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.”

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.

Jersey Finance has welcomed a new amendment to Jersey’s legislation that will make it significantly easier for managers to migrate limited partnership fund structures to the jurisdiction.

The changes to the Limited Partnership (Jersey) Law 1994, which were approved by Jersey’s government this week to come into force today (17 July), introduce a new statutory basis for limited partnerships, which are frequently used for alternative fund structuring, to be migrated from other jurisdictions, providing greater legal certainty for managers and investors.

Whilst migrating a limited partnership to Jersey has been technically possible in the past, the move brings Jersey in line with the laws of other jurisdictions, making it easier for lawyers to give a clean legal opinion as to the validity of the migration of a limited partnership into Jersey from elsewhere, as the same legal entity.

Commenting on the amendment, Joe Moynihan,CEO, Jersey Finance, said:

“In an increasingly complex global alternative funds environment, managers are increasingly looking at their fund structuring options and indeed, over recent months, our funds industry has reported a rise in interest in Jersey from private equity and other alternative managers wanting to restructure their funds. They are attracted by the sort of stability, expertise, and high-quality service levels Jersey offers, whilst its strong track record in corporate governance, its ability to offer certainty around substance and its ‘whitelisted’ status are all seen as real benefits too.

“This amendment makes it easier for managers to migrate their structures from elsewhere in a quick, cost-effective manner so that they can benefit from Jersey’s ideal alternatives ecosystem. We anticipate a strong uptick in fund relocations following this amendment.”

Tim Morgan, Chair of the Jersey Funds Association added:

“The industry, regulator and government in Jersey have all worked very efficiently together to bring this amendment to fruition impressively quickly. This is a really important development, introducing an express mechanism whereby limited partnerships can migrate to Jersey quickly and seamlessly, and it will undoubtedly prove an attractive proposition for managers who are exploring how they can better navigate the complex environment they operate in. We have already seen a number of enquiries for migrations into Jersey in recent weeks.”

A FAQ about the amendments can be found here.

A factsheet about the migration of foreign limited partnerships to Jersey can be found here.

Six months on since new rules on the application of Capital Gains Tax (CGT) for overseas investors in UK commercial property came into play, Stephanie Henwood-Darts, Director at JFA member firm JTC, looks at how the market looks and why Jersey remains a good option for supporting UK-bound real estate investment…

Q: In the six months since their introduction, have the new CGT rules had much of an impact on real estate fund structuring? Or is activity being ore influenced by other factors, such as Brexit?

A: There was an initial impact following the announcement, with tax advice pointing to, and therefore new funds being set up, onshore and through Luxembourg due to it having a favourable double tax treaty (meaning the UK does not currently have taxing rights over Luxembourg entities).

However, we are still seeing JPUTs due to the favourable elections that can be made (transparency election/exemption election) and the fact that the JPUT is a familiar structure which our clients already know and like. There is also the pull that we do not rely on double tax treaties but employ a tax transparent regime which means that tax is paid where the investment activity is and where investors are, which is completely appropriate.

Brexit is certainly having an impact on overall investment levels but there is an expectation that activity will increase once there is more certainty around the terms and timing of the UK’s exit.  

Q: In terms of how Jersey is positioned, has Jersey seen much of a swing in terms of fund activity targeting UK real estate assets since the new rules were introduced?

A: Although heads were initially turned, institutional investors are still favouring Jersey as a preferred jurisdiction through which to invest into UK commercial real estate. Now that there is a full understanding of the available elections for Collective Investment Vehicles (CIVs), it is expected that activity levels for Jersey funds will further increase.

Jersey is well placed to provide a tax neutral environment with an appropriate regulatory framework for investment funds raising global capital and investing in real estate all around the world, and this still includes UK commercial real estate.

Q: How do Jersey structures succeed in meeting the exemption options? Do the well-used JPUT and REIT structures continue to work well under the new rules?

A: Jersey structures work well under the exemption options which is largely due to the involvement of many Jersey professionals who ensured that they submitted detailed responses to the consultation and HMRC’s desire to protect the value of pension funds along with the attraction of the UK as a property investment jurisdiction.

Most JPUTS have been favouring the transparency election. This was designed by HMRC with JPUTs in mind and means that the JPUT will be transparent (just like it is for income tax purposes) and all investors will be taxed in accordance with their own profile. REITS are also a good alternative as they benefit from HMRC’s approved regime where the disposal of UK commercial property is treated as exempt from corporation tax and sales of shares also benefit from this exempt status.

However, all advice that we have seen in respect to REITS has been caveated with the fact that reporting requirements will be onerous. A Jersey REIT will automatically be UK tax resident so although there would be no tax benefit from structuring a REIT through Jersey, the benefit of regulatory flexibility (and certainty) and local expertise where any reporting can be handled in an effective and efficient manner should mean they increase in popularity.

Q: What about funds targeting other non-UK geographical markets? Are you seeing consistent RE activity elsewhere through Jersey?

A: We haven’t noticed a material increase in new funds targeting non-UK geographical markets but a number of clients with existing Jersey structures have added to them by including non-UK (mostly European) assets.

However, it is expected that there may be a spike in investment outside of the UK following Brexit. If this occurs, Jersey should be well placed to continue to be the home of fund vehicles and we see investment funds and structures being placed in Jersey which have global investment strategies, whether it's a London-centric special opportunities fund, a pan-European real estate fund or RE investment in Canada or the US.

Q: Looking forward to the coming 6 months, what do you see as the key influences on the global real estate market, and in terms of UK-focused activity?

A: We can’t escape discussing the ‘B’ word when talking about the next six months. Investors are already pricing in the cost of a potential no-deal Brexit and a dramatic decrease in the price of UK commercial property is predicted should this occur.

On the flip side, the weakness of the GBP could boost attraction towards the UK real estate market, in particular from US, Middle-East and Far-East investors. However, they may be put off by the potential difficulty in securing long-term (or any type of) leases, such was the initial sentiment in the aftermath of the Brexit vote. Communication with investors in respect of outlining the logic of decisions and clear strategic planning will be key to the success of funds navigating the post-Brexit landscape.  

Overall, Jersey has a great opportunity to promote its independence from the EU in respect of structuring it this time of uncertainty. Why structure through the EU for holding UK commercial property which will very shortly be outside of the EU? Jersey is already outside of the EU for regulatory purposes and is very much open for business!

Jersey’s competitiveness as a jurisdiction in which to establish funds has been enhanced with the introduction of a new regulatory framework for private funds.

The Jersey Private Fund, which has been announced by the Jersey Financial Services Commission today (Wednesday 15 March), consolidates and streamlines Jersey’s private fund offering and will enable funds with up to 50 investors to take advantage of a fast-track authorisation process and lighter ongoing regulatory requirements.

It provides a more flexible and versatile framework which will further improve the speed and ease with which funds marketed to professional investors can be established. The framework ensures continued compliance with international standards by requiring the appointment of a Jersey-based administrator.

Geoff Cook, CEO, Jersey Finance, said: "Jersey’s funds industry has shown strong growth over the past five years, and the new regime positions us for continued growth. Our industry is built on speed to market and expertise combined with appropriate regulatory oversight, and by offering a 48-hour authorisation for funds with up to 50 investors, this product will further cement our position as a market leader."

The Jersey Private Fund will also be available to managers seeking to market funds into Europe through National Private Placement Regimes. This is a route which has been a strong growth area for Jersey's funds industry and there are now more than 250 alternative investment funds and 115 authorised alternative investment fund managers marketing into the EU via Jersey.

The Jersey Private Fund regime will operate alongside existing regulatory frameworks which collectively will meet the requirements of all managers and investors.

Mike Byrne, Chair of Jersey Funds Association, said: “As a forward-thinking jurisdiction providing bespoke alternative fund solutions, we recognise that we need to continue to innovate and enhance our funds environment to set us apart from other jurisdictions. The new Jersey Private Fund is an example of that and comes following significant engagement between industry, regulator and government, aimed at making our overall funds offering clearer and simpler whilst at the same time giving fund managers and investors greater choice. We anticipate the regime will find real appeal amongst our institutional and professional investor client base, right across the private equity, real estate, infrastructure and debt and credit fund asset classes.”

Jersey has long held significant appeal as a domicile for the management and administration of alternative funds, and there has been a noticeable rise in recent months in high-value private equity funds being structured through Jersey.

With the end of the transitional period for implementing the Alternative Investment Fund Managers Directive (AIFMD) now imminent (22nd July 2014), managers have been exploring the long-term options open to them. There are incredibly encouraging signs that the enormous amount of hard work that has gone in to establishing Jersey’s ‘future proof’ model in relation to the AIFMD is being very well received, particularly in targeting sophisticated investors wanting to make global private equity and infrastructure investments.

In fact, when asked at our Annual Funds Conference in London earlier this year where they saw most opportunities for growth, the audience of funds professionals indicated that they were most optimistic about the real estate (33%) and private equity (27%) asset classes, both areas where Jersey has significant fund servicing strength.

An encouraging response from the private equity community has seen a number of major asset management businesses and service providers establish a presence or expand in the Island recently.

Moreover, a number of landmark private equity and real estate funds have been structured through Jersey, involving both European and non-European assets and investors, including the largest ever real estate fund to be listed on the London Stock Exchange.

With the global asset management industry expected to grow from $65trn to in excess of $100trn by 2020 (PwC, ‘Asset Management 2020: a Brave New World’, February 2014) and alternative investments to grow from $6.5trn to over $13trn, there is positive news for the alternative asset servicing industry and Jersey in particular, where we are already seeing a post-crisis surge in new funds.

As cross border finance grows, so too will the demand for tax neutral capital raising and pooling centres. Jersey is well placed to meet that demand, which is why we are seeing this surge and why organisations as diverse as the Scandinavian Private Equity Industry and Asian Sovereign Wealth funds are structuring through Jersey.

Offshore Solution

It’s clear that, in a post-AIFMD landscape, what managers require above all else from their domicile is a combination of certainty and flexibility. This has been borne in mind and is reflected in Jersey’s three-pronged response to the AIFMD that allows funds to be marketed into the EU through national private placement regimes, with the option of an EU-wide passport as anticipated from July 2015, or to the rest of the world through existing regimes outside the scope of the AIFMD.

Where marketing into the EU is concerned, ‘offshore’ is very much alive. Jersey’s regulator, the Jersey Financial Services Commission (JFSC), is currently granting licences for fund managers actively targeting European markets through private placement arrangements, with limited AIFMD reporting and disclosure requirements.

Jersey was also the first third country to offer managers a fully compliant AIFMD option, meaning that Jersey has an anticipated ‘opt-in regime’ for managers wishing to comply fully with AIFMD requirements when marketing to European investors, with the use of an EU-wide passport anticipated from July 2015.

In comparison with onshore, Jersey’s AIFMD regime is incredibly competitive, with regulatory approval for private placement under AIFMD including options which can take from between just three and ten days, depending on the structure. A survey conducted in January this year by BNY Mellon found that less than a fifth of global AIFs had submitted their application for an EU-wide passport, which can take months to secure.

Moreover, and importantly, with the UK Treasury confirming its national private placement regime will be in place until 2018, Jersey will continue to benefit from certainty of access to the hugely important UK investor market.

From a fund servicing point of view, there are real opportunities for Jersey. Managers getting the right sort of governance and back-office experience and expertise will be key in the face of increasingly complex reporting requirements under AIFMD. With that in mind, there is likely to be a growing demand from managers to outsource their administration and governance requirements to Jersey’s highly experienced administrators.

Complementing this, there is also potential for UK fund promoters to use Jersey as part of a ‘wait and see’ strategy, giving them time to assess the full impact of the AIFMD in a safe, secure, familiar environment before committing to the onshore requirements under the AIFMD.

Flexibility

Meanwhile, managers are also of course adopting global strategies and raising capital in growth markets, sophisticated investors in the Middle and Far East, for instance, are increasingly looking at major infrastructure and property investment opportunities and there has been a noticeable increase in the volume of non-UK and non-European fund activity being channelled through Jersey recently.

As wealth is created in the growth markets, investors are looking for jurisdictions with structuring expertise, respect for the rule of law, use of a common business language, time zone convenience and protection of property rights.

Among their favourite investment destinations is London and, given Jersey’s strong connection to the City of London, it is not surprising that significant deals and investments are being made through the Island - The Shard, Battersea Power station, and significant chunks of Canary Wharf are just three examples of capital flow translating into iconic investments structured through Jersey.

This was reflected in a further poll at our London funds Conference this year, which indicated that senior funds professionals see most alternative fund opportunities (42%) coming from outside of Europe, particularly Asia, in the coming months.

For this reason, it has been important for Jersey to offer a regime that is fully outside the scope of the AIFMD too, which can cater for an anticipated rise in the number of Jersey funds targeting growth markets across Russia, Africa and Asia this year.

It’s important that Jersey keeps an eye on the long-term, however, and there are a number of further regulatory, legislative and product innovations in train to further support growth across our funds industry.

In particular, following an amendment to the relevant legislation, Jersey is now able to offer Limited Liability Partnerships (LLPs) to private equity advisors for use in their structures, an option that is expected to become increasingly popular in the context of UK Limited Partnerships. The change means that Jersey can now offer licensed LLPs as managers or general partners for private equity funds, which can be bolted on as an additional GP or in substitution for an existing GP. It’s a move that reflects Jersey’s commitment to evolving its private equity landscape.

As we look beyond the end of the AIFMD implementation phase next month, the future for Jersey’s private equity fund management and servicing industry looks bright. Recent figures show that Jersey’s funds volumes have scaled their pre-crisis peak and that new structures are being formed at the fastest rate since 2008.

Despite the onslaught of complex regulation and managers still being cautious about the full impact of AIFMD, there are real solutions. Flexibility, expertise and clarity are absolutely key for private equity managers and Jersey, as the recent pick-up in high value private equity activity demonstrates, is extremely well placed to offer these qualities and provide managers with a compelling long-term solution.

This article first appeared in Private Equity International's 'Fund Administration and Technology Guide 2014', published June 2014.

Jersey has extended its funds regime through the introduction of the Private Placement Fund to widen the choice available to investors.

Private Placement Funds are closed ended funds available to a limited number of sophisticated institutional or professional investors. Similar in scope to the existing COBO (Control of Borrowing Order) private funds, the new fund offering is designed for ‘fast track’ approval, usually within three business days.

Private Placement Funds will sit within the COBO framework and will complement the existing Expert Fund regime which also provides a streamlined approval process and has helped position Jersey as a leading European centre for alternative funds business.

Geoff Cook commented:

“Even in these testing economic conditions, Jersey has seen increasing levels of business in the alternative funds sector during 2011 and our latest figures show 10.5% year on year growth in the net asset value of funds being administered in Jersey.

“With Jersey’s funds industry already well positioned to secure alternative funds business and with signs of further growth evident, it is an appropriate time to offer an even wider choice of sophisticated fund vehicle to meet international demand. The introduction of the Private Placement Fund scheme demonstrates that Jersey is determined to not only remain competitive in the funds arena but will also continue to provide innovative solutions within its range of fund services.”

He added: “Industry representatives led by Mike Lombardi at Ogier and Ben Robins at Mourant Ozannes have consulted closely to help fashion this new fund regime, taking into account the evolving needs of international investors and the changing nature of global regulation.”

Key features are:

• - The fund is restricted to less than 50 sophisticated, professional investors

• - It is closed ended and has a minimum investment or commitment level of £250,000 or currency equivalent

• - A fast track approval process is available provided that the offer document conforms to the applicable content rules and sponsors meet the suitability requirements contained within the Private Placement Fund guide

• - Each Fund requires a mandated licensed Jersey administrator approved by the Jersey Financial Services Commission

• - The Offer Document is obliged to include an appropriate form of investor warning.

Jersey will continue to operate its COBO regime also for those specialist private funds which do not fall within the scope of the new Private Placement offer. The new Private Placement Fund is effective and available to investors from Thursday, January 26.

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Nigel Strachan added:

“Jersey’s funds industry, together with the Jersey Financial Services Commission, has been working really hard to create this new Private Placement funds regime, so it’s excellent news that it can now be unveiled. Specifically geared towards limited numbers of professional or sophisticated investors, this flexible regime will offer, provided the fund satisfies certain conditions, a fast track, streamlined authorisation process that we believe will add to the strength and range of fund products in Jersey and provide speed and certainty to launch for investors – essential in today’s market, where arrangers need to react quickly to new market opportunities. With its appropriate regulatory oversight, we expect the regime to be attractive across the alternative asset classes, including real estate, private equity, mezzanine, cleantech and emerging market funds.”