Recent years have seen International Finance Centres (IFCs) having to contend with a growing raft of global regulation and international policy initiatives.

As well as tax information reporting initiatives coming into play via the OECD through the Common Reporting Standard and via the US through FATCA, professionals in the funds space in particular have also had to assess the detail of the EU Alternative Investment Fund Managers Directive (AIFMD).

Nevertheless, macro trends continue to suggest that those IFCs that specialise in funds business and that can demonstrate a mature, appropriate and nimble response to regulatory and market changes have the opportunity to play an increasingly important role in global fund structuring.

Estimates indicate, for instance, that the global asset management industry will grow to in excess of US$100trn within the next five years and that alternative investments specifically will exceed US$13trn (‘Asset Management 2020’, PwC). Emerging markets in particular are witnessing growth in wealth and wealth creators, and this is driving the demand for sophisticated investment support across the globe including across the alternative asset classes.

Further, a shifting business environment for fund managers and recent recommendations from the OECD relating to Base Erosion and Profit Shifting (BEPS), are prompting some consideration amongst hedge fund managers of where to domicile both themselves and their funds. With this in mind, the feeling is that Jersey’s commitment to transparency initiatives and its standing as a jurisdiction of substance is likely to have a positive impact on its long-term future as a funds domicile.

Against this backdrop, Jersey’s funds industry has continued to perform well. The latest figures (June 2015) show that the net asset value (NAV) of regulated funds being administered in Jersey grew 9% year-on-year to stand at £218.7bn, the third highest level since 2009.

The alternative asset classes, which account for around 70% of Jersey’s total funds business, continued to do particularly well, with total alternatives business including hedge as well as private equity, real estate, infrastructure and debt funds growing annually by 15%. Fundraising through Jersey, by both established and new promoters, has been very active again in 2015 with lots of new funds coming close to launch.

‍

Market Access

There are a number of reasons for this ongoing success. Jersey has without doubt benefitted from being subject to more certain economic, political and regulatory conditions in recent years than other fund domiciles specialising in alternative fund servicing, reflected in its AA+ rating by Standards and Poor’s.

Moreover, although a proven supporting domicile to a growing number of the world's best known asset managers, Jersey is not, and does not hold itself out as, a ‘volume player’. Its success is not built on aggressive leveraging of economies of scale, but is rooted in its focus on high-end fund business reliant on stability, reliability, flexibility and user-friendliness, and this is having a positive impact in attracting high quality hedge fund business.

In addition, a key issue in recent years has been that of market access, particularly in Europe, and Jersey is incredibly well positioned in this respect. Utilising National Private Placement Regimes (NPPRs) through Jersey to access Europe is working incredibly well, with being able to access the continent remaining important. Hedge funds with a European focus increased from representing 1% of launches in the second quarter of 2015 to 6% in quarter three (Preqin Hedge Fund Quarterly Update, October 2015).

As at June 2015, according to figures from Jersey’s regulator the Jersey Financial Services Commission, 84 Jersey fund managers had received private placement authorisation from the JFSC, and 205 Jersey funds were being marketed into Europe through NPPRs. It’s clear that the private placement option is giving hedge fund managers a welcome element of flexibility, without the complications and costs of reporting under full AIFMD ‘passporting’ compliance.

Further, with ESMA recommending in July that Jersey should in due course be granted the EU-wide passport option, managers can be confident that the optionality Jersey offers stands them in good stead. There’s no doubt that being approved so early in the process has given Jersey a great level of comfort and certainty as to its long-term sustainability.

Recent announcements from ESMA clarifying that the passport and NPPR will run in parallel with the passport once granted for three years will provide real added confidence. Other non-EU centres will have to play the waiting game until 2016 at the earliest to be assessed and then see if they too receive ESMA’s recommendation.

Meanwhile, Jersey’s ability to offer a ‘rest of the world’ regime outside the scope of the AIFMD has also positioned it strongly and uniquely as a European time-zone jurisdiction that can cater for funds targeting both assets and investors in non-EU growth markets.

This is particularly pertinent against the backdrop of global shifts in wealth around the world to emerging markets, with investors in markets stretching from the US to the Middle East to Asia increasingly seeking efficient means of deploying investment capital into diverse areas and markets. This is absolutely a trend Jersey is witnessing and poses some significant opportunities for alternative managers using the jurisdiction.

Equally, hedge fund managers based in Europe fell to representing 18% of launches in the third quarter of this year from 22% the previous quarter, reflecting the activity there is amongst managers in non-EU markets (Preqin, October 2015) and the potential there is for Jersey to support them in their global strategies.

‍

Relocation

These ongoing strengths are good news for hedge fund managers currently using or considering using Jersey, but a number of additional developments are putting the issue of ‘substance’ increasingly at the heart of the decisions being made by managers, and these developments are likely to make Jersey’s appeal even stronger.

It is notable, for instance, that far from the AIFMD causing a movement away, the trend evidenced in Jersey has been one of building significant future management substance and a number of recent and high profile manager relocations have demonstrated the clear substance that exists in Jersey. The confidence managers such as Brevan Howard and BlueCrest are having in Jersey is extremely welcome, whilst the jurisdiction is now home to around 125 fund promoters, up from 70 five years ago, at least 24 of these managing in excess of US$1bn.

Whilst the AIFMD brought the issue of substance into the spotlight, the 15 point action plan since set out by the OECD as part of the ‘BEPS’ agenda is likely to result in further fundamental changes to international tax standards. Its scope is broad and means that hedge fund managers may well be impacted to some extent.

The action points related to substance will place a greater emphasis on managers being able to demonstrate substance in the jurisdictions in which they operate. There is also likely to be an impact arising from changes in the approach of tax authorities, and as a result fund managers can expect greater scrutiny of their activities, particularly those that benefit from access to Double Taxation Agreements.

With substance having long been a major factor in the success of Jersey’s finance industry, and in light of both AIFMD and the BEPS initiative, the jurisdiction is well placed to meet the challenge of demonstrating substance around fund management activity.

In fact, the recommendations emerging from the BEPS project are likely to provide significant opportunities where Jersey is concerned. Hedge fund managers could benefit hugely from relocating to Jersey as they factor BEPS into the other benefits of the jurisdiction, such as tax transparency and its stance on AIFMD.

Jersey can boast, for instance, a very healthy corporate governance ratio set against its 1,300 or so regulated funds, whilst other jurisdictions may well find themselves needing to re-configure their operating model. In addition, with managers needing to demonstrate that they maintain genuine responsibility for their portfolio or risk management functions, the unrivalled network of service provider, custody, tax and legal support available in Jersey with decades of alternative asset management experience and expertise will be hugely beneficial in supporting managers’ needs to organise and evidence their enhanced governance arrangements.

Away from BEPS, recent months have also seen sizeable changes in the UK taxation treatment of hedge fund managers and this too is prompting managers to re-think where they are located.

For example, tax changes in the UK relating to fund management and performance fees and whether they be treated for tax purposes as capital gains (28%) or income (up to 45%) are causing some uncertainty, whilst non-domiciled individuals have seen a considerable change in their UK effective tax rate with the introduction of Carried Interest legislation.

Combined, these changes mean not only that tax rates will inevitably rise, but that the taxation of aspects of a fund is becoming more complex, leaving fund managers reviewing the potential impact.

Given that Jersey provides a simple and attractive tax environment, with no Capital Gains Tax and a dedicated regime for ‘high value residents’, it has a very clear edge as a result of these changes. Moreover, being close to the main hedge fund hubs in the UK and Europe but outside of the EU has given rise to the expectation that greater numbers of managers will relocate to the jurisdiction in the coming months, a trend already manifesting itself.

‍

Long-Term

In an increasingly complex landscape where substance will undoubtedly grow in importance for managers, Jersey has positioned itself strongly not only as a preferred hedge fund servicing centre in Europe but also as an ideal choice for fund management too.

With the shifting environment prompting hedge fund managers to re-assess their location options, Jersey is finding that its business proposition, with its tried and tested hedge fund experience and robust business and communications infrastructure, including the roll-out of an island-wide fibre optic network making Jersey one of the best-connected places in the world for high-speed data transfer, is increasingly fitting the bill.

At the same time, the personal quality of life it offers managers is also proving attractive. Jersey benefits from a first class education and health service, a quality of life that is second to none, and a stock of housing that ranges from country houses to cutting edge urban developments, all within a one hour flight from London.

This overall package is providing a compelling proposition for asset managers who, in today's persistent turbulent markets and uncertain environment, are increasingly drawing on Jersey to ensure they can continue to tap into and generate solid returns for their discerning investors in the long-term.

‍

This article was first published in Preqin's Hedge Fund Spotlight, November 2015.

‍

Recent years have seen International Finance Centres (IFCs) having to contend with a growing raft of regulation and international policy initiatives.

As well as tax information reporting initiatives coming via the OECD and the US, fund executives have also had to assess the detail of the EU Alternative Investment Fund Managers Directive (AIFMD).

Nevertheless, macro trends continue to suggest that those IFCs that specialise in funds business and that can demonstrate a mature response to regulatory change have the opportunity to play an increasingly important role in global fund structuring.

Estimates indicate, for instance, that the global asset management industry will grow to in excess of US$100trn within the next five years (Asset Management 2020, PwC). Emerging markets in particular are witnessing growth in wealth and wealth creators, driving the demand for sophisticated investment support across the globe.

Further, a shifting business environment for fund managers and recent recommendations from the OECD relating to Base Erosion and Profit Shifting (BEPS), are prompting some consideration amongst managers of where to domicile both themselves and their funds. Jersey’s commitment to transparency initiatives, and its standing as a jurisdiction of substance, is likely to have a positive impact on Jersey’s long-term future as a funds domicile.

Against this backdrop, Jersey’s funds industry has continued to perform extremely well. The latest figures (June 2015) show that the net asset value (NAV) of regulated funds being administered in Jersey grew 9% year-on-year to stand at £218.7bn, the third highest level since 2009.

The alternative asset classes, which form around 70% of Jersey’s total funds business, continued to do particularly well, with total alternatives business including hedge, private equity, real estate and infrastructure funds growing annually by 15%.

Success

There are a number of reasons for this success. Jersey has certainly benefitted from being subject to more certain economic, political and regulatory conditions than other fund domiciles specialising in alternative fund servicing.

Jersey also offers unrivalled market access. It is notable, for instance, that since the AIFMD was introduced the trend evidenced in Jersey has been one of building future management substance. As at June 2015, according to figures from the Jersey Financial Services Commission, 84 Jersey fund managers had received private placement authorisation from the JFSC, and 205 Jersey funds were being marketed into Europe through national private placement regimes (NPPRs).

The private placement option into Europe offered through Jersey is giving fund managers a welcome element of flexibility, without the headache and costs of reporting under full AIFMD ‘passporting’ compliance. Further, with ESMA recommending in July that Jersey should in due course be granted the EU-wide passport option, managers can be confident that the optionality Jersey offers stands them in good stead. Being approved so early in the process has given Jersey a great level of comfort and certainty as to its long-term sustainability.

NPPRs are working well and recent announcements from ESMA clarifying that the passport and NPPR will run in parallel with the passport once granted for three years will provide real added confidence. Meanwhile, other non-EU centres will have to play the waiting game until 2016 at the earliest to see if they too are given ESMA’s blessing.

Jersey’s ability to offer a ‘rest of the world’ regime outside the scope of the AIFMD has also positioned it strongly and uniquely as a European time-zone jurisdiction that can cater for funds targeting both assets and investors in growth markets.

Substance

Meanwhile, a number of developments are putting the issue of ‘substance’ at the heart of the decisions being made by managers.

The 15 point action plan set out by the OECD as part of the ‘BEPS’ agenda, for example, is likely to result in fundamental changes to international tax standards. Its broad scope means that fund managers may well be impacted to some extent.

The action points related to substance will place a greater emphasis on managers being able to demonstrate substance in the jurisdictions in which they operate. There is also likely to be an impact arising from changes in the approach of tax authorities, and fund managers can expect greater scrutiny of their activities, particularly those that benefit from access to Double Tax Agreements.

With substance being a major factor in the success of Jersey’s finance industry, the recommendations emerging from the BEPS project are considered to provide significant opportunities. Fund managers could benefit hugely from relocating to Jersey as they factor BEPS into the other benefits of the jurisdiction, such as tax transparency and AIFMD stance.

Recent months have also seen sizeable changes in the UK taxation of alternative fund managers. For example, tax changes relating to fund management and performance fees and whether they be treated for tax purposes as capital gains (28%) or income (up to 45%) are causing some uncertainty, whilst non-domiciled individuals have seen a considerable change in their UK effective tax rate with the introduction of Carried Interest legislation.

Combined, these changes mean that effective tax rates will inevitably rise and that the taxation of aspects of a fund is becoming more complex than ever before, leaving fund managers reviewing the potential impact.

Given that Jersey provides a clear and attractive low tax environment, with no Capital Gains Tax, and a dedicated regime for ‘high value residents’, it has a very clear edge as a result of these changes. Moreover, being close to the UK and Europe but outside of the EU has given rise to expectation that greater numbers of managers will relocate to the jurisdiction in the coming months.

Indeed, recent manager relocations have demonstrated the clear substance that exists in Jersey. Jersey is now home to around 125 fund promoters, up from 70 five years ago, with at least 24 of these managing in excess of US$1bn. An analysis of Jersey’s private equity sector also shows substantial growth of new LPs being registered in Jersey both around the implementation of AIFMD and a clear acceleration around November 2014. Sixty-one GPs have also been registered in Jersey so far in 2015, compared to seven in 2014 and four in 2013.

In an increasingly complex landscape where substance will undoubtedly grow in importance for managers, Jersey has positioned itself strongly both as a preferred fund servicing centre in Europe and as an ideal choice for fund management too.

This article was first published in Funds Europe, November 2015

‍

Jersey has been named ‘Best Fund Administration Centre’ for the third consecutive year at the Investment Week Fund Services Awards, held last week.

Announced as the winner at a dinner ceremony on 7 October at the Marriott Grosvenor Hotel in London, as part of Investment Week’s Fund Management Summit, Jersey retained the award against stiff competition from Guernsey, Dublin and Luxembourg.

The Awards are designed to recognise those service providers and jurisdictions who can demonstrate knowledge and expertise to provide solutions for the fund management industry, with winners selected through a combination of online voting and a panel of judges from right across the fund management and servicing sectors.

Specifically in the category of ‘Best Fund Administration Centre,’ judges looked for the jurisdiction that offered superior administration support to the fund management industry including legal, accountancy, compliance, tax, and stock exchange listing services.

Geoff Cook, Chief Executive, Jersey Finance, commented:

“For Jersey’s fund administration services to be recognised by a leading investment publication such as Investment Week and against some heavyweight competition for the third year in a row is naturally welcome for our funds industry, which continues to perform strongly.

“The market has reacted well to Jersey’s approach to international regulation, in particular the EU AIFMD, whilst a focus on alternatives, including hedge, private equity and real estate, has seen those asset classes grow by around 15% year on year. In tandem, Jersey’s fund servicing landscape is being accompanied by a rapidly growing management environment, and this bodes extremely well for Jersey’s future as a specialist funds jurisdiction of substance.”

‍

Analysts predict that, driven by globalisation and population growth, the global asset management industry will grow from $65trn to in excess of $100trn within the next five years. At the same time, emerging markets are witnessing significant growth in wealth and wealth creators, driving the demand for sophisticated investment support across the globe.

This rise in cross-border trade flows is of real significance for the UK property market, which is frequently viewed as a stable and strong investment amongst overseas investors, whilst this sort of investment requires precisely the kind of alternative fund structuring and servicing expertise that specialist international finance centres (IFCs) like Jersey can provide.

Growth

Against this backdrop, Jersey’s funds industry has continued to perform extremely well. The figures as at June 2015 show that the net asset value (NAV) of regulated funds administered in Jersey currently stands at around £219bn, the third highest level since 2009 and 9% higher than in June 2014.

In particular, real estate funds specifically grew around 16% over the twelve months, with around £34 billion of real estate assets around the world now serviced in Jersey.

Current activity certainly suggests that Jersey remains a popular choice for real estate funds targeting the UK and European property markets.

For funds targeting these markets, due to its straightforward structuring process and an administration network that understands the core financing and accounting requirements, together with its continued access to investors through private placement routes under the EU Alternative Investment Fund Managers Directive (AIFMD), Jersey is a good option.

Reputation

Whilst Jersey has earned a strong reputation as a centre for real estate fund structuring globally, it has cemented its position as the go-to destination for property investment into London.

This pivotal role as a conduit for investor capital into the UK was highlighted in the 2013 ‘Jersey’s Value to Britain’ report, which found £1 in every £20 of money invested by foreign individuals and companies in assets located in Britain reached the UK via Jersey.

In particular, real estate investment projects in the City involving Jersey are on the rise.  A number of major property structures have been routed through Jersey recently, stretching from Battersea Power Station to The Shard, to Shoreditch and chunks of Canary Wharf. Other recent transactions of note involving Jersey include:
‍
•    law firm Mourant Ozannes advising Greystar Real Estate Partners on the £600 million acquisition of a portfolio of London student accommodation properties, known as 'Nido', from Round Hill Capital
•    law firm Walkers acting with Whitmill Trust on the launch of Catalyst Capital LLP's second value-add real estate fund, which has raised Euro 150m for the fund’s first close and will invest in the office and retail sectors throughout the UK, as well as France, Belgium, Germany and Poland

Shifts in wealth around the world are continuing to mean that private and institutional investors in markets stretching from the US to the Middle East to Asia are seeking efficient means of deploying investment capital into UK real estate.

Investors in the Middle East, for example, are now allocating over a quarter of their investments to property (World Wealth Report 2014), whilst Asian money continues to favour the London property market. With a Double Taxation Agreement between Jersey and Hong Kong having come into force in 2013, and a wealth of Islamic Finance experience, Jersey is proving an attractive conduit for these key property investor markets targeting UK real estate.

Success

Jersey’s success is built on being subject to more certain economic, political and regulatory conditions than other fund domiciles specialising in alternative fund servicing and is rooted in its focus on high-end real estate funds business reliant on stability, reliability, flexibility and user-friendliness.

Jersey’s high standards of regulation and commitment to transparency stand it in particularly good stead.

Due to its approach to capturing beneficial ownership information, ability to cooperate with foreign authorities and commitment to information exchange, Jersey is well positioned as a centre for high quality inward real estate investment into the UK, with a system in place to detect and mitigate questionable activity that is far stronger than any other jurisdiction.

It is for that reason that the jurisdiction has been endorsed by bodies including the OECD, World Bank and IMF and why it was ranked as the number one jurisdiction in the academic ‘Global Shell Games’ (2012) report.

In fact, Jersey is a well-trodden path for high-end global real estate structuring. By providing protection for investors, efficient cross-border investment pooling, robust regulation and tax neutrality, Jersey remains a key centre for UK inward investment and well placed to act as a conduit for channelling high quality capital into the UK commercial and residential property markets.

This article was first published in Property Week, October 2015

A Keynote Interview with Ben Robins, Chair, Jersey Funds Association, first published in PFM Fund Domiciles Report, October 2015.

Jersey has not only made a full recovery from the financial crisis, it’s laid the groundwork for an all access path to EU investors. Jersey Funds Association chairman Ben Robins provides pfm the details.

In the summer of 2011, pfm packed its bags and headed to Jersey for an industry gathering. Upon arrival, our correspondent present was struck by the somber mood of the conference.

Remember at the time the funds industry was still wobbling after the 2009 credit collapse; meanwhile EU policymakers a few hundred miles northeast in Brussels were busy shaping the behemoth Alternative Investment Fund Managers Directive (AIFMD) in a way that could have barricaded Jersey managers from EU shores. Speakers at the forum discussing the future prospects of the small island state (population: 100,000) worried the directive would prompt individual EU states to tighten the screws on private placement regimes, which offshore Jersey managers walked to reach EU investors.

A few years on, and Jersey is thriving – something we picked up in the upbeat tone of Ben Robins, chairman of the Jersey Funds Association, who spoke with pfm about the island’s rebound and future growth strategy in a keynote interview.

It’s little wonder why. Jersey is one of three jurisdictions to receive blessing from Europe’s chief securities regulator, the European Securities and Markets Authority (ESMA), to offer local managers a pan-EU marketing passport into Europe. New fund vehicles have been interwoven into the island’s already comprehensive legal regime. And efforts by rich countries to crack down on tax evasion and profit shifting (the so-called BEPS Action plan) is unlikely to impact Jersey materially, which today has a transparent and easy to understand tax regime and a funds industry based on management substance, rather than mere domiciliation.

Proof in numbers

To begin to understand just what type of comeback Jersey has achieved in the last few years, it’s worth examining some of the raw fund data.

At the end of 2009, during the heyday of the financial crisis, Jersey had £167 billion of fund assets under administration, a massive 31 percent drop from the year prior. By the end of 2010, Jersey entered recovery mode, controlling then £185 billion of fund capital. From there, it would take eight straight quarters before Jersey busted past the sentimentally important £200 billion barrier. Jersey would dip below that figure once again as AIFMD rulemaking threw new doubt on the offshore island’s vitality, but throughout 2014 it became clear that Jersey had regained its lost ground.

In fact, at the end of 2014, Jersey claimed £229 billion of fund assets under its administration; “a figure not seen since the end of 2008 when the level of capital raised in the funds industry in a period of exuberance soared to unprecedented heights,” says Robins.

Much of the recovery could be attributed to alternatives, which accounted for 72 percent of the 2014 year-end totals, underscoring Jersey’s increasing appeal to the private funds community. Year-on-year, the real estate sector alone grew by 32 percent to its highest ever level, while private equity funds grew by a steady 5 percent in the same period.

The recovery, however, would not have been possible if the Island had not worked hard to ensure that new regulations have gone Jersey’s way.

Erased fears

Originally, the AIFMD was something to be feared. Today, Jersey sees it as an opportunity to entrench itself as one of very few domiciles to offer managers a full menu of vehicle and marketing options.

For starters, “a number of EU managers have relocated, or are expected to, relocate to Jersey in the coming months where their existing strategy and operations do not sit comfortably with full compliance with the AIFMD, but where they still want to retain access to EU investors via individual member states’ private placement regimes,” says Robins.

The second option, of course, where managers don't wish to market to European investors actively at all, is to relocate to Jersey and operate outside the AIFMD framework altogether, “which Jersey can easily facilitate,” Robins adds.

A third, more exclusive, option, however, is allowing Jersey managers to seamlessly market their funds across the whole of Europe by way of pan-EU marketing passport as a reward for choosing to meet the AIFMD’s full requirements. Jersey created a fund vehicle to do just that, but it was only this summer that ESMA recommended that a pan-EU marketing passport (as of now restricted to onshore EU managers) could be extended to Jersey managers choosing to use this structure. The ESMA recommendation is subject to the approval of the EU Commission, Parliament and Council. The three EU governing bodies are ultimately expected to approve the recommendation when sufficient numbers of other third countries have also been approved for pass-porting, in effect providing GPs wanting the passport “a tax-neutral platform offshore” in Jersey, Robins explains.

The other bit of regulation that is potentially concerning but seemingly non-life-threatening is the Base Erosion and Profit Shifting (BEPS) Action Plan. The OECD, a rich country club, has been developing the plan since July 2013 as part of a coordinated effort to crack down on tax avoidance. The plan’s principal target is large multinationals like Amazon and Google that shift profits across borders to escape tax, activities which are generally not hosted in tax neutral financial centres like Jersey, says Robins, “but its scope is broad enough to cause concern in the private funds industry.”

“The fear is that managers using Jersey as a legitimate tax-neutral base for investors – and not as some intermediary jurisdiction to escape onshore tax through exploitation of double tax treaty benefits – will be caught inadvertently by the proposal’s language,” he explains.

Thanks to industry lobbying efforts, the OECD has been made aware of the unintended consequences and it is hoped that it will sustain the important principle of (uncontroversial) tax neutrality for private equity vehicles during proposal rewrites. Robins believes the OECD initiative may even in fact benefit Jersey as the international community focusses on taxing economic activity where it actually takes place.

The concept of “substance”, such as personnel on the ground carrying out key investment functions, may be a key criterion the OECD uses to establish where fund managers are taxed in future. Unlike certain other offshore financial centres, Jersey has “in relative terms, a massive infrastructure of experienced fund service providers, including investment managers, administrators and board directors that private equity managers can utilize to demonstrate substance on the ground,” says Robins.

In fact, in Jersey “there already exist regulatory requirements that GPs must follow to demonstrate local management and control and avoid being designated a letterbox arrangement,” he adds.

Global outreach

Jersey’s future success will in part depend on efforts to reach new lands, says Robins when asked how Jersey will sustain its current momentum.

Over the last twenty years, Jersey's government and regulator have signed cooperation agreements with counterparts across Europe and the world at large to facilitate cross-border financial services and investment. This year alone, Jersey has signed such agreements with South Africa, Switzerland, Denmark, Rwanda and Korea.

Proactive campaigns are being launched in Asia as well. Late last year, representatives from Jersey hosted a range of breakfast and lunch events in Hong Kong, Kuala Lumpur, Singapore and the United Arab Emirates to over 500 stakeholders in key Asian markets as part of an inaugural Asia roadshow.

After developing a presence in Asia roughly six years ago, Jersey “is very well placed to capitalize on new opportunities like offshore renminbi structurings, dim sum bonds listings and Islamic finance,” says Robins.

Jersey’s goal will be going from a gateway into Europe into a gateway into the world. If the next seven years are anything like the last, they should make significant headway.  

‍

Globalisation and population growth are undoubtedly having a transformational effect on wealth patterns around the world and, consequently, the demand for cross-border investment structuring.

By 2030, for instance, these trends are expected to increase global demand for infrastructure investment by over $50trn, whilst estimates indicate the global asset management industry will grow from $65trn to in excess of $100trn within the next five years.

Emerging markets in particular are witnessing growth in wealth and wealth creators, driving the demand for sophisticated investment support even further across the globe. This rise in cross-border trade flows requires precisely the kind of alternative fund structuring and servicing expertise that specialist international finance centres (IFCs) like Jersey can provide.

Meanwhile, IFCs are having to contend with a growing raft of regulation, which has had and continues to have a profound impact on fund structuring. As well as a number of tax information reporting initiatives coming on stream via the OECD and the US, fund managers have also had to assess the detail of the EU Alternative Investment Fund Managers Directive (AIFMD), which has been in play for just over a year now.

Against the backdrop of all of this, Jersey’s funds industry has continued to perform extremely well, and particularly since the AIFMD was introduced. In fact, figures for the end of 2014 show that the net asset value (NAV) of regulated funds being administered in Jersey grew by around a fifth year-on-year to reach just over £228.9bn, the highest figure in seven years, whilst the fund formation rate is also at its highest level since 2008.

In particular, real estate business grew by 32% annually to reach its highest ever level, whilst private equity maintained a steady increase of 5% in 2014. Fundraising through Jersey, by both established and new promoters, looks to be very active again in 2015 with lots of new funds coming close to launch.

Reflecting the genuine confidence there is in the jurisdiction at the moment, the number of Jersey-based fund promoters has almost doubled over the past five years. As of June 2014 there were 123 Jersey-based managers, up from 70 five years ago.

Market Access

It’s clear that Jersey has earned a strong reputation as a European centre for private equity and real estate fund structuring, particularly as the go-to destination for property investment into London.

The jurisdiction’s strong links with the UK gives it unrivalled market access to London, and real estate investment projects in the city involving Jersey are on the rise. A number of major property structures have been routed through Jersey recently, stretching from Battersea Power Station to The Shard, to Shoreditch and chunks of Canary Wharf.

Jersey’s pivotal role as a conduit for investor capital into the UK was first highlighted in the 2013 ‘Jersey’s Value to Britain’ report, which found £1 in every £20 of money invested by foreign individuals and companies in assets located in Britain reached the UK via Jersey.

This link was crystalised further in the ‘Jersey’s Contribution to Foreign Direct Investment (FDI)’ report (2015), which showed that Jersey distributed in excess of US$75 billion of FDI in 2012, with the UK being the biggest target (44.8%) of outbound FDI distributed from Jersey.

There are a number of reasons for this success. Jersey has certainly, for instance, benefitted from being subject to less uncertain economic, political and regulatory conditions than other fund domiciles specialising in alternative fund servicing.

Moreover, although a proven supporting domicile to some of the world's best known asset managers, Jersey is not, and does not hold itself out as, a ‘volume player’. Its success is not built on aggressive leveraging of economies of scale, but is rooted in its focus on high-end quality real estate and private equity funds business reliant on stability, reliability, flexibility and user-friendliness.

In addition, the jurisdiction is well placed to meet the challenge of demonstrating substance around fund management activity in light of AIFMD and the OECD's Base Erosion and Profit Shifting initiative. With managers needing to demonstrate that they maintain genuine responsibility for their portfolio or risk management functions in Jersey, there will be greater scope for fund administrators to help organise and evidence managers' enhanced governance arrangements.

Jersey can also boast a very healthy corporate governance ratio set against its 1,300 or so regulated funds, whilst other jurisdictions may well find themselves needing to re-configure their operating model.

Europe

Beyond the UK, it is also notable that there has been an uptick in business being structured through Jersey targeting Europe more widely since the AIFMD was introduced. Far from the European regulation causing a movement away, the trend evidenced in Jersey is one of building significant future management substance.

As at June 2015, according to figures from Jersey’s regulator the Jersey Financial Services Commission (JFSC), 84 Jersey fund managers had received private placement authorisation from the JFSC, and 205 Jersey funds were being marketed into Europe through the private placement regimes.

As well as providing certainty of European market access, the private placement option into Europe offered through Jersey is giving private equity and real estate fund managers a welcome element of added flexibility, without the headache and costs of reporting under full AIFMD ‘passporting’ compliance.

Further, with ESMA recommending in July that Jersey should in due course be able to take up the full EU-wide passporting option under AIFMD, managers using Jersey can be confident that the optionality Jersey offers stands them in good stead for the long-term.

Emerging Markets

Whilst the UK and European investor market remains important, the global shift in wealth around the world to emerging markets is proving increasingly significant. Investors in markets stretching from the US to the Middle East to Asia are seeking efficient means of deploying investment capital into real estate funds, often in the UK and Europe, and this is absolutely a trend Jersey is witnessing.

Asian money continues to favour the London property market with second and third wave money, cash rich developers and Asian insurance companies being increasingly attracted to London property. With a Double Taxation Agreement between Jersey and Hong Kong having come into force in 2013 stimulating the market, the Far East in particular remains a key property investor market for Jersey funds.

In addition, investors in the Middle East are now allocating over a quarter of their investments to property (World Wealth Report 2014), meaning there is real potential for IFCs like Jersey with Islamic Finance experience and expertise in real estate fund structuring. Recent commercial transactions of note through Jersey include high profile London property investments on behalf of Gulf investors such as the Shard building and Chelsea Barracks.

Meanwhile beyond Europe and outside the scope of the AIFMD, Jersey also continues to provide an attractive platform for servicing globally-focused private equity and real estate funds, something that will become increasingly important as emerging markets come to the fore.

For this reason, Jersey’s ability to offer a ‘rest of the world’ regime outside the scope of the AIFMD has positioned it strongly and uniquely as a European time-zone jurisdiction that can cater for funds targeting both assets and investors in growth markets.

Africa is a case in point. The recently published ‘Jersey’s Value to Africa’ report (2014) found that, whilst Africa has the potential to grow 5% each year to 2040, to do so it will need to invest US$85 trillion in its infrastructure. Around US$6 trillion of that will need to come from FDI and, given its strong cross-border private equity and infrastructure fund capabilities, Jersey can play a part in meeting that investment need.

In an increasingly complex landscape shaped by globalisation, population growth and regulation, Jersey has positioned itself strongly as a gateway to the UK. At the same time, its flexible approach to the AIFMD has made it a preferred fund servicing centre in Europe, and its global capabilities make it an ideal centre for meeting the requirements of a fast-paced industry.

Jersey is a well-trodden path for global private equity and real estate structuring, and it is that familiarity that continues to give confidence to fund managers and investors.

This article was first published in PERE Fund Service Guide, September 2015

‍

The number of Jersey funds marketing into Europe through national private placement regimes (NPPRs) under the EU Alternative Investment Fund Managers Directive (AIFMD) has broken through the 200 barrier (June 2015), underpinned by strong combined performances in Jersey’s alternatives sector where net asset values under administration rose 15% on the previous year.

According to latest figures (June 2015) from the Jersey Financial Services Commission (JFSC), 205 Jersey funds are now being marketed into Europe through private placement regimes, an increase of 10% on December 2014, whilst 84 fund managers have now received private placement authorisation, up 40% over the previous six months.

Meanwhile, further statistics collated by the JFSC show that the net asset value of all regulated funds under administration in Jersey grew by around 9% year on year as at June 2015 to stand at £218bn, and that the fund formation rate remains strong with on average one fund being established in Jersey every week during the first half of the year.

In particular, the alternative asset classes grew 15% annually. Hedge fund business grew by 31% year-on-year, real estate funds business was up by 16% annually, and private equity maintained a steady yearly increase of 2%.

Whilst Jersey’s current marketing route into Europe via national private placement regimes looks likely to remain in place until at least 2018, the European Securities and Markets Authority (ESMA) announced in July that it was recommending Jersey should be included in the first wave of ‘third non-EU countries’ whose managers could seek authorisation for a passport to market their alternative investment funds to professional investors throughout EU Member States.

Geoff Cook, Chief Executive, Jersey Finance, commented:

“Whilst of course the endorsement from ESMA in July was a significant development for Jersey’s funds community, it’s extremely pleasing that at the same time managers and promoters are continuing to find appeal in the ‘business as usual’ private placement route. With private placement expected to remain in place until at least 2018 and the potential to activate the AIFMD passport in Jersey in due course, the evidence all points to genuine confidence in Jersey for the management, domiciliation and servicing of funds across a range of strategies and target markets.”

Ben Robins, Chairman, Jersey Funds Association, added:

“These figures underline Jersey’s role as a specialist centre for alternative funds, with the emphasis Jersey is placing on high quality rather than high volume business paying real dividends. The value of funds under administration is growing whilst fund formation, by both established and new promoters, is looking strong again this year, and we fully expect this trend to continue, particularly with the growth we are seeing in other alternative asset classes including debt, credit and infrastructure funds as well as hedge, private equity and real estate.”

‍

Recognition for Jersey’s regulatory framework for alternative funds and the recommendation that the jurisdiction should enjoy future access to a Europe-wide passport under the EU Alternative Investment Fund Managers Directive (AIFMD) has been welcomed by Jersey Finance and the Jersey Funds Association.

The European Securities and Markets Authority (ESMA) recommended this week (30 July) that Jersey should be included in the first wave of ‘third non-EU countries’ whose managers can seek authorisation for a passport to market their alternative investment funds (AIF)  to professional investors throughout EU Member States.

The announcement means that, should ESMA’s recommendation be approved by the EU Commission, Parliament and Council, Jersey will be able to offer a broad range of marketing and organisational options to fund managers, whether they are targeting European or global investors.

Meanwhile, Jersey’s current marketing route into Europe via national private placement regimes looks likely to remain in place until at least 2018. This route, which only requires adherence to AIFMD reporting and disclosure requirements, continues to prove popular, with the number of Jersey funds marketing into Europe in this way recently breaking through the 200 barrier.  According to latest figures from the Jersey Financial Services Commission (JFSC), 84 fund managers have now received private placement authorisation, up 40% compared to December 2014, and 205 Jersey funds are now being marketed into Europe through private placement regimes, an increase of 10% over the past six months. Jersey managers and funds not actively marketing into Europe are not subject to any AIFMD regulation.

The news from ESMA follows a stellar annual performance for Jersey’s funds industry. Analysis carried out as at December 2014 showed the net asset value of regulated funds under administration in Jersey to have grown by around a fifth year-on-year to reach just over £228.9bn, the highest figure in seven years. Real estate funds business grew by 32% annually, private equity maintained a steady yearly increase of 5% and the value of hedge fund business grew by 46% year-on-year.

Geoff Cook, Chief Executive, Jersey Finance, commented:

“Jersey’s private placement route into Europe continues to be actively used, with AIFMD not appearing to have stymied fundraising activities for Jersey funds at all. Nevertheless, this announcement from ESMA is a ringing endorsement of Jersey’s alternative fund regulatory framework and reinforces just how important it was for Jersey to become the first offshore jurisdiction to offer an opt-in AIFMD-compliant regime back in 2013. Overall, this announcement opens up considerable options to managers so that, whatever their strategy and target markets, they can rely on Jersey as a hub from which to offer highly flexible routes to investors in Europe and beyond.”

Ben Robins, Chairman, Jersey Funds Association, added:

“This is a fantastic development for Jersey that could position it right at the forefront of domiciles serving the global funds industry and particularly underlines its role as a specialist centre for alternative funds benefitting European investors. Managers have long appreciated Jersey’s security and stability and its dedicated "Anglo Saxon" approach to client service as a high quality, rather than high volume, jurisdiction. ESMA’s announcement confirms the appealing optionality of our platform and reinforces why managers continue to have confidence in Jersey's appropriately flexible regime for alternative funds business.”

‍

The recent strong performance of Jersey’s funds industry reflects ongoing confidence in the jurisdiction as a major funds centre, but there is no room for complacency in an increasingly competitive, politically charged and complex marketplace, according to the chairman of the Jersey Funds Association (JFA).

Speaking at this year’s annual JFA Dinner (17th April), Ben Robins told an audience of over 450 funds professionals, senior politicians and regulatory representatives that figures for Jersey’s funds industry painted an extremely positive picture of an increasingly diverse funds sector.

Pointing to the total value of funds business growing at the end of 2014 to reach a six-year-high of just under £230 billion, representing an annual increase of 19%, he highlighted stellar growth across the hedge, real estate and private equity asset classes, and steady growth in debt, credit, infrastructure, fin-tech, mining and shipping funds work.

However, he explained that the industry faces a number of challenges, including the growing need to demonstrate fund management substance, global political uncertainty and greater competition from other jurisdictions:

“The statistics don't lie – we’re busy and long may that continue, but there’s no room for complacency given the pace of change and uncertainty swirling around us. In spite of the potential challenges, however, I truly believe we remain well-placed to overcome them and turn them into opportunities.

“First, we need to be mindful of the challenge of demonstrating ever greater substance around fund management activity as the impact of AIFMD and the OECD's Base Erosion and Profit Shifting initiative are felt in full.  The abundance of tried and tested local management experience in Jersey, however, gives us the opportunity to take these possible challenges in our stride, so long as we all take the time to understand and adapt to the new operating norms.

“We also find ourselves in a period of real political uncertainty, and the continued international engagement of our politicians, civil servants, regulator and promotional body will become increasingly important to our industry. Finally, the challenge of remaining competitive as other jurisdictions review and upgrade their own fund regulatory regimes remains crucial. Happily, the post-McKinsey review of our funds regime is well underway. We want less complexity but we must also retain our inherent flexibility - that's not easy and will take time to achieve, but it's essential to get it right.”

Meanwhile, as a result of growth in the funds industry, firms are looking to grow their workforce and are providing a growing number of career opportunities for local people, as Ben explained:

“Many firms in the funds industry are actively recruiting or trying very hard to recruit new people. The challenge for our industry is to encourage locally born or connected people to return and seek employment in our varied industry and, if people are unfortunate enough to lose their jobs in other areas of the wider local finance industry, to make them aware of the opportunities in funds, give them access to tailored skills training, and help them convert with real purpose to our area of business.

“We have much to be proud of in terms of how we have helped position Jersey amid global regulatory shifts and growing competition, and the dinner was a fantastic opportunity to celebrate our industry’s successes. Our thanks go to all those involved in organising this year’s event, including all our sponsors.”

The JFA annual dinner was held on Friday 17th April at the Royal Jersey Showground and featured comedian Romesh Ranganathan as guest speaker. Lead sponsor of the event was JP Morgan, silver sponsors included BNP Paribas Securities Services, Moore, Mourant Ozannes and Ogier, and the champagne reception was sponsored by Carey Olsen.

‍

A strong performance in Jersey’s funds sector in 2014 has seen the value of fund assets administered in the jurisdiction increase by almost one fifth year-on-year to reach the highest level in seven years.

The latest figures for Jersey’s finance industry, collated by the Jersey Financial Services Commission (JFSC) for the period ending December 2014, show that the net asset value (NAV) of funds under administration in Jersey grew by £23.5bn over the final quarter of last year to now stand at £228.9bn, representing an increase of 19% compared to December 2013 and the highest level since December 2008. In addition, the total number of regulated funds rose by 19 during the quarter.

This was led by another strong performance in the alternative asset classes, which account for 72% of the total NAV, with the value of hedge fund business growing by 46% year-on-year, real estate business growing by 32% to its highest ever level, and private equity maintaining a steady increase of 5% in the same period.

Meanwhile, six months after the implementation phase for the Alternative Investment Fund Managers Directive (AIFMD) ended, Jersey’s private placement route into Europe continues to grow in popularity amongst fund managers. Figures from the JFSC show that 60 alternative investment fund managers (AIFMs) have received authorisation under Jersey’s AIFMD private placement regime, whilst 186 Jersey alternative investment funds (AIFs) are being marketed into Europe through private placement regime. In addition, 14 AIF depositary notifications have now been received under AIFMD from five different Jersey AIF depositary service providers.

Geoff Cook, Chief Executive, Jersey Finance, commented:

“The 2014 figures for Jersey’s funds industry make impressive reading. Not only has the value of funds business reached its highest level since 2008, but the sizeable annual increase of almost 20% is particularly pleasing in a global fundraising environment that is still relatively challenging. This growth is symptomatic of the confidence alternative funds professionals have in Jersey and why a number of major alternative fund houses have made the move to establish or expand their presence in the jurisdiction recently.”

Ben Robins, Chairman, Jersey Funds Association, added:

"The fact that there has been a strong upward trend across the core private equity, real estate and hedge fund asset classes as well as the debt and infrastructure fund spaces in the six months since AIFMD was implemented is clearly pleasing. The number of Jersey domiciled managers receiving authorisation to privately place and the number of funds being marketed into Europe through private placement under AIFMD is on the rise, and this goes to show that managers clearly like the flexibility and robust nature of Jersey’s regulatory framework.”

The warm reception afforded to private placement under AIFMD and trends within the European fund structuring arena, including ESMA’s recent call to evidence, will feature on the agenda at Jersey Finance’s Annual London Funds Conference, entitled ‘Winning Moves’, on 19th March. The event will also feature discussions on the global regulatory landscape and trends in real estate and infrastructure investment fund structuring from the US, Middle East and Asian investors. Further information can be found at jsy.fi/jflfunds2015, where places can also be booked.

‍

The Jersey Funds Association (JFA) will welcome comedian Romesh Ranganathan as the guest speaker at their annual dinner this April.

Romesh, who is a maths teacher, turned rap artist, turned stand-up comedian and self-declared “tubby, vegan, sociopath,” will be the guest speaker at the dinner, which will take place on Friday 17th April at the Royal Jersey Showground and for which the main sponsor is JP Morgan.

An acclaimed stand up and Edinburgh Comedy Award Best Newcomer nominee, Romesh has written for Stand Up for the Week, toured with Sean Walsh, supported Ricky Gervais, and starred on Russell Howard’s ‘Good News.’  The Guardian has also called Romesh “an equal opportunities misanthrope”.

Expected to be attended by more than 400 fund professionals, the black tie event, whose silver sponsors include BNP Paribas Securities Services, Moore, Mourant Ozannes, and Ogier, aims to be a celebration of success within Jersey’s funds industry over the past twelve months. The event starts at 6.45pm with a champagne reception, sponsored by Carey Olsen, and there will also be musical entertainment provided by a local band both during and after the dinner.

Ben Robins, Chairman of the Jersey Funds Association, commented:

“The JFA annual dinner is a fantastic way to reflect on and celebrate the success of the funds industry in Jersey and recognise the professionals who contribute so much to the island’s industry throughout the year. The past twelve months have been particularly significant. Whilst we have witnessed a transition into a new era of regulation in Europe, Jersey has responded well with our fund formation rate at its highest level since 2008, values of assets under administration rising right across the alternative asset classes and there being a clear trend towards greater fund management substance in the Island.

“With that in mind, our dinner this year should be an extremely upbeat one, and I’m delighted that Ramesh will be our guest speaker at what should be an extremely enjoyable evening. The dinner has always been popular so I encourage those wanting to attend to book tickets in advance.”

Tickets for the event are £75 per person and tables can be booked by emailing Caroline Harrington at enquiries@jerseyfunds.org.