20:20 Vision: Looking back at 20 years of the protected cell company

Joe Truelove is director of fund administration at Trident Fund Services (Guernsey) Limited, licensed to provide fund administration services to both open and closed-ended funds and non-fund structures.

Originally designed for use in the captive insurance sector, the protected cell company has established itself as a go-to-solution for a wide range of fund structuring in the 20 years since its creation, writes Joe Truelove of Trident Trust on behalf of the Guernsey Investment Fund Association.

2017 is the 20th anniversary of the introduction of protected cell companies (PCCs) in Guernsey. Back in 1997 this was a truly innovative legal concept which has been copied by many jurisdictions since, often adopting the name of segregated portfolio company.

The structure was designed for use in the captive insurance industry but has since found a myriad of different uses, some of which are explored in this article. The concept underpinning the structure is that the PCC is one legal entity within which there are a series of pools of segregated assets and liabilities. Apart from the cells there is also a core which is responsible for the management of the structure and has the board of the entity attached to it.

Private wealth management open-ended asset allocation umbrella funds

From the captive insurance sector it was an obvious step to begin to use the PCC as the legal structure of choice for umbrella funds.

These open-ended structures still exist and are often managed in Guernsey. Well established examples include Investec World Axis PCC Limited, which has four separate cells; cautious, core, flexible and global equity, all of which are listed on The International Stock Exchange (TISE), and Kleinwort Benson Elite PCC Limited, which has 10 cells with 32 share classes listed on TISE.

These structures are typically marketed to sophisticated investors and private clients of the private banks which promote them. The cellular structure gives the manager the opportunity to operate an asset allocation model efficiently so that investors may have all of their assets in one or two cells instead of managing multiple small portfolios. The classic model would be to have an income cell, a growth cell and a balanced cell.

The costs of operating many small portfolios are reduced for the client and for the manager. There is also a cost saving with respect to the servicing of the structure -there will only be one audit firm required; one board of directors, one administrator and one company secretary.

Christopher Jehan, managing director of Midshore Consulting Limited, comments: “We have seen many investment management and wealth management groups operate PCC structures over the years. Most of these tailor different cells to different risk profiles or alternatively have different cells offering investment profiles targeted at investors in different jurisdictions. The ability to issue bespoke offering documents for each cell means that information on a single investment strategy is provided to an investor and there is little chance an investor will invest in a strategy that is not suitable for, and therefore has not been targeted at, them.

“An additional benefit of the cellular structure of the PCC is the segregation of liabilities both between different cells and between cells and the core corporate structure. This gives the protected cell company a distinct advantage over traditional (non-cellular) corporate fund structures and can allow higher risk products to be housed within the same company structure allowing reduction in overall costs.”

Multi-manager structures

A number of providers have formed PCCs or incorporated cell companies (ICCs) as ‘platforms’ or ‘incubators’ which they can then use to oversee a number of separate funds, where the management or advice is delegated to a series of investment advisers.

There a number of these structures in existence in Guernsey such as the Global Offshore PCC Limited which is managed by Trident Fund Services (Guernsey) Limited.

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