your listeners will probably have heard of the National Wealth Fund, Brandon. And this is one of the UK government's main initiatives to mobilise investment in UK clean energy and growth industries.
Brandon (15:24)
That's interesting because that sort of covers that black hole. Just to finish, given the constraints on UK public investment, we've sort of, I suppose, touched on it loosely throughout, but just to stress, how important are finance centres like Guernsey in ensuring that international capital continues to find its way into the UK and doesn't get netted somewhere else?
Robert Woodhard (15:49)
Yeah, absolutely. And I think you touched on another important contextual point for the UK here, which is the UK public finances situation. The government wants to take this investment led approach, but it really does need private sector financing to stimulate the increase in economy wide investment across the UK. And this only really makes the contribution from finance centres like Guernsey even more important to the UK. And for all of the reasons that we've already covered, Guernsey Investment Funds can play a really important role in pooling private finance from overseas in its investment funds and then redirecting that finance into the UK economy.
And Guernsey is already doing this. We talked about the 58 billion pound investment position in UK assets, but it could contribute even more over the next five years. And again, we discussed potentially an additional 23 billion pounds over the remainder of this parliamentary term.
Brandon (16:50)
Well, thank you very much, Rob and Charlotte, for joining us on the podcast to discuss Frontier latest report, The Value of Guernsey's Fund Industry to the UK Growth Ambitions. Thank you both.
Robert Woodhard (17:03)
Thanks for having us, been great to join.
Brandon (17:06)
Thanks also to you for listening. If you enjoyed this discussion, we have a backlog of interviews on the Guernsey Finance podcast channel. You can check them out by searching for Guernsey Finance on your preferred podcast platform. We also have links to the Frontier Economics team in our show notes. To find out more about Guernsey and its specialist financial services sector, head over to our website, guernseyfinance.com. We look forward to welcoming you back to the podcast soon, but until then, it's goodbye from Guernsey.
