Emerging trends in the digitalisation of fund operations and the opportunities presented by a burgeoning tokenisation and virtual assets industry were amongst the issues explored at a recent event hosted by the Jersey Funds Association.

The event, held last month in Jersey, brought together a number of industry leaders and discussed the challenges facing organisations set against a backdrop of continued economic and political upheaval before considering the opportunity presented by digital assets and blockchain, the potential of AI to be transformative, and the pace of change in digital innovation.

Experts in their field also provided updates to more than 100 delegates on specific developments relevant to the funds sector, highlighting in particular the emerging use cases for AI within a cross-border funds context, such as digital ID and asset diversification, before questions were opened up to the audience.

Following an introduction from BDO Director Manik Memon, E&Y Partner Leo Boessenkool discussed the emerging trends in funds digital operations, underlining the role of AI in undertaking manual tasks within the sector to boost productivity, while Walkers Senior Counsel, Sarah Townsend, took a deep dive into Jersey’s position regarding fund tokenisation, pointing to the launch of Jersey’s first tokenisation platform earlier this year and imminent updates to Jersey’s ICO guidance notes .

Following were C5 Alliance Director John Gamble, who explored how to practically approach AI, highlighting in particular the importance of focusing on training AI on good quality data and addressing fairness and bias in integrating AI, whilst PwC Director David O’Brien talked the audience through operations powered by generative AI across private markets functions, including the application of Gen AI in preparing DDQs, portfolio reporting and legal document drafting.

Commenting, JFA Chairman Michael Johnson, said: “Market conditions over the past 12 months, combined with added pressures such as the retention of talent and increased regulatory and compliance demands, have created a complex picture within which the cross-border funds sector operates. There’s no doubt that the integration of digital solutions forms a key part in addressing some of those major challenges, from enhancing productivity and improving client experience to opening up new and diverse opportunities to grow our proposition.

“Jersey has a great track record in embracing digital solutions, but it’s clear that the pace of change is relentless and we need to continue to move faster and faster if we are to remain competitive and at the forefront of the global alternative funds space. With that in mind, I was really pleased to see such interest at out latest JFA seminar in how Jersey is applying digital solutions to bolster its funds capabilities and support investors and managers with their increasingly digital ambitions.”

Members of the Jersey Funds Association reflect on the changing US regulatory landscape for private funds, what it means for fund managers, and how the changes are providing an opportunity for managers to re-think their structuring solutions to suit investor demands…

Regulatory shifts in the US private funds market have certainly created a huge amount of discussion in recent months, with managers continuing to get to grips with what the changes mean.

The US Securities and Exchange Commission (SEC) announced last year a set of amendments to the 1940 Investment Advisers Act – a lengthy set of proposals relevant to private fund advisors, the implications of which have taken sometime to filter through to the US manager community.

Aimed at creating a fairer environment with improved fee transparency, the rules – which follow those already in place for hedge funds - introduce enhanced regulation for private fund advisors and added rules around portfolio transparency and ‘democratising’ fee structures, representing a significant shift in private market industry practice.

Amongst the various provisions in those amendments, for example, is a requirement for quarterly reporting, something that may not be as straightforward as some managers had initially thought.

The changes have heralded calls from managers for further guidance on issues where further clarification is needed, and where some of the rules have the potential to create additional complexity for private fund advisors and added compliance costs. From an investor perspective, there is also the potential for preferential rates being offered to their peers, presenting further associated issues.

The result is a divided US private fund landscape, with as many groups, trade bodies and associations supporting the new rules as there are opposed to them – and there is a chance that the changes might be the end of it, if calls to reconsider are met with open ears.

Domiciles in Focus

In the wake of the rule changes, US managers have undoubtedly increased their enquiries relating to their domicile choices, taking the view that they can mitigate their administrative burden by revisiting their administration, structuring and governance frameworks.

“This is a period of concern for US managers and domiciles have come into focus as part of manager considerations,” says JFA committee member and Mourant Partner Alistair Horn.

“When it comes to transparency requirements, particularly around fees, they want certainty, security and guarantees from their domiciles that their structures can stand up to international regulatory scrutiny – and in some cases, stress tests with the more traditional existing jurisdictional partners in the Caribbean have not filled them with confidence.”

Jersey’s Solution

From Jersey’s point of view, this has provided an opportunity to remind US managers that it can provide advantages over other jurisdictions for private fund structures, including those in the Caribbean, in particular when it comes to high standards of governance and an ability to demonstrate genuine substance.

Key advantages include:

·        Lower cost of formation and maintenance, with no requirement for a Jersey Private Fund (JPF) to appoint an auditor. This makes the JPF regime cost-effective and quick to set up compared to Private Fund regimes in other jurisdictions.

·        Tax neutrality and great credentials on compliance with international standards

·        An internationally respected regulatory environment for funds, with robust and clear requirements around appointing directors and service providers

·        Investor familiarity, especially when marketing into the EU

Further detail around the Jersey Private Fund regime compared to other domiciles can be found here.

To bring this further to life, in 2023, the net asset value of regulated funds under administration in Jersey grew to almost US$600bn, while the Jersey Private Fund continued cemented its position as  a go-to vehicle for professional investors, with 645 registered in total.

The jurisdiction also continued to see an ever-increasing community of managers fully resident in the island across private equity, hedge fund, venture capital, debt and real estate with these managers bringing a real depth and diversity to the industry at a time when substance remains high on the agenda.

Jersey’s platform as a gateway to EU investor capital through private placement has also remained strong. Today more than 200 non-EU managers –including those in the US and UK - are using the private placement route through Jersey to access Europe. It’s a figure that has grown by around 60% in five years, without the hassle and expense of full onshore AIFMD compliance.

“The SEC rule changes have acted as a prompt for US managers to take stock, re-evaluate and look elsewhere for opportunities, and, as all the indicators, data and figures reflect, Jersey is absolutely able to meet that call. In fact, it is already doing so,” explains Michael Johnson, JFA Chair and Group Head of Institutional Services at Crestbridge.

In particular the issue of governance remains pivotal, says Dilmun Leach, JFA Committee member and Partner at Walkers:

“At the heart of all this is depth of expertise, substance and governance, and this is where Jersey really excels. Ultimately what managers want is peace of mind, and Jersey delivers on that. The JPF is incredibly quick and cost-effective to set up, the regulatory environment is clear and unambiguous, and the expertise available, including a number of one-stop shops who can hand-hold managers through the process, is truly market leading. For many US managers, it’s proving a breath of fresh air.”

What Next

The US regulatory landscape will no doubt continue to evolve this year –but regardless of whether these latest SEC rule changes are maintained in full, in portion or not at all, the change has already prompted managers to revisit their structures, question the status quo and begin to ask questions as to whether their existing positions are the best possible solutions for investors.

Given its well-established governance and substance credentials, its global distribution capabilities and its finely honed regulatory ecosystem, Jersey is well placed to support those US managers looking for an alternative and viable solution that can support them with both their global compliance obligations and their investor aims in the long run.

New regulation, both domestic and international, is creating significant opportunities for Jersey’s funds sector – but at the same time is requiring industry participants to be more agile than ever before, according to speakers at a recently held Masterclass event organised by the Jersey Funds Association (JFA).

Expert speakers at the recent event, held in September at the Royal Yacht Hotel and attended by over 50 industry representatives from Jersey's funds sector as well as colleagues from the Government of Jersey and the Jersey Financial Services Commission (JFSC), provided valuable insights into the evolving regulatory environment and the impact on Jersey’s funds sector.

In particular, the event emphasised the significant ongoing regulatory changes in both the UK and EU, including the UK’s ongoing efforts to enhance its ecosystem for asset managers and the EU’s review of the AIFMD. Prem Mohan, Partner at Kirkland and Ellis, highlighted how evolutions to AIFMD II could bring greater compliance challenges, whilst also pointing to how National Private Placement (NPP) arrangements, such as those through Jersey, still provide a good route to EU capital for non-EU managers with the current expectation that the NPP regime will remain in place for the mid-term.

Helen De La Cour, Director of Financial Services for he Government of Jersey highlighted Jersey's focus on developing regulation to ensure inclusive and appropriate access to financial services while being committed to enabling the funds sector to continue to grow and innovate.

David Eacott, Executive Director of Supervision at the Jersey Financial Services Commission (JFSC) shared his observations on Jersey's funds sector from his first half-year in post leading the JFSC's supervisory activities. David pointed to tokenisation and digital assets being very much on the JFSC's agenda.

Closing the session, David Postlethwaite, Sustainability and ESG Lead at KPMG, explored how ESG regulation was being integrated across the funds sector and how managers were having to increasingly apply an ESG lens to their due diligence procedures – something that is driving greater data sophistication when it comes to reporting and disclosure.

Jon Stevens, Chair of the JFA’s Regulatory and Compliance Sub-Committee and Deputy Managing Director of Mourant Consulting, hosted the event. He commented:

"Our latest Masterclass offered our broad funds sector a valuable opportunity to delve into crucial areas of regulatory progress. It’s clear that regulation in multiple areas – from sustainable finance and digital assets to domestic compliance and shifting international standards– are all impacting our industry, and firms at all levels of the supply chain are having to be nimble in responding to those changes.

“At the same time, Jersey has an opportunity to playa role in the inter-operability of these regulatory changes – helping investors to navigate and make sense of what it all means, across borders. And that will be an invaluable role for Jersey's funds practitioners to play in the years to come. Against that backdrop, I’m really pleased that there was such strong interest in our latest Masterclass event.”

Further details about the JFA’s Masterclass series and other events can be found here.

A new white paper published by IFI Global and supported by Jersey Finance has highlighted how the rapid growth of asset tokenisation is set to transform the cross-border funds industry over the coming years.

The paper, ‘The Tokenisation of Real Assets', highlights that forecasts for the growth of asset tokenisation are universally bullish, with one report predicting that asset tokenisation will grow into a US$16.1 trillion business by 2030 (BCG and ADDX).

It goes on to explore why asset tokenisation is on the cusp of widespread global adoption and how real assets, including private equity and real estate, are likely to be substantially impacted by tokenisation in the coming years.

In particular, the paper points to some of the major benefits of tokenisation for managers of real assets, but also highlights that there are a number of challenges the industry will need to overcome before it can realise its full potential.

You can read the full white paper here.

New regulation and industry wide adoption of ESG and sustainability metrics have created significant opportunities for service providers, while data management now occupies a central role in achieving ESG compliance, both in the eyes of regulators and investors.

Expert speakers at a recent Masterclass event, organised by the Jersey Funds Association, provided valuable insights into these dynamic developments and their implications for the local industry.

The event, held on 6th June at the Royal Yacht Hotel, attracted over 40 industry participants from Jersey's funds sector. The guest speakers explored various key topics, including the rapidly evolving regulatory landscape, Jersey's potential to grow as a leading centre for ESG funds, the integration of ESG principles in private equity, and the growing importance of data management in the ESG sphere.

The event emphasised the intricate nature of global ESG and sustainable investment regulation, noting the considerable differences in disclosure frameworks between Europe, the US and Asia. The differences present clear opportunities for Jersey domiciled service providers, managers and funds, who may opt in or out of differing jurisdictional frameworks, while relying on the robustness of the JFSC as their home regulator.

As global standards continue to evolve, especially in relation to nature and climate disclosures, the significance of "financial grade" data management is poised to grow. This, according to visiting speaker Antonello Argenziano, creates potential avenues for fund administrators and managers aiming to drive progress and differentiate themselves.

The speakers highlighted Jersey’s strong position, underscoring the alignment of its flexible ESG disclosure framework with international standards and that Jersey implemented anti-greenwashing rules in 2021, with further enhancements in the pipeline.

Tom Powell, Chair of the JFA's ESG Sub-Committee and CEO of Amthe Capital, led the first session on regulation and disclosure. Powell remarked: "Our latest Masterclass offered industry participants a valuable opportunity to delve into crucial areas of regulatory progress in the ESG investment landscape. The rapidly evolving lexicon of acronyms can be overwhelming. There is a genuine sense that Jersey's expertise in administration, data management, risk, compliance, and governance is highly desirable as the industry continues its forward momentum."

He continued: “It’s really important that as a jurisdiction Jersey continues to tell its story in this area, because it has a fantastic story to tell.”

The JFA thanks all those who attended and facilitated the event. More about Jersey’s proposition in sustainable finance can be found here.

The speakers at the masterclass were: Tom Powell, CEO of Amthe Capital - Jersey; Alison Cambray, ESG, Sustainability & NetZero Director at PwC Channel Islands; David Postlethwaite, ESG Associate Director at KPMG in Jersey; Antonello Argenziano, Product Director at Intertrust Luxembourg; and Jane Burns, Sustainability and Climate Change Engagement Manager for the Government of Jersey.

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Jersey’s funds industry is maintaining its upward trajectory – but evolution in the market, regulatory change and competition means that the Jersey Funds Association (JFA) is busier than ever, according to committee members speaking at the JFA’s recent Chairman’s Update event.

Held at the Pomme d’Or recently (1 March), the event saw Chairman Michael Johnson and Vice Chairman Joel Hernandez assess the current landscape and set out some of the priorities for the JFA over the coming year, whilst sub-committee heads also took part in a Q&A session highlighting some of the trends, challenges and opportunities on the horizon.

Pointing to the fact that the value of assets serviced in Jersey rose to new record levels of more than £0.5trn in 2022,Michael also emphasised how important it was to be alive to the potential for change in the wider landscape:

“Our figures continue to illustrate an upward trend, but it’s really important we stay ahead of the curve and anticipate regulatory change and shifts in investor behaviour to maintain our attractive ecosystem for alternative funds.

“Speed to market, cost-effectiveness and service quality are absolutely crucial in our segment of the alternatives market and we are fully focused not only on safeguarding our position but on enhancing our proposition in those areas. On the ESG front, for example, the key is to establish a robust framework but without creating hurdles, whilst on the innovation front we see opportunities to build up a track record in blockchain, tokenisation and digital assets.”

Joel added:

“From a legal and technical perspective, it has never been busier in terms of the need to respond to consultations and international and domestic regulatory change – such as looking at our AML/CFT frameworks, enhancing our range of fund structures and regimes, and ensuring we keep the cost of doing business with Jersey competitive.  We are fortunate in the JFA to have broad and diverse expertise through our membership to support our efforts in these areas.”

The JFA will be holding a series of further events for members over the coming months to explore key areas of note for the industry, including a Legal and Tax Masterclass (20 April) and two Town Hall events on ESG (15 May) and Digital (5 June). The JFA’s annual dinner has also been confirmed for 14 July. Further information can be found via the JFA website.

Professionals from across Jersey’s funds sector including lawyers, administrators, NEDs and compliance specialists, heard from the JFA’s Legal and Technical Sub-Committee this week, at a briefing outlining some of the measures the industry is taking to maintain Jersey’s leading position as a centre for alternative funds.

A number of speakers from the sub-committee, including Chris Patton, Head of Private Equity, Intertrust Group, Simon Burgess, Fund Advisor and Non-Executive Director, and Matt McManus, Managing Associate, Ogier, discussed a range of areas of regulatory and legislative focus for the JFA, including the recent JFSC AML Exemptions Consultation Paper, a JFSC Outsourcing Paper and JFSC Consultation on Senior Management.

The session was hosted by Joel Hernandez, Head of Funds, Mourant, Vice Chair of JFA, and Chair of the JFA Legal and Technical Sub-Committee, who said:

“Our role as a sub-committee is to look at ways to defend and develop our industry from a legal and technical perspective, working with other stakeholders and organisations, to enhance Jersey’s proposition and add value to the funds sector. The fact that so many people joined us for this session reflects the appetite to support the evolution of Jersey’s funds industry, which is fantastic to see.

“The most recent figures for our funds industry were extremely positive, with AUM and AUA reaching record levels yet again. It’s clear though, that there is a huge amount of work being undertaken by the JFA to maintain our position and appeal in a landscape that is extremely competitive and increasingly influenced by international regulatory and compliance pressures – and this is what the session really focused on.

“From looking at our AML/CFT frameworks and how we can keep the cost of doing business with Jersey competitive, to enhancing our Jersey Private Fund regime, as well as honing our ecosystem for virtual assets – there is a lot that the Committee has been working on. On balance, we feel that Jersey remains in a strong position, given the support of the JFA's members and its other partners.”