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The Channel Islands leading the way for Fintech in the Private Capital market space

Insight 7 June 2021

The Channel Islands leading the way for Fintech in the Private Capital market space

As published in the Bailiwick Express June 2021

Global Fintech transaction activity topped US$105.3 billion in 2020, and the expectation is that it will grow to US$310 billion by 2022. In 2020 c.43% of this activity was by Venture or Private Equity Investors, up by 26% from 2019. Fintech growth has been rapid as Financial Services responded to increasing regulation, new innovations from the rise of e-commerce in the 2000s, better access to data and live information, a low interest and margin environment and a new laser focus on customer experience.

The opportunity for dedicated Fintech funds to access significant returns is clear with a median late stage VC pre-valuation growth of 93% in the last 2 years, and with median M&A deal sizes growing by 63% since 2018. Expertise of dedicated specialists in this area is needed to cut through the volume of start-up and growth businesses and allow focus on the sub-sectors which have evolved in this space covering Regtech, Insurtech, Data and Analytics, Cyber, Blockchain, Banking and Wealthtech amongst other niches. This is resulting in an increasing number of dedicated Fintech funds supported by specialized investment professionals as investors seek access to this expertise and ultimately returns.

Channel Islands are well placed to meet these needs and the Jersey and Guernsey Fund Regimes have ideal flexibility in their structuring, global footprint and understanding the needs and expectations of investors to facilitate this. For example, using lower cost products such as the Jersey Private Fund and Guernsey Private Investment Fund, enabling the quick establishment of fund structures to support experienced investors, or by allowing investors to more easily access a diverse portfolio of Fintechs in different jurisdictions.

The Financial Services Industry in both Jersey and Guernsey makes up c.40% of GVA with a significant focus on Private Capital. Combine this with a history of innovation in financial services products and delivery, some could argue they are perfectly placed to not only support investment into Fintech, but also benefit from Fintech in their service offerings.

Fintech strategy is now an agenda item for most service providers with dedicated senior appointments and investments being made across the industry, with a particular focus on data, automation, customer due diligence and payments. Both regulators are also supporting innovations, for example in Blockchain and Regtech, encouraging well governed resilient innovation. Jersey Finance, Digital Jersey, We are Guernsey and the Digital Greenhouse in Guernsey are playing a key role in enhancing the Islands’ footprints in this area too. This is resulting in Fintech firms establishing themselves in the Islands in response to this dynamic environment.

For Sanne, as with many of our peers, we had already started the change needed before March 2020. We have seen significant investments in foundational data platforms, analytics and automation well before the pandemic. This has enabled new services and offerings to clients such as the creation of a dynamic data-led investor and client portal, which we call Sanne.Live.”

Chris Thoume
Global Head of Digital Innovation

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Chris Thoume, originally from Guernsey, is the Global Head of Digital Innovation at Sanne and provides further insight as to the journey of the local market and how Sanne are driving innovation in this space.

Four years ago, in a previous role, I remember pitching to one of our peers about automation and the use of data in Private Capital, specifically in administration, and I recall the engaged conversation but parting comment being “it isn’t going to happen for a while.” They weren’t going to spend any money on this yet and were still outsourcing to low cost jurisdictions; that was the way forward, throw people at the problem. Work harder and not smarter. I just could not understand why they did not think that what had happened in other financial services sectors or other industries was not going to happen to them, and why were they not planning for change!

Four years and one pandemic later is a long enough time in my book and now I am on the other side of the table trying to do the transforming, so where are we as a sector and have we moved?

Let’s get the obvious out of the way: despite its terrible human/social/economic cost, Covid-19 has been the most successful “Chief Transformation Officer” ever. It proved that people, technology and processes can be rapidly adapted to work in new environments and, possibly, operating models successfully. But, I don’t think that Covid-19 can take all the credit for transforming our sector.

For Sanne, as with many of our peers, we had already started the change needed before March 2020. We have seen significant investments in foundational data platforms, analytics and automation well before the pandemic. This has enabled new services and offerings to clients such as the creation of a dynamic data-led investor and client portal, which we call Sanne.Live. This has also had an impact on our back office, with the automation of back-office processes and focus on data quality as you are now sharing granular detail with clients and investors.

Is this the end state? Certainly not….We are on a journey. But I think that there is an exciting inflection point approaching many of us in the sector where we can soon release ‘operational debt’ and refocus our talented teams to real client needs and away from mindless processing. This is what excited me four years ago and even more so today. Specifically, this also could provide some real advantages for the Channel Islands around reshoring which makes conversations around substance much easier.

Ashley Vardon heads up the Private Equity division of Sanne in Jersey and has seen how this transformation is opening up opportunities.

There has been a real shift in market demand for access to more real time fund data from both managers and investors. This demand has also been met with the necessity for data to be secure and having a single source of truth for all key aspects of fund and investor related data.

Fintech is about putting people at the centre of a product, not just technology and changing our systems and processes requiring an investment of time in designing these new ways of working and training, but also encouraging a culture of innovation throughout the business for them to be successful and lead to real change.”

Ashley Vardon
Head of Private Equity Jersey

Our Sanne.Live platform was launched earlier this year and has been met with excellent feedback from managers and investors. Fintech is about putting people at the centre of a product, not just technology and changing our systems and processes requiring an investment of time in designing these new ways of working and training, but also encouraging a culture of innovation throughout the business for them to be successful and lead to real change.

We are working with a number of managers focused on Fintech investments and have recently supported the launch of several Jersey Private Funds specialising in Fintech as an asset class. Not only could we support them as administrator, but our own journey was vital in demonstrating that we understand this asset class and could support them as a partner.

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