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.

Figures recently published by Monterey Insight show that the value of Assets Under Administration (AUA) in Jersey’s funds industry grew by 1.4% year-on-year to stand at US$593.5bn as at June 2023, highlighting the appeal of Jersey’s stable platform for alternatives against a backdrop of challenging market conditions.

Published recently (29 January) in the 29th Monterey Jersey Fund Report, the figures paint a picture of sustained growth not only in AUA but also in terms of fund vehicles, with the number of serviced schemes increasing by 16% year-on-year to 1,883 and the total number of sub-funds recorded also up to 2,390, representing a 12% increase.

Significantly during the period, over 210 newly launched and newly serviced sub-funds were accounted for, reaching US$39.4bn for new products of domiciled and non-domiciled funds. 

In its analysis of asset classes, the report confirmed that growth continued to be driven by private equity and venture capital fund activity, accounting for a total ofUS$424bn of assets, followed by real estate funds with US$68bn. Private debt funds saw the highest growth in net assets, with a 21% increase compared to 2022.

The figures also reflect the increasingly diverse nature of Jersey as a global funds hub, with the industry supporting fund assets originating from not only the UK ($117.5bn) but also Luxembourg ($76.1bn), Japan ($60.3bn), the US ($52bn) and Sweden ($32.5bn).

Commenting on the report’s findings, Jersey Finance’s Head of Funds Elliot Refson said:

“The Monterey report provides a useful insight into the performance and make-up of Jersey’s funds sector. The key takeaway this year is that, against an inflationary and high interest rate environment that has significantly hampered global fundraising and deal flow, Jersey has nevertheless continued to remain attractive.

“We’ve seen growth in the value of assets serviced by firms here, but significantly we’ve also seen the industry help bring new funds to market at a healthy rate, in difficult conditions. That’s a strong reflection of the stable and certain platform Jersey provides for private equity, venture capital, real assets and other alternative funds. These figures should send out a clear message of confidence as the alternatives sector looks to ramp up activity in 2024.”

Jersey’s funds industry has continued to perform well against a challenging macro environment but needs to remain agile and place a genuine emphasis on innovation in key areas to meet the competitiveness of an evolving industry, according to speakers at a recent Jersey Funds Association (JFA) Chairman’s Update event.

Held at the Pomme d’Or earlier last month (16 January), the event saw Chairman Michael Johnson discuss the current landscape and set out the organisation’s priorities for 2024, while Vice Chairman Joel Hernandez provided a legal and technical update.

Highlighting the robustness of the Island’s funds sector, Michael pointed to the £525bn net asset value of the sector and the continued success of the Jersey Private Fund (JPF), with 664 JPFs formed since the product was launched, making it the go-to product for sophisticated investors.

He also highlighted that the alternative asset classes now make up 81% of Jersey’s total funds business with private equity and venture capital accounting for the lion’s share.

Meanwhile, private placement continued to prove a popular access route to EU capital through Jersey, with 391 funds now being marketed by 213 fund managers, while the industry is also supporting an increasingly broad geography of managers, from Asia and Africa to the US, highlighting the jurisdiction’s global capabilities.

Commenting, Michael said: “The continued strength of our funds sector is testament to our offering, particularly our stable and no-change proposition when positioned against the wider backdrop of global market uncertainty. 2023 was a difficult year for both managers and investors, but despite that prevailing complex geopolitical and economic picture, Jersey saw a number of significant fund launches and we have a robust pipeline of new funds and managers.

“It remains vital, however, that we stay cognisant of what is an evolving environment whether that be from a regulatory, ESG, technological or geopolitical perspective in order to maintain our attractive ecosystem for alternative funds.”

That message was reinforced by Joel, who highlighted product innovation, including around the tokenisation of assets, as a key focus for the next 12 months. In particular, Joel, who is also head of the legal and technical sub-committee, pointed to the work the JFA was currently doing with the Jersey Financial Services Commission (JFSC) to modernise guidance for funds and special purpose vehicles with exposure to virtual assets.

He added:

“It has been another busy year for the legal and technical committee with sizeable collective efforts being undertaken regarding our AML/CFT framework, guidance around virtual assets, a response to what has been coined the ‘retailisation’ of alternatives, and improvements to our successful JPF regime. The coming months are set to be no quieter, but we are fortunate to have a collegiate approach that will ensure Jersey remains competitive based on what it has become known for - cost, speed to market and quality - all underpinned by an innovative mindset.”

 At the event, the JFA’s annual dinner was also confirmed to take place on 28 June this year. Further information can be found via the JFA website.

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By Michael Johnson, Chair, Jersey Funds Association

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As the global disruption of a pandemic continues to fade in the rear view mirror, new challenges – and opportunities - have come to the fore for Jersey’s funds industry.

Regulatory, economic and geopolitical change are now staples of the environment we operate in, but the good news is that Jersey's funds industry has been able to adapt to such a fast-evolving environment.

Jersey's forward-looking approach, commitment to first class service and focus on creating an ideal ecosystem for alternative investments have enabled its funds sector to thrive over recent years – but increasingly it is the jurisdiction’s ability to be agile and innovate in the face of change that is shaping our future course.

Buoyant

The past year has been another successful and buoyant one for our funds industry.

Figures in early 2023 indicate that the total net asset value of funds under administration in Jersey stood at a record high of more than half a trillion pounds (£523bn), with Jersey private funds continuing to increase year-on-year.

In addition, we are seeing an ever-increasing community of managers fully resident in the island across private equity, hedge fund, venture capital, debt and real estate. These managers provide depth and diversity to Jersey's industry, at a time when substance remains high on the agenda.

Jersey’s expanding and enhanced product range is being warmly received by global managers and investors too.

The Jersey Private Fund regime (JPF) continues to assert its appeal as a fast, cost effective fund vehicle which is ideally suited to a small number of sophisticated institutional investors. More than 600 JPFs have now been established in total – meaning that their number has now overtaken Collective Investment Funds (CIFs) in Jersey for the first time.

Amendments to Jersey’s Limited Partnership law and the long-awaited introduction of the Limited Liability Company (LLC) structure in early 2023 have also bolstered Jersey's options for overseas managers, particularly those in the US.

Jersey’s platform as a gateway to EU investor capital through private placement remains strong too.

With this year marking ten years since AIFMD was implemented across Europe, more than 400 funds and 200 non-EU managers are using the tried and tested National Private Placement Regime (NPPR) through Jersey to access Europe– a figure that has grown by around 60% in five years.

It’s clear that global managers continue to respond positively to Jersey’s private placement option, which holds particular appeal for those who do not require a full onshore EU presence – which is around 97% of managers, according to the EU’s own figures.

As investors continue to navigate a challenging landscape, Jersey’s funds sector is, overall, in a good place, with global trends supporting the future outlook of our industry as investors continue to focus on the opportunities presented through alternatives– private equity, venture capital and real assets - areas where Jersey has particular expertise and experience.

Challenge

It is, however, prudent that Jersey remains on the front foot, alert to changes in the landscape and ready to respond with agility to market shifts.

At a macro level, for instance, Jersey’s weighting towards alternatives could turn out to be our greatest challenge should the industry adopt a cautious outlook as we cross the rubicon to a higher interest rate environment.

In early 2023, for instance, two-year UK Gilts stood at 5.5% and are expected to surpass 6% in the next year. That’s the benchmark for the risk-free rate – the key hurdle for allocators when determining allocations to portfolios.

Not only that but allocators are also contending with the denominator effect, further impeding their sentiment and ability to continue to allocate so freely to closed-ended alternatives. We cannot ignore some significant sectors that are likely to be impacted – real estate, a key area for Jersey, being one.

In this new era, embracing innovation, being agile and looking at our product range to see how we can introduce a wider choice of products and services will be vital. It’s why this year the JFA has established an innovation sub-committee to look at a range of ideas – such as developing the foundations for holding assets using digital ledgers.

The tokenisation of real assets looks set to have a transformational impact on the cross-border funds industry in the coming years. We are already well engaged on that topic, but it is vital we maintain momentum in an area that is witnessing real acceleration.

We are also well positioned in the rapidly growing arena of ESG investing. Jersey has a clear sustainable finance vision and is making good headway in implementing on that strategy – but as international regulation evolves, it’s vital we keep up with the pace of change.

The MONEYVAL assessment in 2023, meanwhile, has also underlined the importance of asserting our industry’s strength in combatting financial crime and working collectively as an industry and with the government to ensure our national approach is fully aligned with our industry approach.

Jersey's reputational advantage has long been at the heart of our success and as an industry we continue to be alive to the importance of being able to demonstrate the highest standards of anti-money laundering, compliance and governance.

In addition, if we are to maintain our growth trajectory, we need to be able to draw on a sustainable workforce. Experience and expertise have long been Jersey’s hallmarks, and a commitment to sourcing the best talent to boost productivity – in tandem with digital adoption - will be critical in the years ahead.

With that in mind, the JFA remains proactive in attracting both young and diverse talent to the industry and enabling ‘career switchers’ an opportunity to enter the sector.

As we look forward, the ability of our industry to be agile and embrace innovation, balanced against a commitment to remaining a stable and certain domicile, will continue to be at the core of Jersey’s proposition. If we can achieve that balance, then our funds industry can approach the future with confidence.

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You can read the full Jersey: First for Finance publication as an e-reader here.

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It’s ten years this month since the Alternative Investment Fund Managers Directive (AIFMD)was implemented across the EU. But what has been the impact on the alternatives landscape from Jersey’s perspective of a regulatory framework that was borne out of the 2008 global financial crisis and has played a significant role in shaping today’s cross-border funds industry?

When the AIFMD was introduced across EU Member States in 2013, it formed part of a global trend amongst regulatory and political authorities to increase regulation with a view to shore up market stability and protect investors, against the backdrop of the global financial crisis.

In the years leading up to the introduction of the AIFMD, there was a huge amount of industry consultation and debate around what the regulation might mean for cross-border funds and non-EU jurisdictions – debate that to some degree continues today.

A decade ago, there were frequent discussions, for instance, around whether and how non-EU managers would be able to market to EU investors and what that might mean for structuring. For some years, there were whisperings of a ‘passport’ being extended to non-EU third countries based around criteria of equivalence – with Jersey, as a non-EU jurisdiction, being high on the list should that option ever become available.

Ten years on, that passport option has not materialised. What has materialised however, is a Jersey funds sector that is thriving and buoyant, not in spite of the AIFMD but in part because of it.

Flexibility

A large part of this success is due to just how well the National Private Placement Regime (NPPR) has worked in practice – a marketing mechanism whereby alternative funds can be marketed to EU investors based on specific agreements with individual EU Member State authorities.

While ‘onshore’ EU funds are subject to the full scope of the AIFMD, for example, Jersey funds are not. Having to subject a fund to the full scope of the AIFMD rules comes with significant cost, whereas flexibility and speed to market are all advantages enjoyed by utilising NPPRs.

“The private placement approach has been something of a lightning rod for the Jersey funds industry,” explains Michael Johnson, Chair of the JFA. “It’s proven to work extremely effectively, offering quick and easy access to EU capital without the regulatory burden of complying with the AIFMD in its entirety.”

In scenarios where managers are needing blanket access to EU Member States, private placement is not necessarily the right choice. But the fact is that this is rarely the case.

"The reality,” says Elliot Refson, Head of Funds, Jersey Finance, “is that 97% of managers market into only three Member States or less – that’s backed up by figures from the EU Commission. Where that’s the situation, opting to go onshore, therefore, merely adds to ongoing costs and increases the regulatory burden disproportionately.”

The private placement alternative through Jersey, in contrast, is far more flexible and cost effective. This is a message that has resonated well with managers not just with their eye on EU capital but also with a global outlook.

There are currently, for example, more than 200 non-EU managers marketing their funds into the EU through private placement via Jersey – a figure that has grown by around 60% in five years. Specifically, the number of US-originated fund structures serviced through Jersey has grown 61% while the value of fund assets under management has risen by 22%, according to Monterey. It’s an indication of the appeal of Jersey’s platform as a gateway to Europe.

Jersey has accelerated that growth not by sitting back but by introducing complementary structures; half a decade ago we introduced the Jersey Private Fund (JPF) which allows up to 50 investors to establish a fund in under 48hours. Working effectively under private placement rules, it has become a go-to structure so much so that there have been more than 635 formed.

More recently, the jurisdiction introduced its own Limited Liability Company (LLC) legislation modelled on regimes in Delaware and Cayman - which offers its own legal personality and the option of attaching body corporate status - providing familiarity and certainty for US and other global fund managers. Again, the LLC works well with private placement criteria for managers wanting to target EU capital.

“It is this willingness to innovate, to stare down challenges and grasp opportunities that has led to Jersey’s position today where we are seeing record inflows of assets under management, with a sizeable 142% increase in a decade,” adds Joel Hernandez, Deputy Chair of the JFA.

All this is good for the EU market too – it opens up multiple options for EU investors, enabling seamless and effective connectivity between the EU and global markets, keeping high quality EU and global capital moving, generating growth and opportunity.

Reflecting on the past ten years, it is perhaps the ‘high quality’ bit here that is most important. At the outset, AIFMD was intended to protect investors. Alongside the onshore EU fully AIFMD compliance option, which will be the solution for certain managers, Jersey’s private placement option has established itself over the past decade as a key part of the modern European alternative funds infrastructure, helping to achieve that aim of investor protection and market integrity while at the same time driving high quality capital to where it is needed most.

Representatives from across Jersey’s funds industry came together this month to celebrate the ongoing growth of the sector and discuss key trends shaping the future alternative funds landscape.

More than 400 people from across the industry, including lawyers, service providers, managers and accountants as well as politicians and regulatory representatives, attended this year’s Jersey Funds Association (JFA) Annual Dinner, held at the Trinity Showground on 14^th July.

Held each year, the event brings together Jersey’s funds community and serves to highlight key developments and trends in the market and point to the work undertaken by the JFA.

Speaking at the event, Michael Johnson, JFA Chair, told the audience that it had been another successful year for the funds industry, with the growth in fund managers in the jurisdiction in particular proving to be a critical element of Jersey’s funds infrastructure, against a backdrop of increasing regulation and a growing emphasis on substance.

With figures in early 2023 indicating that the total net asset value of funds under administration in Jersey stood at a record high of more than half a trillion pounds (£523bn), Michael said:

“We have a buoyant and active community, both in the funds and the fund manager space. In fact, we see an ever-increasing community of managers fully resident in the island across private equity, hedge funds, venture capital, debt and real estate. These managers are bringing a real depth and diversity to our industry, at a time when substance continues to be high on the agenda.”

Michael pointed in particular to the ongoing success of the Jersey Private Fund structure (JPF), with more than 600 having now been established in total – meaning that the number of JPFs has now overtaken collective investment funds in Jersey for the first time. He added:

“In particular, alternative funds now represent 90% of our total funds business, with private equity and venture capital making up 44% of total funds business undertaken in Jersey. It has created a very stable platform of long-term capital, largely insulated from short term market sentiment.”

However, Michael also urged caution around the potential impact of the ongoing high inflation environment on Jersey’s funds sector, given its weighting towards alternatives, and the need for the industry to embrace innovation in an increasingly complex and uncertain environment:

“Recently two-year UK Gilts stood at 5.5% and are expected to surpass 6% in the next year. That’s the benchmark for the risk-free rate – the key hurdle for allocators when determining allocations to portfolios. Not only that but allocators are also contending with the denominator effect, further impeding their sentiment and ability to continue to allocate so freely to closed-ended alternatives. We cannot ignore some significant sectors are likely to be impacted – real estate, a key area of Jersey, being one.

“As we cross the rubicon to a higher interest rate environment, embracing innovation, being agile and looking at our product range to see how we can introduce a wider choice of products and services will be vital. It’s why this year the JFA has established an innovation sub-committee, as we look to gather critical momentum in affirming Jersey’s reputation as forward-thinking, truly innovative funds domicile.”

Gold sponsor for the evening was Mourant and silver sponsors were BNP Paribas, Hawksford, Ogier and PwC, whilst the champagne reception was sponsored by Carey Olsen and the NextGen table was hosted by KPMG. Entertainment at the event was provided by comedian and writer Simon Evans.

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With figures from the JFSC confirming that total regulated funds business grew by a fifth over 2021 and now stands at almost £460bn (March 2022) and with 200 managers and around 370 funds currently marketing into the EU through private placement in Jersey, the JFA has worked with industry to put together a new factsheet designed to illustrate why Jersey provides such as compelling proposition for alternative funds compared to other jurisdictions.

You can access that factsheet here.

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Stability, expertise and flexibility have been highlighted as key components of the international fund domicile of the future in a new report published this month by IFI Global and supported by Jersey Finance.

‘The Evolution of the International Fund Jurisdictions’ report forms the latest in a series undertaken by IFI Global with Jersey Finance, with previous reports published over the past two years having focused on fund domiciliation, structuring, and fund governance.

This new report explores the origins of the fund domiciliation industry and how a number of locations around the world with no previous connection to funds, have ended up playing fundamental roles at the heart of the global funds landscape, servicing more than US$16 trillion of fund assets.

The report also explores how those centres, including Jersey, BVI, Bermuda, Cayman, Guernsey, Ireland and Luxembourg, have since evolved and what their past experiences tell us about their future direction. Among the report’s key areas of focus are:

·        Key dates, from the establishment of the first expatriate banking operation in Jersey in the 1960s to EU alternative fund regulation in 2018

·        The origins of the international funds industry in the 1980s, including the first investment funds offered to expats and the largely Anglo-Saxon asset management industry of the 1990s

·        The dawn of alternatives, including the introduction of regulatory measures, the shift towards institutional investors, the heightened focus on governance and substance in the wake of the global financial crisis, and the impact of Brexit

·        The future, including the growth of sustainable finance and crypto funds and the importance of first mover advantage when it comes to new investment categories

 Commenting on the findings, Elliot Refson, Head of Funds at Jersey Finance, said:

“Given the trends over the last decade or more highlighted in this paper, there’s no doubt that the fund jurisdictions that will be most successful in the future will be those that are stable with strong expertise and infrastructure, and robust but flexible regulatory frameworks. This has really been Jersey’s mantra for the past twenty years, and we’ve seen the fruits of that in the growth of Jersey in recent years as a trusted funds domicile.

“There will undoubtedly be more changes over the coming decades and our focus will remain on staying true to our values and on retaining our position as an integral part of the global fund landscape.”

 Simon Osborn, CEO of IFI Global and author of the report, added:

 “Fund domiciliation patterns have always been subject to change and there is no reason to believe this will not continue to be the case in future. To understand how the asset management business might develop in the future, it is a good idea to know something about how the international fund jurisdictions, on which this industry depends, are evolving.

 “This White Paper touches upon how a few unlikely locations, dotted around the world, got into this business, focuses on what is happening in international fund domiciliation today and explores what may well happen to international fund jurisdictions over the next few years.”

The new research can be viewed and downloaded here.

An ability to remain agile in a changing landscape, deliver innovative solutions and offer a platform of stability are key differentiators for Jersey’s funds industry that are resonating clearly with managers and investors, according to the chairman of the Jersey Funds Association (JFA).

JFA Chair Tim Morgan gave his update at the JFA Annual Dinner recently (23 September), attended by more than 350 funds and wider industry professionals, including an overview of the current funds landscape, the ongoing work of the JFA with its key stakeholders in Jersey, and future opportunities for Jersey’s funds sector. It was the first physical return to events for the JFA since 2019, since when all updates had been provided on a digital basis.

Pointing to the fact that Jersey’s funds industry recorded another new record high of fund assets being administered at the half-way point in 2021 (£436bn), with private equity and venture capital increasing by 21% year-on-year and the number of Jersey Private Funds (JPFs) rising to 456, Tim commented:

“The latest figures show that Jersey’s focus on alternative investment funds continues to provide a stable platform of long-term capital. From the start it was clear that the pandemic was affecting participants differently. Large, well-known sponsors with strong platforms continued to fundraise. Conditions were more challenging for new and smaller investment groups. However, many have in any case proceeded with the raising of successful, small, first funds and club deals, and that correlates with the continued growth in the number of JPFs we have seen. It’s a real endorsement of Jersey’s appeal and expertise.”

In addition, Tim, who is also a partner at the Jersey legal practice of the Maples Group, highlighted the importance of Jersey’s funds industry maintaining momentum in delivering innovative solutions to global investors:

“Jersey has continued to test innovations in digital assets, as well as increased amounts of structures aimed at sustainable technologies and related assets, which is very positive. In addition, significant changes have also occurred in the administration space – increasingly tech is a key component of how services are being provided, which is enhancing how governance, risk management and compliance are managed in practice. Jersey service providers have been impressive in adopting a digital first approach over the past year and this is undoubtedly a key part of our success.”

Meanwhile, Tim also highlighted that shifts in global geopolitics, regulation and competition were providing challenges, with Jersey’s focus on maintaining a perfect ecosystem for alternative funds putting it in a strong position:

“The political environment is volatile – the change in US administration; increased pressures from the EU and OECD in relation to tax; numerous policy initiatives from UK in the post Brexit and post pandemic environment; upcoming elections in Germany and France. All this means that there is a need for continual engagement in relation to Jersey’s position internationally. At the same time, jurisdictionally, the competitive environment is intense.

“However, Jersey’s ability to pivot in an agile manner, in particular between JPFs and more narrowly-held joint venture and co-investment vehicles, is valuable and provides popular, efficient solutions. At the same time, Jersey has an incredibly strong culture of partnerships with the JFSC, government, and other industry elements all working together on areas of opportunity or concern for our funds and wider finance industry. This is a real differentiator for us, as we continue to focus on our core message - that Jersey offers a unique ecosystem to provide a platform of stability in a rapidly changing market.”

Entertainment at the event, which was held at the Trinity Showground, was provided by comedian and writer Jo Caulfield and London-based singer-songwriter and former Jersey Young Musician of the Year Sam Walwyn.

The main sponsor of the dinner was Mourant, whilst silver sponsors were BNP Paribas Securities Services, IQ-EQ, Ogier and PwC, and the champagne sponsor was Carey Olsen.

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Oakbridge FundServices (Jersey) Limited (“Oakbridge Funds”), a specialist independent fund administrator based in Jersey has launched to service the alternative funds sector.

Expert in the main alternative asset classes with a focus on Private Equity and Venture Capital, Oakbridge Funds will provide administration services to offshore closed and open-ended funds and corporate structures.

The Oakbridge team previously worked together at a pan European multi-jurisdictional fund administration business and have more than 40 years’ experience of working in the fund services sector.

Experienced private equity professionals Robin de Gruchy-Wilson, Alex Smyth and Jonathan Crawford will lead Oakbridge Funds’ operations and service led approach.  Jamie Crawford joins the Oakbridge Funds Board as a Director.  Jamie brings a wealth of financial services and investment knowledge and is a Director of ED Group.  

Oakbridge Funds benefits from the resources and experience of its majority owner, ED Group. ED Group is an investment business with activities in the UK, Europe, North America and theChannel Islands. In Jersey, ED Group also owns a regulated Investment Business, Oakbridge Limited, and a regulated Trust Company Business, ED Capital Limited.

Oakbridge Funds Managing Director, Robin de Gruchy-Wilson, said: ‘We have founded Oakbridge Funds with a clear vision.  We are a dynamic and ambitious team.  We have a clear strategy for growth and our independent ownership structure means we are navigators of our own journey.’

‘Oakbridge Funds’ launch comes at a time when there is demand in the market for a truly independent specialist provider.  We are based in Jersey with a focus on carrying out fund administration for multi-jurisdictional funds using industry leading technology and have no intention to outsource any of this work. We believe in excellence and attention to detail and our experienced Jersey based team is very well placed to achieve this.’

ED Group Director, Jamie Crawford, said: ‘Our venture with Oakbridge Funds echoes ED Group’s ethos of investing in and helping innovative companies grow. We already have substantial experience and resource in the local financial services sector between our existing trust company and investment businesses. We look forward to working with Robin, Alex and Jonathan to grow Oakbridge Funds into a leading specialist administrator in the funds sector. ED Group is delighted to provide a solid foundation for the launch and growth of Oakbridge Funds.’

Oakbridge Funds is regulated by the Jersey Financial Services Commission for the conduct of Fund Services Business and Trust Company Business.

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‍By JFA member firm Langham Hall

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Over the past few months, we have seen the fundraising landscape turned on its head,with many LPs halting any new allocations and instead paying careful attention to their existing portfolios.

In late March we estimated that over half of global LPs had pressed pause on underwriting new private fund investments, either stopping their investment allocations entirely, or only proceeding with in-process investments.

As markets begin to open up again, we are seeing positive sentiment from LPs, who are now starting to look at resuming their investment programmes, albeit with perhaps a different risk appetite to that of 2019.

Looking to Europe in particular, we have seen a sustained increase in the number of non-EU sponsors looking to market to the bloc, where the aggregate AuM now exceeds €23 trillion.

For these sponsors, there are several routes to market, with no “one size fits all” approach. These include reverse solicitation, marketing under National Private Placement Regimes (“NPPR”), or the setup of a European parallel vehicle to access the marketing passport under the Alternative Investment Fund Managers Directive (“AIFMD”):

·        Reverse Solicitation: this refers to the acceptance of subscriptions from investors that actively solicited the manager without any active marketing taking place. Managers that receive genuine inbound enquiries may accept subscriptions via reverse solicitation, but it would be prudent to document that true reverse solicitation has taken place in case of litigation further down the line. Due to its passive nature, reverse solicitation cannot be considered a marketing strategy.

·        Private Placement: for managers using non-EU structures, e.g. Cayman, Delaware or Channel Islands, some countries still retain their National Private Placement Regimes. These can be tricky to navigate but for managers raising in just a handful of countries, this can be a cost-effective way of accessing Europe. For many countries, the manager will be required to complete and file Annex IV reports for each Alternative Investment Fund (“AIF”) being marketed. For countries such as Germany and Denmark, a depositary-lite is required to be appointed. It is important to note that NPPR is particularly difficult in much of southern Europe, including France, Italy and Spain.

·        European Parallel: Under AIFMD, funds which operate within this framework qualify for the European marketing passport, allowing these AIFs to be distributed in all 28 European member states. In this model, the fund will be required to appoint a regulated full scope Alternative Investment Fund Manager (“AIFM”), as well as a depositary. We often see these funds setup in Luxembourg, using a host-AIFM, to avoid the regulatory and substance burden of setting up a sponsor owned Luxembourg AIFM. By having an AIFMD compliant parallel fund, managers can accept capital opportunistically and at short notice. There are also no restrictions on where the fund can be marketed (although there are restrictions on the parties to whom it can be marketed).

Clearly there are pros and cons to each method, and managers will need to review which is the most suitable depending on their marketing strategy. However, with such a large pool of institutional capital in Europe, it is getting harder and harder to ignore the fundraising potential in the region.

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The introduction of global regulatory initiatives is set to challenge traditional fund structuring models, make fund domiciliation much more complex, and heighten the importance of investor buy-in, according to new research published this month by IFI Global and supported by Jersey Finance.

Based on the views of alternative managers, law firms, advisors and some of the world’s largest investors in alternatives, the research, which was carried out between October 2019 and January 2020*, seeks to explore the changing face of fund domiciliation and the drivers behind domicile decisions, given the pace of change in the regulatory landscape.

Overall, the survey found that key issues including Brexit, BEPS, substance and transparency have shot up the agenda when it comes to domiciliation and are themes that are likely to influence decision making for some years to come. Amongst its other findings were:

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- the most important determinant in domicile selection is whether a jurisdiction is well known and respected by investors that are being targeted by a fund manager.

- investors want to allocate to funds that are domiciled in jurisdictions with good infrastructure, considerable local expertise and knowledge of the asset class in question along with well-established regulations.

- there is some investor dissatisfaction at recent increases in costs in international fund jurisdictions as a whole but especially those in the EU - a common complaint is that the drive to develop local substance has increased costs for no particular benefit to investors.

- BEPS will impact all domiciles with alternatives, especially jurisdictions in the EU whose funds rely upon treaties for their tax exemptions.

- alternative investing is expected to continue to grow in the long-term, with jurisdictions that have the skills and experience in domiciling and     servicing alternative funds expected to facilitate that growth.

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Whilst the study was undertaken prior to the coronavirus pandemic, Elliot Refson, Director of Funds at Jersey Finance, believes its findings are more pertinent than ever:

 “It’s clear that, with the fund domiciliation landscape becoming more competitive and more complicated than ever, IFCs need to be alive to key trends and have a thorough understanding of what is driving the long-term future of fund structuring, so they can be equipped to continue to support the alternative fund management community going forward.

“Investor buy-in is absolutely vital.Investors want to do business through familiar, robust, high quality and cost-effective environments that are tried and tested and offer no surprises.In a world that was already defined by uncertainty and volatility and is even more so as a result of the COVID-19 outbreak, managers and investors will be drawn towards stability and certainty. Those IFCs that can focus on that,demonstrate real resilience even in times of mass upheaval, and offer a platform of substance built on expertise, specialist skills, compliance with international standards, innovative solutions and consistent levels of good service will be the winners – and Jersey ticks those boxes.”

The research, entitled ‘The Future of International Fund Domiciliation’, can be viewed and downloaded here.

*the research was conducted prior to theCOVID-19 pandemic.

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Further positive figures about the size of the funds industry in Jersey were unveiled at Jersey Finance’s London showcase conference for the funds sector last week.

Elliot Refson, Business Development Director - Funds at Jersey Finance, said that the number of Jersey Private Funds (JPF) had increased 25% in six months, highlighting the success of Jersey’s government, regulator and industry working together to create the best possible environment for attracting innovative, quality funds business.

Figures from the Jersey Financial Services Commission (JFSC) showed that the number of JPFs, a structure introduced in 2017 to cater specifically for the needs of small groups of sophisticated investors, had reached 257 by 30 June 2019, up from 205 at the end of 2018, with assets under management of £43 billion.

Joe Moynihan, CEO of Jersey Finance, described Jersey as positioned perfectly to act as a quality filter to manage international financial flows: “As investors look for stable IFCs that offer specialist expertise, Jersey can be a voice of reason among the noise, ready to support investor ambitions.”

Furthermore, irrespective of the outcome of Brexit, Jersey was able to bridge the gap between the UK and Europe thanks to the bilateral agreements that were in place with the EU alongside its long standing relationship with the UK, boosted by a recently signed Memorandum of Understanding between the JFSC and the UK Financial Conduct Authority which gave fund managers added certainty around accessing UK investor capital through Jersey in the build up to Brexit.

Entitled ‘Beyond Boundaries’, the annual Jersey Finance funds conference 2019 (on September 10) attracted more than 350 delegates and a range of industry leading speakers and panellists who discussed the impact of regulation and governance, the trends in the alternative funds sector, and further examples of innovation and trailblazing by fund managers, lawyers and administrators who were using Jersey for their fund structuring.

The event was also an opportunity to flag up how Jersey had become a clear choice for socially responsible investing (SRI) and especially impact investing, with Mr Moynihan noting that there were already more than 30 SRI funds under administration in Jersey with assets valued at US$7.4 billion.

He also highlighted Jersey’s increasing global footprint pointing to the fact that Jersey became the first IFC to be permitted to open an office in the Dubai International Finance Centre last year. Further, next month, Jersey will formally open its first office in New York, partly to support the growing demands from US promoters choosing Jersey evidenced by US promoter assets under administration in Jersey increasing by 148% over the past five years.**

Meanwhile, the Island’s rapid investment in technology – it is the first place in the world to have full fibre telecom networking delivering speeds of 1 Gbps (gigabits per second) – had positioned the jurisdiction at the forefront of fintech investment fund services.

The conference, at the Royal Lancaster Hotel, included keynote addresses from Todd Buchholz, former Director of Economic Policy at the White House and current managing director of the US$15 billion Tiger hedge fund, and Dan Snow, BAFTA award-winning broadcaster and popular figure on BBC television presenting historical topics.

A total 18 industry experts from London and Jersey contributed to four breakout sessions which were entitled ‘New Alternatives’ moderated by Alice Murray, founding editor of The Drawdown; ‘Solutions for Fund Managers – Governance, Substance and Location’, with moderator Tim Morgan, Partner, Mourant and Chairman of the Jersey Funds Association; ‘Building Global Bridges’ moderated by Nicholas Neveling, editor, Real Deals; and ‘The Evolution of Real Estate’ with moderator Sophie Reguengo, Partner, Ogier.*

They debated factors affecting the alternatives market, pinpointing the strengths of the Jersey offering, drawing on the use of case studies outlined by managers, while also examining how the funds sector was responding to the technical and regulatory challenges it faced and Jersey’s role in providing solutions.

Summing up the Jersey offering, Joe Moynihan added: “Having one of the largest communities of finance industry and legal specialists of any IFC, combined with our speed to market, adoption of the latest standards in transparency, our tax neutral status and mature environment for funds business and with increasing numbers of local firms and advisers operating across multiple jurisdictions, we have all the hallmarks to remain the jurisdiction of choice.”

New Guidance Notes were published last month (26 April), designed to provide clarity around recently introduced ‘economic substance’ legislation in Jersey and how that legislation, which came into play in January this year, should be interpreted.

As the JFA acknowledged last month, the legislation was introduced to meet the requirements of the EU's Code of Conduct Group for Business Taxation around appropriate levels of substance for certain tax resident entities in Jersey, following an assessment by the EU that ultimately saw Jersey formally recognised as a cooperative jurisdiction.

With that in mind, these guidance notes are helpful, providing interpretations of how the law should be applied by Jersey-based fund managers, and highlighting what it means for service providers and fund structures – particularly in terms of reporting and the tests the law provides for around governance, income generating activities, and physical office and staff presence.

It’s sensible of course that fund managers will look at this guidance and assess the structures they have in place to make sure they can amply meet the necessary criteria.

However, although this legislation underlines unequivocally that Jersey is committed to best practice and international cooperation, it is also worth noting that, from a fund management perspective, it is further evidence of the direction of travel Jersey has been pursuing for some time and reflective of Jersey’s ongoing commitment to nurturing a substance-driven environment for fund managers.

It’s no coincidence that the number of fund promoters in Jersey has almost doubled in the last five years to more than 250, whilst Jersey has a community of more than 20 hedge fund managers – a figure that continues to rise.

Managers spanning the full range of asset classes and sizes have in recent years, for instance, been bulking out their operations in Jersey through staff and premises to the point that Jersey now has a significant on-the-ground management community, whilst we can also boast a considerable and growing infrastructure of experienced directors and risk management, administration and compliance experts.

Jersey has established a reputation as a centre for fund management precisely because it has long been a jurisdiction of substance with a regulatory environment that is internationally-recognised and that is already in tune with global thinking on substance.

Crucially, the new rules absolutely work with Jersey’s existing regime and the majority of fund managers will not perceive them as creating an additional layer. Jersey was, for instance, an early mover on the OECD’s BEPS project, which had a focus on substance, and in 2017 became only the third jurisdiction in the world to have completed domestic ratification of the BEPS agreement.

In addition, the significant work Jersey has done around the AIFMD over the past decade has positioned it well as a jurisdiction that is focused on supporting managers and giving them a solid platform for growth.

As a result, the new substance legislation should not come as a shock to managers operating in Jersey.

And if it is concluded that a manager needs to change its arrangements, the expertise is already readily available in Jersey to take on any extra work. Reporting is a case in point - in some instances, for example, older agreements might have delegated reporting arrangements to another entity in the group based outside Jersey. Under these new rules, reporting is a core income generating activity for a Jersey fund manager and if a manager concludes that it will be responsible for reporting as one of its core activities, reporting must be carried out by or on behalf of the manager in Jersey. Because the intellectual capital and capacity is in Jersey to service reporting functions, any change to the group's contractual framework to facilitate reporting from Jersey should be straightforward.

As a result, the expectation is that not only will managers here be able to meet the new criteria as set out by the new legislation, but that the new parameters will actually prove to be a natural next step that will further bolster Jersey’s appeal as a centre that is ready and willing to provide the perfect ecosystem for fund management activity.

The infrastructure is here, the connectivity is here, and the market access is here, and that should be a compelling proposition.