By Richard Anthony, JFA Committee Member and Head of Aztec’s Jersey Real Assets Team

UK real estate has long been an attractive sector for global investors – but for various reasons, it is currently not without its challenges.

It is also a sector where Jersey firms have considerable experience, with members of the Jersey Funds Association being fortunate enough to work with some of the top real estate fund and asset managers globally and specifically in the UK.

This piece provides a snapshot of the key issues currently facing the real estate sector, through the lens of our clients and investors.  

The Rise of Inflation

UK inflation has continued to rise sharply in recent months, with 2022 seeing the highest rate reached in over 40 years. As central banks aim to control inflationary pressures, interest rates have also risen in dramatic fashion.

This has undoubtedly influenced investor sentiment towards UK investment, the ability to generate attractive returns on existing portfolios and to secure financing for new projects, not to mention the impact on valuations. Speaking of which…

Uncertainty Surrounding Valuations

Asset valuations in UK real estate have become increasingly uncertain and downward adjusted in various sub-sectors, particularly in the commercial real estate sector - with various factors contributing to this challenge.  

As a result, deal flow has been impacted, with potential sellers not wishing to sell and potential buyers considering whether we are really at the floor of the market, keeping their capital dry or attempting a cheeky chip on price while at the heart of a transaction.  

On the upside, various asset and fund managers are hopeful for a bounce in the final quarter of 2023 and moving into the start of 2024, with fingers crossed for the plateau and descent of interest rates, which will bolster market sentiment.

Ability to Raise and Retain Capital

Fund managers in the UK real estate sector face the ongoing challenge of raising capital for their funds.

With increasing competition and changing market dynamics, attracting investors and securing commitments can be a daunting task. Investors are becoming more discerning, seeking transparency, track records and granular level due diligence.

Additionally, many open or quasi open-ended funds are having to work hard to maintain liquidity, as certain investors look to re-allocate or withdraw capital from the sector.  

In the current environment, fund managers must demonstrate their ability to deliver attractive risk-adjusted returns and navigate market uncertainties to gain the confidence of potential investors.

ESG Impact

In recent years, there has been a growing emphasis on environmental sustainability and energy efficiency in the real estate industry.

Buyers and sellers are increasingly considering Energy Performance Certificates (EPC) and BREEAM ratings when evaluating commercial buildings. This "flight to quality" trend means that buildings with higher ratings are more likely to attract buyers and command higher prices.

On the flip side, other buildings with lesser ratings are becoming harder to sell, forcing the need to either make further capital investment, or exit at less attractive valuations.

Jersey’s Role

Whilst the above challenges are undoubtedly shaping the UK real estate industry at present, and may persist for some time, members of the JFA continue to actively facilitate high quality capital flows into the sector through Jersey domiciled structures.

Why? The Island has a vast pool of industry leading legal and professional firms with talented real estate professionals. The legislation, regulation and taxation applicable to investment structuring is finely tuned, incredibly robust and sufficiently flexible to meet the needs of most investors.  

If you are considering an investment in real estate through a fund or corporate structure, consider Jersey.

Towards the end of last year, Jersey Finance published a ground-breaking report that highlighted the value Jersey’s finance industry adds to global markets and the positive impact the work done in Jersey has around the world.

The ‘Jersey’s Contribution to Global Value Chains’ report explores the redistribution of the value of work done in Jersey – and it makes some significant findings. In particular, Jersey firms intermediate £1.4 trillion (€1.7 trillion) of global capital each year and support £170.3 billion of global economic output.

That activity in turn supports millions of jobs of ordinary people, and accounts for 0.27% of total global economic activity each year. It’s an impressive contribution globally for a small jurisdiction.

Read the full article here.

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By Alistair Horn, Mourant LP Partner and JFA committee member, John MacFeeters, Counsel and Rachel Fowler, Senior Associate at Mourant

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With reports suggesting that global investors have set aside up to £46bn to deploy in the London office market alone this year (the highest since 2012), it’s an opportune time to take a look at some of the trends we are seeing in Jersey for UK real estate investments.

For years, Jersey has been an attractive option for asset managers looking to establish real estate holding structures, and for investors wishing to invest in real estate assets and recently we have seen a noticeable increase in the use of Jersey REIT structures, whilst the traditional Jersey Property Unit Trust (JPUT) remains just as popular as ever.

In fact, there has been an uptick in establishing new JPUTs despite the continued impact of COVID-19.

We've seen a particular recent trend in the increased use of JPUTs to acquire healthcare and logistical assets, with the importance of the latter increasing due to the online activity of consumers during the past 12 months and beyond. Notably, many of the JPUT investors have come from South East Asia and North America, emphasising how far-reaching the JPUT has become.

Meanwhile, Jersey continues to grow its market share in private REITs and this trend is expected to continue. The UK REIT regime is already attractive to many sovereign wealth funds, pension funds, major global financial institutions and specialist property investors.

However, it is expected that this market will grow following the UK Budget 2021 announcement of the rise in the corporation tax rate from 19% to 25% starting in 2023. This change will make the REIT regime more attractive to a broader range of UK real estate investors.

In addition, we are seeing a trend that 'responsible' capital and sustainability are no longer 'fringe' concepts. They do (and will increasingly need to) underpin strategic decision-making and investment allocations by fund managers in the coming decades, as the global economy grapples with the impact of climate change, other potential environmental damage, rising inequality and political and economic crises.

Funds focusing on social housing, urban regeneration, supported living as well as more bespoke projects such as water related regeneration are becoming more common.

With these trends in mind, it’s worth noting that there are a number of reasons underpinning Jersey's continuing appeal in this space that should give managers and investors confidence, including the following benefits.

‍Accessibility

As an independent jurisdiction conveniently located near the UK and mainland Europe, Jersey appeals to managers who want to access global investors whilst remaining outside the AIFMD environment.

Removing the additional costs associated with AIFMD compliance, whether that is achieved by marketing into the EEA via national private placement routes or by targeting the US and Asian markets, can result in lower running costs and higher investor returns.

Managers and investors alike are familiar and comfortable with Jersey as a jurisdiction, and this appeal is enhanced by Jersey's global reputation as a market leader in promoting anti-money laundering measures and combating financial crime.  

Speed to market and cost efficiencies

As detailed below, it is possible to establish and manage real estate holding structures efficiently and effectively due to the flexibility and expertise that the Jersey real estate services industry can provide.

Holding vehicles can be established on a same day basis, whilst a Jersey 'private fund' can be established and authorised in as little as 3 business days (with a slightly longer lead time where there is EEA/UK investor marketing).

The expertise available across legal, accounting and administrative functions can also lead to lower launch costs and on-going maintenance costs, which ensures that Jersey remains a cost-effective choice.

Legislative flexibility

Jersey's company, partnership and unit trust laws are broadly based on the UK equivalents and will therefore be familiar to lawyers and asset managers in the UK and other common law countries.

The Jersey legislation is, broadly speaking, more flexible and more permissive which means it can easily accommodate the commercial terms of a deal.

JPUTs, for instance, are popular for single investor/single asset structures, but they are equally suited for multi-asset joint ventures or as investment fund structures. JPUTs often hold UK real estate directly, however, a JPUT does not need to, nor is a JPUT required, to hold the UK real estate directly. In addition, we are also seeing a revival in the use of JPUTs as hybrid or evergreen investment fund structures.

Regulatory flexibility

Jersey's regulatory environment provides significant flexibility in choosing a regulatory regime for a real estate structure, its investors and asset managers. Whilst some small structures can benefit from special dispensations afforded to joint ventures, the 'private fund' regime in Jersey is a popular option where there are a small number of sophisticated institutional investors who would benefit from a light-touch and effective regulatory approach.

For those asset managers who are seeking to attract a larger number of investors, or less sophisticated investors, then there are several public fund regimes which offer increased investor protection.

Tax neutrality

Jersey's tax regime is designed to avoid double taxation on real estate holding structures, so that these remain tax neutral where appropriate for non-resident investors and asset managers who are dealing with foreign real estate assets.

Service providers

Jersey is well known for its real estate-based service provider expertise, with service providers able to confidently support managers and investors throughout the entire property life-cycle from acquisition to development, financing, leasing, planning work and joint ventures, and eventual disposal.

Against the backdrop of its longstanding appeal and given the current trends in the market, as a jurisdiction, Jersey has the right infrastructure and ecosystem to assist first time and established asset managers with setting up and administering real estate fund structures, whilst at the same time providing certainty of tax treatment - which is not necessarily fully mirrored in other jurisdictions.

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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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In the 12th edition of Jersey - First for Finance, JFA chair Tim Morgan explores how Jersey's funds industry is focused on honing its vision to provide the perfect ecosystem for cross-border alternative funds.

The full article and publication can be found here.

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The much hyped transitional phase for implementing the EU Alternative Investment Fund Managers Directive (AIFMD) has, finally, come to an end. For Jersey, contrary to some speculation from some onshore commentators, the deadline has actually been welcomed with a noticeable rise in high value private equity and real estate funds being structured through the jurisdiction targeting UK and continental European assets.

Figures from the Jersey Financial Services Commission (JFSC) indicate a strong take-up in Jersey's private placement route into Europe. In total, as at the end of July 2014, more than 160 Jersey funds have so far been registered to market into the EU under the AIFMD through Jersey’s private placement regime, whilst 57 alternative investment fund managers have confirmed their authorisation under Jersey’s AIFMD private placement regime.

Equally as encouraging is that, at the same time, promoters are also making use of Jersey structures for their real estate and infrastructure funds targeting assets and investors in non-European markets around the world.

Thanks to its approach to EU regulation together with its specialist global real estate expertise, Jersey is affirming its position as the leading domicile for real estate funds business in Europe.

European Growth

It is with good reason that Jersey's AIFMD regime is proving incredibly competitive. Under Jersey’s AIFMD framework, managers can benefit from the market access that private placement under AIFMD brings but with minimal additional AIFMD disclosure and reporting requirements, subject to the applicable requirements of the relevant EU/EEA Member State.

Through Jersey, there are options to gain regulatory approval to market into Europe, through private placement, ranging from a same day turnaround to up to ten working days, depending on the type of fund being registered.

In comparison with onshore, according to a recent survey of firms in Europe, the US and Asia by BNY Mellon and FTI Consulting, more than two-fifths of asset managers had not received AIFMD authorisation of their alternative investment funds from their local regulator within the EU ahead of the 22 July AIFMD deadline.

Meanwhile, additional data from the JFSC also shows that the UK remains a key market for Jersey managers. As at 30 June 2014, in indicating which EEA Member States they intended to market into, most managers licensed to carry on fund services business in Jersey said they intended to market their funds into the UK. The next most important intended markets were Sweden, Belgium, the Netherlands, Ireland, Denmark, France, Germany and Luxembourg.

The fact that managers are primarily intending to target the UK market is not surprising, given Jersey’s strong links with the UK. In fact, there has been a spike in recent months in the number of high value private equity, real estate and infrastructure funds being routed through Jersey into the UK. Moreover, 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.

Meanwhile, Jersey has seen a number of landmark European-focused funds being structured through the jurisdiction recently. The Jersey offices of Carey Olsen and Crestbridge, for instance, worked on the largest real estate fund to be listed on the London Stock Exchange since the downturn, the Kennedy Wilson Europe Real Estate fund, which raised around £1 billion and will target investments in European real estate linked assets – with Crestbrige now handling the local on-going administration work for the fund.

In a further development, major fund houses, such as Brevan Howard and Apex Fund Services (Jersey) Limited, have moved to or expanded their presence in Jersey, adding to Jersey’s alternative investment fund community and reflecting a real confidence in Jersey as an alternative funds domicile.

In addition, in the face of increasingly complex reporting requirements under the AIFMD, there is also likely to be a growing demand from onshore managers to outsource their administration and governance requirements to a centre like Jersey that has a sophisticated network of highly experienced administrators.

Meanwhile, Jersey was the first third country to offer managers a fully compliant AIFMD option, which means that it 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 expected from July 2015.

This recent data provides evidence that offshore centres still have a key role to play in Europe, and that real estate fund managers are finding genuine appeal in establishing their funds in Jersey, thanks to its flexible and less onerous private placement regime compared to the onshore full passporting route, its property fund governance expertise, and its close ties with the UK market.

Global

Meanwhile, there is still significant property fund potential and activity in non-European markets. At the Jersey Finance Annual London Funds Conference held earlier this year, not only did 33% of the audience of fund professionals indicate that real estate was the biggest growth area for them, they also said that most opportunities would come from outside of Europe, with 37% suggesting Asia was the most likely growth market, followed by Africa and Latin America (26% each).

India and China will soon resume their place as the largest economies of the world, whilst seven of the ten fastest growing economies of the last few years have been African. A recent PwC asset management survey indicated that the global asset management industry will grow from $65trn to in excess of $100trn by 2020, and that alternative investments will grow from $6.5trn to over $13trn.

As cross border finance grows, so too will the demand for tax neutral capital raising and pooling centres. Top of the wish list for investors in growth markets are jurisdictions with structuring expertise, respect for the rule of law, use of a common business language, time zone convenience and protection of property rights, and Jersey is well placed to meet this demand and these criteria.

London is amongst their favourite investment destinations, and a report by Capital Economics published last year showed that Jersey acted as a conduit for £1/2trn of foreign investment into the UK. The Shard, Battersea Power Station, and significant chunks of Canary Wharf are just three examples of this capital flow translating into iconic London investments structured through Jersey, and this trend is growing.

Recently, Appleby’s Jersey office advised on two landmark UK property transactions with a combined value of £2.5bn. The first was Blackstone’s sale of its interest in the Broadgate Estate to Singaporean sovereign wealth fund, GIC, one of the largest real estate transactions in UK history. The second was the sale of Blackstone’s beneficial interest in the Chiswick Park Estate to the China Investment Corporation (CIC).

Meanwhile, with the US residential and commercial real estate markets also proving increasingly popular targets for investors in growth markets and with a growing amount of property and infrastructure investment into Asia too, it has been important for Jersey to continue to offer a ‘business as usual’ regime for non-EU funds that are fully outside the scope of the AIFMD framework, offering potentially lower operational costs.

Mourant Ozannes, for instance, recently provided Jersey advice to CVC Capital Partners on the launch of its latest Asia Pacific Fund, which raised $3.5 billion to invest in the Asia Pacific region.

Examples like these reflect that Jersey’s regulatory approach as well as its deep knowledge of the private equity and real estate sectors, including its experience in asset servicing and its governance expertise, are giving fund managers a great deal of confidence. With its ability to offer attractive solutions both in and outside of Europe, Jersey remains extremely well placed to maintain its position as Europe’s leading real estate fund domicile with a truly global dynamic.

This article first appeared in Private Equity Real Estate's Fund Service Guide in September 2014.

The transitional phase for implementing the EU Alternative Investment Fund Managers Directive (AIFMD) has come to an end and, contrary to some speculation from some onshore commentators, the offshore world remains very active indeed where marketing private equity funds into Europe is concerned.

Figures from the Jersey Financial Services Commission (JFSC) indicate a very strong take-up in Jersey's private placement route into Europe.

In total, according to the JFSC, more than 160 Jersey funds have so far been registered to market into the EU under the AIFMD through Jersey’s private placement regime, whilst 57 alternative investment fund managers have confirmed their authorisation under Jersey’s AIFMD private placement regime, and there are three depositaries in Jersey offering AIF Depositary services, with others in the pipeline.

This is incredibly encouraging, particularly with recent reports suggesting that the AIFMD has not been fully transposed by a third of EU Member States, and that a significant number of alternative fund managers have not yet applied for AIFMD authorisation, with such authorisation in some Member States taking months to finalise.

In comparison with onshore, Jersey's AIFMD regime is proving incredibly competitive, and with good reason. Jersey's framework under the AIFMD means that there are options to gain regulatory approval to market into Europe, through private placement, ranging from a same day turnaround to up to ten working days, depending on the type of fund being registered.

The application fee for a fund or a fund services business to be registered with the JFSC to privately place into Europe under the AIFMD is £1,000, with exceptions for Certified Funds or Recognized Funds and fund services businesses registered under Article 2(10) of the Financial Services Jersey Law or Recognized Fund Functionaries, which are not required to pay an AIF application fee.

Moreover, 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.

Given Jersey's specialist expertise in fund governance, we expect this trend to continue as managers marketing into Europe look to avail themselves of Jersey's attractive private placement option. As cross border finance grows, so too will the demand for tax neutral capital raising and pooling centres, and Jersey is well placed to meet that demand.

Overall, Jersey's expectation is to see ‘offshore-onshore' structures become more commonplace, with some managers choosing to run an onshore EU fund actively marketed in the EU for those investors that demand full AIFMD compliance,  alongside a more cost-effective and flexible offshore option for other investors.

In fact, Jersey has seen a number of landmark funds being structured through the jurisdiction recently, such as the largest ever real estate fund to be listed on the London Stock Exchange (the Kennedy Wilson Europe Real Estate fund, which raised around £1 billion and will target investments in European real estate linked assets) and funds targeting assets such as Scandinavian medium size firms, commercial property in the UK and Europe, cleantech and energy.

In the face of increasingly complex reporting requirements under the AIFMD, there is likely to be a growing demand from managers to outsource their administration and governance requirements to a centre like Jersey that has a sophisticated network of highly experienced administrators.

There are more than 300 registered resident directors in Jersey who are able to take on actual portfolio management and risk supervision duties and 1,400 regulated funds, which means that on average each director is overseeing less than five funds, so demonstrating substance for a Jersey manager is extremely straight forward.

We are also seeing a rise in the number of managers considering establishing a presence in Jersey - major fund houses, such as Brevan Howard and Apex Fund Services (Jersey) Limited, have moved to or expanded their presence in Jersey recently.

It will be of considerable comfort to managers that the familiar onshore EU adviser/offshore manager model still works in Jersey too, without risk of an EU onshore adviser being regulated as a manager onshore.

Meanwhile, Jersey was the first third country to offer managers a fully compliant AIFMD option, meaning that it 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 expected from July 2015.

Flexibility, expertise and clarity remain key for private equity managers and the evidence so far is that, with the AIFMD now in place, offshore is proving to be an attractive solution for managers within the European marketplace.

This article was first published in PE News 'AIFMD Comes Into Force' feature on 28 July 2014.

This article was first published in a Special Report on Regulation in Private Fund Manager, July 2014.

Not only has Jersey come through the regulation hurricane that is AIFMD unscathed, the offshore fund domicile is actually one of few countries that can offer locals both safe harbor from the full impact of the EU directive as well as an investment vehicle designed to pass EU regulators’ smell test on outside managers wanting in.

by NICHOLAS DONATO

Ben Robins says he doesn’t worry about the EU’s Alternative Investment Fund Managers Directive (AIFMD) as much as he once did.

As chairman of the Jersey Funds Association it’s part of his job to monitor regulatory developments on the EU mainland and elsewhere around the world that can impact the offshore island’s funds industry. And so as EU policymakers and individual member states begin placing the final touches on the AIFMD – Europe’s grand project to harmonize and strengthen fund regulation across the continent that goes into effect this month– Robins has been keeping close watch.

His assessment today? “Things will be business as usual here in Jersey.”

That certainly wasn’t the case a short four years ago. Back then EU policymakers were writing the first drafts of the directive in the wake of a financial crisis that stirred politicians and regulators into a frenzy. At the time there was a real concern that overregulation would effectively erect a ring-fence between EU investors and outside managers seeking their capital, an alarming possibility for Jersey’s funds industry, which is just 85 miles south of the English coast.

“Fortunately cooler heads prevailed and we now sit in a position where Jersey can offer GPs some optionality on their European marketing,” Robins tells pfm in a keynote interview on the topic.

Robins explains that Jersey’s own policymakers underwent a number of preparations and new rulemaking to keep pace with the directive’s requirements as it was advancing along the EU’s cumbersome legislative process. By the end of it all Jersey was able to create an "opt-in" regulatory  regime for managers wanting to market in Europe under full AIFMD compliance to obtain a Europe-wide marketing passport. The happy result then is Jersey can offer GPs a tax neutral platform – something uncontroversial but important to LPs of different tax profiles – and still all but guarantee access to European investors in the new AIFMD era.

Or, alternatively, as a non-EU country Jersey “can be a safe haven for GPs struggling to meet the directive’s requirements,” says Robins. “That’s because Jersey funds for the time being can continue using individual member states’ private placement regimes for marketing purposes in compliance with the directive's transparency provisions.”

ON THE HORIZON

But Jersey isn’t exactly in the clear on everything just yet. For one, GPs based in Jersey that go through the hassle of becoming fully AIFMD-approved won’t receive immediately the main benefit of doing so: a pan-EU marketing passport. It’s not until July 2015 that EU regulators will actually consider allowing non-EU managers the ability to seamless hop across EU borders during fundraising, operating in full compliance with the directive.

And then there’s the risk that certain EU member states will “gold-plate” the directive, meaning make it tougher, when transposing its language into national law. However, like the entire directive itself, Robins says initial fears here were overblown too. “The good news is we haven’t seen much evidence of member states making their private placement regimes more difficult to access or going much above and beyond the directive’s original text.”

Looking ahead Robins warns that may change, specifically citing France and Germany as two countries that may “possibly show some divergence” from the UK which is positioning itself as an “enlightened” regulator on AIFMD. One possible  result of that, if so, is third country managers, like those in Jersey, having to appoint a depositary to oversee their fund's procedures and safe-keep assets where they market in Germany, even though they aren’t (yet) provided that EU-wide marketing passport gift for doing so.

Then again it’s “not a huge burden” if this does end up happening, says Robins. “Jersey has plenty of fund administration firms, both institutional and independent, that the directive suggests could act as depositaries for closed-ended funds like private equity and real estate. It’s really by no means an insurmountable task.”

The other big question on the horizon relates to how non-EU countries regulate their own funds industry. What EU regulators want to a certain extent is for their counterparts around the world to match the AIFMD's requirements or keep their fund managers out of Europe.

This, says Robins, is “where Jersey may have an incredible advantage over other larger and less nimble third-countries like the US, Singapore and Hong Kong.” Because Jersey has already created the option of a fund regime that completely mirrors the AIFMD, they’re sure to pass this regulatory “equivalency test”.

It’s also a big question that seems to have been given little thought, at least for now. But next year it’s these types of issues EU regulators will be wrestling with, says Robins, and it’s not exactly safe to assume that major economies like the US will be given a free pass because of their reputation and size.

“Yes the US now tells its private fund advisors to register with its Securities and Exchange Commission. But that doesn’t, for example, mean they meet the AIFMD’s requirement for managers to appoint a depositary. It would seem incredible that the EU blocks US funds because of any failure to meet this equivalency test, but you’re going to see a lot of GPs in Luxembourg, Ireland and elsewhere in Europe cry foul that they that they have to meet these strict AIFMD requirements where GPs coming in from the US or Hong Kong don’t. It would place them at a significant competitive disadvantage.”

Either way, one thing third-country regulators will absolutely have to do is sign cooperation agreements with each EU member state they wish to provide their local managers access to. Many non-EU countries are still in the process of finalizing these agreements but Jersey has “these agreements in place with the vast majority of EU member states save for some small gaps,” says Robins. “And those gaps are in places like Spain and Italy where there is no current private placement regime anyway. Instead GPs will seek to rely on the status quo of reverse solicitation to admit investors from those countries.”

Lastly, Jersey managers have achieved their “business as usual” status due to their ability to demonstrate substance, notes Robins. Fund managers looking to escape the directive’s reach that set up shop in Jersey must, for local regulatory purposes, actually be able to prove the fund is controlled and managed in the Channel Islands and not just be a “letter-box entity”, he explains.

Jersey-based managers demonstrate this in a few ways, not least of which is the requirement that a regulated fund’s managing board features at least two experienced Jersey resident directors. What’s more is that these directors have primary responsibility for actual portfolio management and risk supervision duties, says Robins and delegation of functions to third party service providers is monitored.

“If you take a look at the hard numbers we’ve got about 1400 regulated funds in Jersey and around 385 individuals locally who, personally or through a financial services employer,  are regulated and able to act as fund directors. On a crude, notional application of that ratio of local directors to funds  each director is overseeing fewer  than four funds. These are real directors, vetted by the local regulator, who know and understand the asset class well.”

Looking down further ahead in the AIFMD timeline Robins say’s the next major milestone date comes in 2017, “the time when ESMA reviews the market and decides if private placement regimes are eliminated.” And while he doesn’t believe this will turn out to be the case, he says with a note of confidence that “Jersey will be sure to monitor and prepare for” whatever regulatory moves its mainland neighbor takes.

EVCA statistics for European buy-out fund marketing in 2013 versus 2012 indicate increased fund raising from investors in the UK, U.S., Asia and the rest of the world and declining fund raising in Germany, France and other western European countries. Against that backdrop, being entirely unfettered by AIFMD restrictions when marketing outside Europe only underlines Jersey's continuing appeal as a domicile for GPs.

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.

By Geoff Cook, Chief Executive Officer, Jersey Finance

After years of build-up and analysis, the long awaited EU Alternative Investment Fund Managers Directive (AIFMD) – perhaps the most fundamental piece of international regulation to ever impact the funds industry – was finally introduced this summer.

At their varying paces, European Economic Area (EEA) countries are looking to bring the AIFMD into national law. Equally, at industry level, preparing for the AIFMD is happening at different speeds. Research from KNEIP conducted in June this year with alternative investment fund managers, for instance, revealed that just 15% of alternative investment fund managers are ready to meet the AIFMD’s requirements for reporting, and only at the beginning of October did the European Securities and Markets Authority (ESMA) publish their final reporting requirements.

At a domicile level, there are three key ingredients private equity managers are looking for: certainty about being able to facilitate capital raising in Europe; confidence in having the expertise to effectively and appropriately service and support their funds; and flexibility in how their funds can be managed should they wish to target non-European growth markets.

As far as Jersey is concerned, the message is unequivocally that, thanks to the significant amount of hard work and preparation that has gone into gearing up for the introduction of AIFMD, it is very much business as usual for private equity managers using the jurisdiction, whether they are targeting Europe or further afield.

In fact, due to its distinct position – being at the centre of Europe but not part of the EU – it could be strongly argued that Jersey is even better placed now as a result of the regulation.

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Substance

As a non-EU ‘third country’ for the purposes of the AIFMD but a well-established European private equity  jurisdiction, the feeling is that the AIFMD will actually enhance Jersey’s appeal as a centre for structuring and servicing private equity funds in the long-term.

This is important for Jersey, given its persistent strength in the alternative investment funds market. Jersey has continued to demonstrate a significant degree of resilience across its funds sector this year, with figures for the second quarter of 2013 showing that the value of assets under administration in Jersey remains above the £200bn barrier to stand at £201.3bn. Alternative asset classes continue to account for around 70% of that total, and some of the largest European private equity funds ever launched have been formed in Jersey in recent months.

First and foremost, Jersey is focused on offering the private equity funds community a long-term, stable environment. Having signed 27 bilateral ‘AIFMD’ cooperation agreements with EEA countries, including the UK, Germany and France, Jersey’s regulator (the Jersey Financial Services Commission) is already granting licenses for fund managers, enabling them to continue to access those EU markets through national private placement arrangements.

In addition, new regulations have been introduced to mirror EU requirements and allow for the creation of an ‘opt-in regime’ for managers wishing to comply fully with AIFMD requirements in marketing to European investors. This essentially means that Jersey has not only achieved the capability to operate national private placement regimes under the AIFMD, but has also already implemented, ahead of time, the necessary mechanics to support an EU-wide AIFMD marketing passport, which is anticipated to become available for non-EU fund managers in 2015. This is not something that can be said for many other International Finance Centres (IFCs).

To help explain and clarify the status of Jersey’s AIFMD cooperation agreements with EEA countries, an interactive online tool has been launched at www.jerseyfinance.je/aifmd-map, detailing private placement arrangements and transitional provisions.

Jersey’s expertise and deep knowledge of the private equity sector, including its experience in asset servicing, its tax, accounting and filing capabilities, and its governance expertise, mean that it has all the ingredients to more than satisfy the AIFMD’s criteria for management substance.  In fact, in Jersey there is already a regulatory requirement for entities to demonstrate substance, and so-called ‘letterbox arrangements’ that might be found elsewhere are certainly not the model in Jersey regulated fund structures.

With research published by KNEIP in June showing that reporting is viewed by 40% of AIFMs as the primary concern surrounding the AIFMD, having that level of specialist administration and servicing experience should give private equity managers a great deal of reassurance.

Further, in a Multifonds white paper published in June this year (‘The Impact of AIFMD and Convergence Survey’), 64% of alternative fund professionals said that depositary liability was the most challenging aspect of AIFMD. Again, Jersey can give confidence here, having in place a fully compliant depositary regime and infrastructure of institutional and independent depositary service providers where managers opt in to full AIFMD compliance.

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Unique

Meanwhile, in the current climate, managers are understandably adopting global strategies and seeking to raise capital in growth markets around the world.

With this in mind, using a non-EU but European time-zone jurisdiction that has expertise in handling non-European private equity business will be attractive. As such a jurisdiction, Jersey is offering a completely separate funds regime that lies outside the scope of the AIFMD, meaning that managers who don’t want to access EU capital can benefit from an element of flexibility and market their funds to the rest of the world - just as they do at the moment, using Jersey’s familiar and broad range of fund structures.

This flexibility puts Jersey in something of a unique position. As well as offering a route that offers the same controls under AIFMD that would be offered by an EEA country, at the same time Jersey offers managers the ability to market their funds outside Europe without the need to consider the impact of the AIFMD at all.

Managers can establish all their entities in Jersey and, from one location, meet EU requirements. At the same time, they can serve the rest of the world in a non-AIFMD compliant environment - with potentially lower costs. Offering both will not be available to EU Member States or all IFCs.

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Strong Position

Thanks to its approach to the AIFMD, Jersey is in a very strong position as a centre for servicing private equity funds. Wherever a fund’s assets or investors are, Jersey can offer the expertise, capability and experience to administer it.

With the vast majority of alternative fund managers (88% according to Multifonds’ June white paper) indicating they will take advantage of the ‘grace period’ until July 2014, it’s clear that the coming twelve months will be crucial as the AIFMD brand beds down.

However, it is expected that parallel ‘offshore-onshore’ structures will become more common. The same white paper highlighted that 77% of EU managers may choose to set up offshore structures as a result of AIFMD – suggesting that the kind of good value, flexible, robust option offered by Jersey will become increasingly appealing to private equity managers.

By offering a regime that offers a blend of certainty and flexibility, Jersey has taken the opportunity to broaden its scope and appeal as a specialist centre for private equity and, over the coming months, it is anticipated that a growing number of private equity managers with an international focus on both non-European and pan-European funds will turn to Jersey.

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This article was first published in Private Equity Manager, Fund Domiciles Guide, November 2013.

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By Geoff Cook, Chief Executive Officer, Jersey Finance

The long awaited EU Alternative Investment Fund Managers Directive (AIFMD) – perhaps the most fundamental international regulation to ever impact the funds industry – was, after years of build-up and months of analysing the finer points of its implementation, finally introduced this summer.

While EU countries are looking to bring the AIFMD into national law at their different paces, those alternative fund managers, administrators and service providers who have some sort of interest in or contact with the European market, are still trying to get to grips with exactly what the detail of the AIFMD means to them, and how they need to act to continue to facilitate alternative funds business.

There are three key ingredients the funds community are looking for currently: certainty about being able to raise capital in Europe; confidence in being able to effectively and appropriately service and support their funds; and flexibility in how funds can be managed should they be targeted at non-European growth markets.

Of course, the AIFMD has an impact on the role of those International Finance Centres (IFCs) that have earned reputations as specialist funds centres. As far as Jersey is concerned, the message is unequivocally that, thanks to the significant amount of hard work and preparation that has gone into gearing up for the introduction of AIFMD, it is very much business as usual for fund managers using the jurisdiction.

In fact, due to the distinct position it is in, in relation to the EU and the rest of the world, there is a strong argument that Jersey is even better placed now as a result of the regulation.

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Substance

As a non-EU ‘third country’ for the purposes of the AIFMD but a well-established jurisdiction at the centre of European funds business, the feeling is that the AIFMD will actually enhance Jersey’s appeal as a centre for structuring and servicing alternative funds – including private equity, real estate and hedge funds - in the long-term.

This is important for Jersey, given its persistent strength in the alternative investment funds market. Jersey has continued to demonstrate a significant degree of resilience across its funds sector, with figures for the second quarter of 2013 showing that the value of assets under administration in Jersey remains above the £200bn barrier for the second consecutive quarter, to stand at £201.3bn. Alternative asset classes continue to account for around 70% of that total, with some of the largest European private equity funds ever launched having been formed in Jersey in recent months.

First and foremost, Jersey is focused on offering the alternative funds community a long-term, stable environment. Having signed 27 bilateral ‘AIFMD’ cooperation agreements with EEA countries, including the UK, Germany and France, Jersey’s regulator (the Jersey Financial Services Commission) is already granting licenses for fund managers, enabling them to continue to access those EU markets through private placement arrangements.

An interactive online tool designed to help explain and clarify the status of Jersey’s AIFMD cooperation agreements with European countries, including details of private placement arrangements and transitional provisions, has been launched at www.jerseyfinance.je/aifmd-map.

In addition, new regulations have been introduced to mirror EU requirements and allow for the creation of an ‘opt-in regime’ for managers wishing to comply fully with AIFMD requirements in marketing to European investors. This essentially means that Jersey has not only achieved a 'private placement' regime under the AIFMD, but has also already implemented, ahead of time, the necessary mechanics to support an EU-wide AIFMD marketing passport, which is anticipated to become available for non-EU fund managers in 2015. This is not something that can be said for other IFC jurisdictions.

As far as the issue of ‘substance’ is concerned, in Jersey, there is already a regulatory requirement for Jersey entities to demonstrate substance, and so-called ‘letterbox arrangements’ that might be found elsewhere are certainly not the model in Jersey regulated fund structures.

In fact, Jersey’s deep knowledge of the alternative fund sector, including its experience in asset servicing, its tax, accounting and filing capabilities, and its governance expertise, mean that fund managers should take confidence in Jersey having all the ingredients to more than satisfy the AIFMD’s criteria for management substance. This is backed-up further by the immediate availability of a fully compliant depositary regime and infrastructure of institutional and independent depositary service providers where managers opt in to full AIFMD compliance.

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Global

Meanwhile, in the current climate, managers are understandably adopting global strategies and raising capital in growth markets around the world where wealth is being created and global investment opportunities are sought after.

With this in mind, using a non-EU but European time-zone jurisdiction such as Jersey, that is experienced and has expertise in handling non-European alternative funds business will be attractive – particularly given that it needn’t be touched by AIFMD regulation at all.

As a non-EU jurisdiction, Jersey offers a completely separate funds regime that lies outside the scope of the AIFMD, meaning that managers who don’t want to access EU capital can benefit from an element of flexibility and market their funds to the rest of the world - just as they do at the moment, using Jersey’s familiar and broad range of fund structures.

This flexibility puts Jersey in something of a unique position. As well as offering a route that offers the same controls under AIFMD that would be offered by an EU Member State, at the same time Jersey offers managers the ability to market their funds outside Europe without the need to consider the impact of the AIFMD at all.

Fund promoters can establish all their management entities in Jersey and, from one location, meet EU requirements. At the same time, they can serve the rest of the world in a non-AIFMD compliant environment - with potentially lower costs. Offering both will not be available to EU Member States or to all IFCs.

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Future

Thanks to its approach to the AIFMD, Jersey’s position as a centre for on-going administration and service support for private equity, real estate and hedge funds is positive. Thanks to its flexible approach, wherever the fund’s assets or investors are, Jersey provides a good option, offering the expertise, capability and experience to administer the structure.

Parallel ‘offshore-onshore’ structures may well become more common, for fund managers who need to satisfy a specific investor demand for keeping a fund onshore – albeit with the potential additional compliance costs that could bring. But this is not anticipated to replace funds ‘offshore’, which in Jersey’s case will continue to offer a good value, flexible, robust option to cater for all aspects of alternative fund business.

In fact, as AIFMD beds down, it is anticipated that Jersey will prove increasingly attractive for managers with an international focus on both non-European and pan-European funds. Jersey has risen to the challenge presented by AIFMD and, by offering a regime that offers a blend of certainty and flexibility, taken the opportunity to broaden its scope and appeal as a specialist alternative funds centre.

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This article was first published in FTSE Global Markets, Channel Islands report, October/November 2013.

By Geoff Cook, CEO, Jersey Finance

After years of build-up and months of analysis, the long awaited EU Alternative Investment Fund Managers Directive (AIFMD) has now finally been introduced.

With EU countries bringing the AIFMD into national law at varying paces, hedge fund managers are still establishing exactly what the detail of the AIFMD means to them. From a jurisdictional point of view, they clearly require three things - certainty about being able to market into Europe; flexibility in how their funds are managed should they wish to target non-European markets; and confidence in the ability to effectively and appropriately service their funds.

As far as Jersey is concerned, thanks to the significant amount of hard work that has gone into gearing up for AIFMD, it is very much business as usual for hedge fund managers. In fact, as the dust settles on the introduction of AIFMD, it could be argued that Jersey, as a non-EU country but immersed in the European funds industry, is even better placed now as a result of the regulation.

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Substance

First and foremost, Jersey is focused on offering hedge fund managers a long-term stable environment. Having signed 27 bilateral cooperation agreements with EEA countries including the UK and Germany, Jersey’s regulator (the Jersey Financial Services Commission) is already granting licenses for fund managers enabling them to continue to access EU markets through private placement arrangements.

In addition, new regulations introduced in Jersey in April this year to mirror EU requirements also allow for the creation of an ‘opt-in regime’ for managers wishing to comply fully with AIFMD requirements in marketing to European investors. This essentially means that Jersey has already implemented, ahead of time, the necessary mechanics in order to be able to support an EU-wide AIFMD marketing passport, anticipated to become available for non-EU fund managers in 2015. This is not something that can be said for other IFCs.

The issue of ‘substance’ under AIFMD has also become a point of debate for hedge fund managers. In Jersey, there is already a regulatory requirement for Jersey entities to demonstrate substance, and so-called letterbox arrangements that might be found elsewhere are certainly not part of the model in Jersey regulated fund structures.

In fact, Jersey’s knowledge of the alternative asset sector, including its experience in asset servicing, tax and accounting, means that hedge fund managers should take confidence in Jersey having all the ingredients to more than satisfy the AIFMD’s criteria for management substance.

This is backed-up further by the immediate availability of a fully compliant depositary regime and infrastructure of institutional and independent depositary service providers.

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Global

Meanwhile, hedge fund managers are not only targeting the EU investor market but are adopting global strategies targeting growth markets around the world. With this in mind, using a non-EU but European time-zone jurisdiction that has expertise in handling non-European hedge fund business, such as Jersey, is attractive.

By offering a completely separate funds regime that lies outside the scope of the AIFMD, Jersey is providing managers with a welcome degree of flexibility, enabling those who don’t want to access EU capital to market their funds to the rest of the world using Jersey’s familiar range of structures.

We are already seeing this flexibility putting Jersey in something of a unique position, with promoters establishing management entities in Jersey and from one location meeting all EU requirements while also serving the rest of the world in a non-AIFMD compliant environment. Offering both is not available in EU Member States or in all IFCs.

With AIFMD now very much part of the hedge fund landscape, initial indications are that Jersey is maintaining favour with hedge fund managers thanks to a fund regime that offers both flexibility and certainty.

This article was first published in HFMWeek on 10th September 2013.

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Jersey doesn’t appear to be sweating on EU regulations that ring-fence outsiders from accessing EU private equity investors. Jersey Funds Association head Nigel Strachan tells Nicholas Donato the offshore financial center’s confidence stems from offering GPs a menu of oversight options.

Situated just off the coast of France on the edge of the English Channel is Jersey, the largest of the Channel Islands and whose sophisticated and comprehensive infrastructure of laws has been attracting fund managers from Paris, London, Frankfurt and other EU financial hubs to its nearby shores for some years.

Jersey began building its reputation as a fund domicile in the late 1980s by offering a regulatory regime more in line with industry needs.

“Jersey was offering a limited partnership that placed no cap on the number of limited partners at a time when the UK partnership structure was limited to 20 investors,” says in an interview with PE Manager Nigel Strachan, chairman of the Jersey Funds Association (JFA), the association for the island’s funds industry.

London would eventually lift its LP cap to remain competitive, but Jersey’s flexible approach towards fund registration and supervision preserved its popularity with private equity managers.

Enhancing its status as a fund domicile was the need for GPs to find a jurisdiction that offered investors from all around the world “a tax neutral platform”, says Strachan. Firms including CVC Capital Partners, Nordic Capital and Axa have all domiciled funds on the island. As of last year, the net asset value of funds under administration in Jersey stood at roughly £200 billion (€235 billion; $308 billion), with ‘specialist funds’ like hedge, real estate and private equity representing about 70 percent of the overall total, according to JFA statistics.

But over the past three years fund managers have been mulling another major consideration when selecting their next fund’s domicile. The Alternative Investment Fund Managers directive, due to take effect 22 July, will subject EU fund managers to a new era of oversight and regulation. The question for many has been whether a fund setup offshore would have a difficult time entering the market as a ’third country’. For Jersey, the concern was losing business from GPs that predominantly fundraise in Europe but domicile their funds offshore.

“Thanks to the flexible and distinct way Jersey has approached the AIFM directive, however, private equity fund managers using Jersey to domicile their funds will actually be presented with a number of opportunities as a result of the new regulation,” says Strachan when asked about this concern.

RESPONSE TO AIFM

So how did Jersey turn a potential shutout from Europe into an opportunity? Jersey’s response to the AIFM directive has been to create a multitier regulatory framework that accommodates both fund managers subject to EU regulations and those who want to continue “business as usual”, Strachan explains.

“In order to achieve this, new regulations were introduced in Jersey in April this year, mirroring EU requirements and allowing for the creation of an opt-in regime for managers wishing to market to European investors.”

To satisfy the directive’s requirements, Jersey recently had a cooperation agreement approved with EU market regulator the European Securities and Markets Authority (ESMA). The agreement enables fund managers using Jersey to continue to market into Europe through private placement rules until at least 2018 – the time when EU sovereigns may need to scrap their non-AIFM approved marketing routes.

The cooperation agreement, approved on 22 May, will give both EU and non-EU regulators permission to supervise fund managers that operate on a cross-border basis both within and outside the EU.

Individual cooperation agreements must still be signed with national regulators from each EU country.

“The difficulty here is that we don’t know what each EU member state approach will be – so France is different to Germany, but we certainly know for the UK that the private placement option is open come this July,” says Strachan.

Nonetheless Strachan believes that Jersey’s agreement with central EU authorities will help facilitate conversations with national regulators. “The member states' regulators would have been unlikely to enter into the agreements without ESMA approval, so the focus can now shift to them to see if they have any further points they want to raise.”

And of course fund managers who need not, nor wish to, comply with the directive can continue to draw on Jersey’s multitier regulatory framework and use vehicles that lie outside the scope of the AIFM directive.

“One of the key strengths in Jersey is the range of regulatory options that you can opt for,” says Strachan.

Fund managers with less than 15 investors can operate entirely unregulated, aside from obtaining consent from the Jersey Financial Services Commission to issue securities. “The idea here is to provide GPs looking to establish a track record the chance to invite a small group of sophisticated investors to partake in their first fund,” says Strachan.

Funds with a wider offering (of up to 50 investors) can make use of a light-touch regulation regime that still allows GPs to be up and running in as little as three days. The regime is only available to “sophisticated” or “professional” investors who understand the risks of private equity investing, says Strachan. LPs under this approach must commit a minimum of £250,000, and the fund promoter must receive the blessing of a licensed fund administrator on the island before accepting investments.

A third option for funds with more than 50 investors is a vehicle comprised solely of so-called “expert investors”, who sign agreements stating that they understand the risks involved in their investment are able to bear any losses the fund experiences. “These are typically institutional investors or very wealthy individuals who have less need for government protection,” says Strachan.

“Combined, all these routes put Jersey in a unique position. It can offer private equity fund managers a route that is absolutely in line with the AIFM directive, with all the stability and comfort the directive brings, from a centre that is in close proximity to Europe,” says Strachan. “And at the same time, it offers managers the ability to market their funds outside of Europe without the need to consider the impact of the AIFM directive at all.”

Clearly the JFA feels Jersey is well positioned to continue attracting fund managers from both within and outside the EU in a post AIFM directive environment. It’s hard to imagine that same level of confidence just one year ago when the directive’s final language was far from certain. But with further AIFM rulemaking completed, and a cooperation agreement with EU regulators in place, Strachan says Jersey is “well prepared” for monumental private equity regulation being implemented just a few miles from its shores.

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This article was first published in Private Equity Manager magazine, July 2013.

By Geoff Cook, CEO, Jersey Finance

Despite ongoing challenging market conditions, Jersey has continued to demonstrate a significant degree of resilience across its funds sector. Figures up to the end of 2012 suggest that the global funds industry remains attracted to Jersey, with the value of assets being administered and managed in Jersey totalling over the £200bn mark.

The value of assets under administration in Jersey stood at £192.8bn as at December 2012 – up around £3.5bn year on year. In particular, Jersey continues to assert itself as a major player in the alternative fund space, with alternative asset classes accounting for around 70% of its total value of funds under administration – and private equity fund administration business specifically done in Jersey continuing to perform strongly.

Maintaining a healthy funds sector and actually growing alternative funds business against a volatile economic backdrop emphasises the positive reaction to Jersey‘s approach to the EU Alternative Investment Fund Managers Directive (AIFMD).

With private equity professionals having had some time now to digest the AIFMD’s Level II measures and with the July 2013 implementation date now imminent, things are finally moving forward. While EU countries are bringing the AIFMD into national law, so too are managers and service providers having to come to terms with exactly what the detail of the AIFMD means to them, and how they need to act in order to ensure they are fully geared up in time.

Thanks to the flexible and distinct way Jersey has approached the AIFMD, however, private equity fund managers using Jersey to domicile their funds will actually be presented with a number of opportunities as a result of the new regulation.

As a non-EU ‘third country’ for the purposes of the AIFMD but a well-established jurisdiction at the centre of European funds business, the feeling is that the AIFMD will actually enhance Jersey’s appeal to private equity professionals and affirm its long-term position as a European alternative funds centre of excellence far beyond this summer’s AIFMD deadline.

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Fully Compliant

Jersey’s funds industry, government and the regulator have been, and continue to be, intensively engaged on the AIFMD. As a result, Jersey is now in a very strong position. By maintaining a ‘business as usual’ approach to funds business within the EU, the overwhelming message is that Jersey is focused on giving the private equity community confidence and certainty.

From July, access to EU markets for Jersey will be through private placement arrangements with individual EU countries, until at least 2018.  In order to achieve this, new regulations were introduced in Jersey in April this year, mirroring EU requirements and allowing for the creation of an opt-in regime for managers wishing to market to European investors.

Individual agreements between Jersey's regulator and the regulators of Member States will be required, and Jersey's regulator is well down the road and making excellent progress in ensuring such agreements with ESMA and Member State regulators are in place in good time ahead of the July implementation date.

With bilateral cooperation agreements already in place with the majority of key EU Member States, Jersey intends to be in the first tranche of jurisdictions to be authorised to utilise the private placement route. These reassurances will give private equity professionals confidence that Jersey will provide a seamless transition for facilitating ongoing funds business within Europe this summer.

In fact, the Netherlands have already designated Jersey as one of the ‘third-countries’ they deem to be subject to adequate supervision to continue to privately place there without the manager needing a licence from the Dutch regulator.

Beyond private placement arrangements, Jersey is also committed to being fully AIFMD-compliant and obtaining an EU-wide AIFMD passport by 2015 - as soon as is possible for non-EU ‘third countries’. This will give private equity fund managers the option to market their Jersey-domiciled funds to investors right across the EU.

Jersey is also well on track in this regard, with the new regulations introduced in Jersey in April this year also paving the way for Jersey to have this Europe-wide fully-compliant regime in place ahead of 2015. In addition, the AIFMD is about regulating and authorising alternative fund managers, and this is something that Jersey already does, in line with IOSCO standards.

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Enhanced Position

Meanwhile, as a non-EU jurisdiction, Jersey is able to offer the private equity community a welcome degree of flexibility through a completely separate funds regime that lies outside the scope of the AIFMD - just as it does at the moment - for private equity fund managers who are marketing to the rest of the world and don’t want to access EU capital.

In the current climate, this makes absolute sense – private equity managers are not merely focusing on Europe: they are adopting global strategies and raising capital in markets around the world, in a large variety of cases not touching Europe at all.

In such situations, using a non-EU but European time-zone jurisdiction that is experienced in handling non-European private equity business and that isn’t touched or impacted by AIFMD regulation, such as Jersey, will be attractive.

Combined, all these routes put Jersey is a unique position. It can offer private equity fund managers a route that is absolutely in line with the AIFMD, that offers all the stability and comfort the AIFMD brings, from a centre that is in close proximity to Europe. And at the same time, it offers managers the ability to market their funds outside of Europe without the need to consider the impact of the AIFMD at all.

So while there has been some speculation that the AIFMD may prompt a migration of fund business away from offshore centres, this is not Jersey’s expectation at all. In fact, a rational analysis of the situation shows that overall Jersey’s position will actually be enhanced by its approach to AIFMD. Managers will be able to base themselves in Jersey and, from one location, meet all EU requirements while at the same time serving the rest of the world with potentially lower costs. Offering both will not be available in all offshore centres or in EU member states.

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Innovation

Based on its strong track-record of supporting international private equity business, backed up by its approach to the AIFMD, Jersey is also being seen as an attractive centre to relocate to by a growing number of alternative fund managers. Increasingly recognised for its safe environment, flexible approach and the ‘no-change’ solution it offers private equity professionals, a growing number of fund managers are establishing a presence in Jersey - seven asset managers have established a presence in Jersey over the past 12 months alone.

As the international funds community embarks on the final stretch towards the long awaited July AIFMD implementation date, competition between jurisdictions will only increase, and Jersey is not resting on its laurels.

There is a firm focus on continuing to innovate across its fund regimes and responding appropriately and effectively to market demands in order to stay ahead of its competitors.

Besides AIFMD, for instance, the industry is working with other regulatory changes, such as adopting the US Foreign Account Tax Compliance Act (FATCA) and engaging in the evolving debate on global tax information exchange, while enhancements have also been made to Jersey’s Limited Liability Partnership Law.

Remaining flexible to the needs of the private equity community and responding appropriately to regulatory developments is ensuring Jersey’s long-term appeal as a major European alternative funds centre.

With only a matter of weeks now until the AIFMD becomes a reality, Jersey’s hard work and preparation has ensured it is in a very strong position indeed to continue to support the private equity community in the long-term and remain at the forefront of international private equity business.

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This article was first published in Private Equity International magazine's Fund Administration and Technology Special, July 2013.

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