Updated Guidance Notes published last week (22 November) by Jersey’s government, in conjunction with the other Crown Dependencies, provide further clarity around the interpretation of economic substance legislation which came into play in January this year and reflect Jersey’s focus on maintaining a substance-driven environment for fund managers, according to the Chair of the Jersey Funds Association.

Following the publication of the first iteration of Guidance Notes in April this year, the updated notes contain a number of points of relevance to the funds industry, in particular:

• that collective fund vehicles are out of scope of the law (save where they are carrying out fund management activities themselves, which will be the subject of future legislation) but their subsidiaries could still be in scope if they derive income from a relevant sector
• there is more specific guidance on the treatment of cell companies
• there is further clarification on the basis on which certain isolated decisions can be taken outside the island, provided this does not outweigh decisions taken in the jurisdiction.

Tim Morgan, Chair of the Jersey Funds Association, said: “This additional detail should prove helpful to managers in terms of how the law will be applied, and should give them reassurance that Jersey takes its economic substance commitments seriously. In particular, the notes generally clarify that funds themselves are not caught by the law and also provide more detail about the basis on which governance decisions should be taken.

‍“As a centre for fund management, Jersey has long had a market-leading approach towards substance and these guidance notes reflect Jersey’s approach to governance best practice.”

The JFA welcomed the initial publication of guidance notes earlier this year, as reinforcing the jurisdiction’s proposition for fund management.

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We're currently finalising our 2019 JFA Members Survey, which was launched last month. The results are now largely in and are already providing valuable feedback as to the position of the Jersey funds market.

To mark the completion of the survey, as well as the end of a highly successful year for Jersey's funds industry, we're holding a drinks event from 6.30 - 8.30 at the Jersey Museum on Thursday 28 November.  If you would like to attend, please RSVP to enquiries@jerseyfunds.org.

In addition, if member firms would like to attend a presentation of the survey findings by members of the JFA committee, this will be held just before the drinks at 4pm on Thursday 28 November. Places will initially be allocated on a one place per firm basis – please contact enquiries@jerseyfunds.org for more information.

With much uncertainty persisting around the UK’s departure from the EU, Dilmun Leach, partner at JFA member firm Collas Crill, takes a look at why Jersey’s ability to offer continuity and certainty should be music to the ears of non-EU fund managers…

Q: Jersey is outside of the EU – so how is it affected by Brexit?
DL: Jersey is not a member state (or associate member) of the EU and not part of the UK. Jersey has its own government which is elected locally, makes its own laws (including in respect of taxation) and has its own court system.

As far as its relationship with the EU is concerned, Jersey is currently part of the EU Customs Union by virtue of ‘Protocol 3’. When the UK joined the EU (the European Economic Community as it was then) in 1973, it was agreed that Jersey would benefit from the UK's membership of the EU by bringing it, along with the other Crown Dependencies, within the EU Customs Union for the purposes of trade in certain goods (but not services), whilst preserving its autonomy.  This agreement was set out in Protocol 3.  

The Protocol 3 relationship is dependent on the UK remaining a member of the EU and will cease to exist, simultaneously with all other treaty arrangements between the UK and the EU, once the UK's membership of the EU ceases.

Q: Without Protocol 3, how will Jersey trade with the EU?
‍DL: Jersey is able to market financial services to the EU because those services currently meet the requirements imposed by the EU – that will not change because of Brexit.  Services have always been outside the scope of Protocol 3.

Jersey has also taken steps to ensure continued market access for Jersey investment funds into the UK post-Brexit. Jersey’s financial services regulator, the Jersey Financial Services Commission, has signed a Memorandum of Understanding (MoU) with the UK’s Financial Conduct Authority which ensures Jersey firms can continue to use the UK’s National Private Placement Regime (NPPR) after Brexit.

That MoU will come into effect if EU law no longer applies in the UK, either through a ‘no deal’ Brexit or at the end of any transitional arrangements (that are agreed as part of a negotiated deal) once the UK leaves the EU.

Q: Will anything change for fund managers with Jersey funds and investors in the EU/UK?
DL: In short, no. It is expected to be 'business as usual' for Jersey funds.

As far as the UK is concerned, the MoU signed with the FCA, outlined above, provides certainty that access by Jersey funds and managers to UK investors will continue uninterrupted and irrespective of any Brexit outcome.

In terms of the EU, Jersey is not and has never been part of the EU. Rather, as a third country, Jersey will maintain access to the EU funds markets as a result of agreements between the Jersey Financial Services Commission (JFSC) and financial regulators in 27 of the 31 EEA States.

Q: Will the ‘NPPR’ route to market continue to operate through Brexit?
DL: Jersey funds are currently eligible to be marketed into the EU and EEA in accordance with the provisions of the AIFMD through NPPR, and that will not change.

In fact, NPPR is set to continue to operate for the foreseeable future, with a report undertaken by KPMG for the EU Commission at the end of last year confirming that NPPR is of added value to the EU, works in the interest of investors, and should remain in place. Certainly it’s a route to market that is proven to work well through Jersey – currently, more than 170 managers are marketing in excess of 300 funds into the EU through Jersey in this way.

NPPR permits the marketing of non-EEA alternative investment funds in the EEA, subject to national law and regulation in force in the relevant country.  In addition, certain conditions set out in the AIFMD must be met.  Those conditions include the need for supervisory cooperation agreements to be entered into between the JFSC and regulators in the relevant EEA countries in which the marketing is to take place.  Jersey benefits from cooperation agreements with regulators in 27 out of the 31 EEA countries.

Q: What about passporting?
DL: AIFMD made provision for "third countries" to be granted the same passporting rights as EU member states, subject to certain conditions being met. ESMA published its assessment of potential "first wave" third countries and, along with Guernsey and Switzerland, found that were no significant obstacles to Jersey becoming a third country jurisdiction.

The EU Commission has not yet pressed ahead with the implementation of the third country passporting regime, but the indications are that if and when the regime is put in place Jersey will be amongst the first non-EU countries to be granted passporting rights.  Until then, and potentially beyond it too, NPPR through Jersey will remain a key route to the EU market for non-EU managers.

As far as the ‘rest of the world’ is concerned, AIFMD is not relevant to Jersey funds with a Jersey manager which markets outside the EU/EEA, and these will continue to be subject to the laws of the countries in which the fund is marketed.  

Q: So is Brexit a good thing for Jersey?
DL: It is generally thought that actually Brexit presents opportunities for Jersey in the funds space. Jersey's NPPR remains best in class for accessing EU investors and there may be additional opportunities for Jersey (rather than our EU competitors, such as Luxembourg) to provide structures via which UK investors can invest in UK assets.

In addition, managers in the UK, US and elsewhere may be able to launch funds in a shorter time-frame and with lighter ongoing regulatory requirements than in an EU member state such a Luxembourg.  

On 12 March 2019, the European Council of Finance Ministers confirmed Jersey's status as a transparent and cooperative jurisdiction, and that Jersey's legal substance requirements are considered compliant with EU requirements.  The effect of this is that the European Investment Fund (EIF), being a specialist provider of risk finance for small and medium-sized enterprises across Europe, backed by the European Investment Bank, EU, and a range of public and private banks and finance institutions, confirmed that there is no impediment to the EIF investing in Jersey private equity or venture capital funds, meaning that Jersey funds continue to be open to billions of Euros of potential investments.

Real-life case studies compiled by the JFA to illustrate how NPPR is proving effective in accessing EU investor capital 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!

The value of regulated funds serviced in Jersey rose by 7% to a new record high in the first half of 2019, according to the latest figures to be collated by the jurisdiction’s financial regulator the Jersey Financial Services Commission (JFSC).

Figures for the second quarter of 2019 (ending 30 June 2019) show that the net asset value of regulated funds under administration in Jersey grew by £22.1bn over the first six months of the year to stand at £342.1bn, a new record high and a figure that has grown by more than 70% over the past five years.

The alternative asset classes continued to perform strongly, recording a combined rise over the first six months of 2019 of 6% to represent 85% of Jersey’s total funds business. Once again private equity was pivotal in driving the growth, rising by an impressive 14% over the six-month period. There was also growth in real estate (up 2.5%) whilst infrastructure, credit and debt funds rose collectively by 2% and hedge funds decreased by 3%.

The latest quarterly figures come shortly after it was announced at Jersey Finance’s Annual London Funds Conference earlier this month that the number of registered Jersey Private Funds (JPF) had grown by 25% over the half year to 257, with assets under management of £43bn – more than double the value at the end of 2018 (£19.4bn). The figures for JPFs, a structure that was introduced in 2017 to cater for the needs of small groups of sophisticated investors, are in addition to the numbers in the quarterly statistics.

Meanwhile, figures from the JFSC also reveal positive news in the banking sector, where the value of deposits held in Jersey grew 5% in the first half of the year to stand at £129.3bn, the highest figure since 2015.

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

“It’s particularly pleasing that we have succeeded in maintaining our momentum from last year into 2019 with a really strong set of figures. At our conference in London earlier this month, we set out clearly why Jersey continues to prove an attractive option for alternative fund structuring and the fact that we have reached new heights midway through the year is compelling evidence of that. The stability Jersey can provide, together with its expertise, cutting-edge regulatory framework and global market access is clearly resonating with managers.

“The fact that our banking sector remains so resilient is hugely positive too. It is a key component of our financial services industry and is continuing to evolve to meet the increasingly sophisticated, global and digital demands of investors now and in the future.

Tim Morgan, Chair, Jersey Funds Association, added:

“These figures demonstrate that the private equity sector sees real benefits in using Jersey and that the Jersey Private Fund (JPF) is fast becoming the go-to structure for investors. Managers are continually looking for reliable, cost effective solutions to support their investors’ needs and Jersey’s funds offering provides the perfect solution for the long-term.”

The full set of quarterly statistics is available here.

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Jersey’s ability to offer a quality service in the alternative investment space will ensure ongoing growth of its funds industry, according to Tim Morgan, the new Chair of the Jersey Funds Association (JFA).

Elected into the position of Chair at the recent AGM (28 June) of the trade association that represents Jersey’s funds industry, Tim, a Partner at offshore law firm Mourant, has practised in Jersey since 2003 advising promoters, investors, boards, regulators and service providers across asset classes including private equity, credit, real estate, hedge and liquid securities.

Prior to Jersey, Tim originally trained with Taylor Wessing in London and Brussels, before going on to practise as a corporate lawyer at PwC Legal and then at Dresdner Kleinwort Wasserstein in London and New York, advising on private equity sponsored transactions.

Also on the new-look JFA committee are Michael Johnson, who has been appointed Vice Chair and who heads one of the largest fund services businesses in the Island, as well as a number of other appointments to ensure the committee reflects the different aspects of the developing funds industry. Chris Marshall continues as treasurer, Niamh Lalor as chair of the legal and regulatory subcommittee, Martin Paul as the chair of education and Steve Cartwright as the chair of the marketing subcommittee. Caroline Harrington also remains as Secretary.

Tim replaces former Chair Mike Byrne, who has been at the helm of the JFA for the last three years and was thanked at the AGM for his hard work on behalf of Jersey’s funds industry.

Following his election to the role of JFA Chair, Tim said: “Jersey’s funds industry operates in an increasingly complex market, but it is an environment that Jersey thrives in. With investors continuing to show an appetite to allocate to alternatives – Jersey’s sweet spot – and thanks to its ability to adapt, its deep pool of expertise and highly effective relationships between the regulator, government and industry, Jersey is in an extremely strong position to continue to assert its strengths on the international stage.

“In recent years we have seen numerous challenges to our industry but time and again we have responded adeptly, most recently through the implementation of economic substance legislation, underlining our commitment to governance and international standards. In recent months we have achieved record levels of fund servicing business, stellar growth in alternatives, big-ticket fund launches and rising numbers of managers choosing Jersey to bring their funds to market.

“To maintain our momentum, we must be brave, ambitious and clear about our capabilities as a jurisdiction that specialises in global fund structuring and distribution, and to that end I’m looking forward to working with the committee and stakeholders on and off-island as the JFA looks to support the ongoing success of our industry.”

Figures for Jersey’s funds industry show that, at the end of 2018, the net asset value of funds administered in Jersey rose to £320bn, the highest level ever recorded, with alternatives, including private equity, real estate, hedge, infrastructure and private debt funds, now representing 86% of that business.

An active trade association representing companies with Jersey offices operating in the funds sector, the JFA has over 100 members, including organisations spanning from niche independent Jersey-owned companies to global leaders.

Jersey Finance has appointed Philip A. Pirecki as its business development lead in the US, ahead of the opening of a new representative office in New York later this year.

In his new role, Philip will take on responsibility for enhancing Jersey’s visibility in the US as an international finance centre, focusing in particular on promoting Jersey as a gateway to Europe for US fund managers.

With over 20 years of professional experience spanning investment banking, investment management, consulting, auditing and accounting, Philip has a track record of growing and leading businesses in the Caribbean, US and Europe. He has a particularly deep knowledge of the hedge fund sector, with experience in multi-jurisdictional fund structuring, governance, regulation, legal, compliance, risk and operational management.

Previously, Philip was an independent director for hedge, private equity and investment companies and before that was Partner and Director of Silver Sail Advisors LLP, a London-based independent investment advisory firm. Prior to that, he was a Partner and COO at Silverstone Capital LLP, a hedge fund group based in London, whilst he has also worked as an equity research analyst and in forensic accounting in the US. He is a member of The Alternative Investment Management Association (AIMA).

Jersey Finance’s office in New York, which will be situated on Avenue of the Americas, is due to be formally opened at a launch event later this year.

Joe Moynihan, CEO, Jersey Finance, said: “At the start of this year, we set out a clear vision to expand our global reach and diversify our proposition in overseas markets, and developing our footprint in the US is a key part of that. Philip will play a vital role in enhancing our visibility and clarifying our proposition in the US, where we see significant opportunity and are already seeing traction – particularly in supporting fund managers who are seeking a reliable platform to support their European strategies.”

Commenting on his new role, Philip commented: “Jersey is perfectly positioned to capture a burgeoning US institutional investor market that is looking acutely at European opportunities but that is cautious because of the complex European regulatory landscape. With a position outside of the EU, a fantastic reputation for global funds business, a world-class regulatory framework and an impressive range of structures, including the Jersey Private Fund, Jersey has a really exciting opportunity to provide US managers with a solution that clearly meets their needs.

“I’m now looking forward to working with firms and contacts to build a strong network in New York and beyond “

The most recent Monterey Insight Jersey Report 2018 found that US promoters’ assets under administration in Jersey have increased by 148% over the past five years.

Global private market dry powder (sums that have yet to be invested) reached a record high of $2tn in June 2018, doubling in the six years since December 2012 (Preqin).  

Following a record year in 2017, fewer funds closed in 2018, with a reduction in capital raised from $925bn in 2017 to $757bn in 2018. A record 5,147 funds were in market as at January 2019, up 47% year on year, targeting $0.5tn in capital. Institutional investors in private markets have increased from 3,500 in 2008 to over 11,000 today.

The private market has evolved in recent years, with a shift in growth towards infrastructure and real asset funds.  

The infrastructure fund market is booming. Increasingly, mega funds dominate the field with two funds, Brookfield and Global Infrastructure Partners, targeting enough capital to match half the entire funds raised in 2018.

Europe has been the largest focus of all infrastructure deals with 859 deals completed in 2018 at an aggregate value of $152bn. North America is the second largest with 801 deals at an aggregate value of $78bn.

With fund raising set to continue, Jersey is well placed to benefit from another bumper year in 2019 – figures for the end of 2018, for example, showed that private equity fund values in Jersey rose by 38% over the year to cross the £100bn mark.

And there are good reasons for this - Jersey offers stream-lined regulatory products (the recently introduced Jersey Private Fund enables funds with up to 50 investors to avail of a fast-track authorisation process and lighter ongoing regulatory requirements), tax simplicity, together with high quality, and mature tested solutions to support substance requirements.

In addition, marketing access to the EU market is tried and tested through the use of EU private placement regimes, and is combined with entirely AIFMD-free marketing to investors outside the EU.
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Leading global managers in alternatives continue to structure their products through Jersey (eg. CVC Fund V11 - Europe’s largest private equity fund - and the Softbank Vision Fund – the world’s largest alternative fund – were established in Jersey in 2017), demonstrating global investor familiarity and confidence in the jurisdiction.

Jersey has, for the second consecutive year, been crowned ‘Best International Finance Centre’ at the annual WealthBriefingAsia Awards, once again demonstrating its credentials as one of the world’s leading and forward-thinking international finance centres (IFCs).

The awards, now in their seventh year, were held last month (30 May) at the Westin Singapore. Showcasing innovation and excellence in 2018/2019, the awards recognise jurisdictions, companies and individuals across the global private banking, wealth management and trusted advisor communities.
Commenting on Jersey’s winning entry, the panel of judges said:

“Jersey has made a recent series of legislative enhancements that have further enhanced its reputation for global philanthropy, private wealth and investment activity. The jurisdiction has also made great strides in defining its ambitions within the fintech sector.”

Jersey’s success at this year’s awards coincides with Jersey Finance celebrating the 10-year anniversary of the opening of its Hong Kong office in November.

Joe Moynihan, Chief Executive of Jersey Finance, commented:

“We have had a long and positive history in Asia, successfully promoting Jersey’s credibility as a leading IFC in Greater China since 2005. This award, along with the 10-year anniversary of our Hong Kong office, is testament to the Island’s ongoing commitment to supporting the current and future needs of investors in the region.”

ClearView Financial Media’s CEO, and Publisher of WealthBriefingAsia, Stephen Harris, extending his congratulations to all the winners, said:

“The firms who triumphed in these awards are all worthy winners, and I would like to extend my congratulations. These awards recognise the very best operators in the private client industry, with ‘independence’, ‘integrity’ and ‘genuine insight’ the watchwords of the judging process - such that the awards truly reflect excellence in wealth management.”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Jersey’s focus on alternative funds and its growing status as a centre for fund management is positioning it positively but sustained bravery is essential to Jersey’s future success, according to the Chairman of the Jersey Funds Association (JFA).

Speaking at this year’s annual JFA Dinner (3rd May) held at the Royal Jersey Showground, Mike Byrne told an audience of over 450 funds professionals, senior politicians and regulatory representatives that “Jersey’s funds industry looks in excellent health” with figures for the end of 2018 indicating that the total net asset value of funds under administration in Jersey stood at a record high of more than £320bn, up 15% year-on-year.

Pointing to rising levels of business across the alternative asset classes, Mike, who completes his third and final year at the helm of the JFA this summer, commented:

“It’s been a very successful year for our funds industry, both in the funds and the fund manager space, with our focus on alternative funds creating a very stable platform of long-term capital that is largely insulated from short term market sentiment.

“That focus is very well placed, with pensions, sovereign wealth funds and institutional investors all continuing to allocate to private equity, private debt, real estate and infrastructure funds. With a record £320bn of fund assets now being serviced across our regulated funds space and a further £20bn now held in Jersey Private Funds, there is a clear picture of an extremely healthy jurisdiction.”

In addition, Mike pointed to how Jersey’s growing status as a fund management centre is positioning it well in light of new economic substance rules:

“Our industry has faced a number of challenges over the past year but we have come out the other side very successfully. In particular, the past year has seen an almost unprecedented level of cross-industry work to ensure that we responded to economic substance requirements by developing a law that demonstrates our commitment to meeting global standards and reflects the true substance which we know exists in our industry.

“In fact, we are seeing an ever-increasing community of fund managers fully resident in the island, across private equity, hedge, debt, real estate and crypto funds. These managers are bringing a real depth and diversity to our industry at a time when the issue of substance is so high on the agenda.”

Looking to the future, Mike underlined the importance of Jersey adopting a bold approach if it is to continue to be successful:

“We must continue to adopt a brave approach in how we operate, in the markets we serve and in the products we offer. We need to think creatively, for instance, about how we bring to life the Jersey proposition and the positive solutions we can provide for both EU and non-EU investors. And, whilst discussions around the AIFMD and passports now seem long in the past, the fallout from Brexit continues to have unintended consequences on many fund jurisdictions, including Jersey, and we must be prepared for that.”

Lead sponsor for the evening was Mourant and silver sponsors were BNP Paribas Securities Services, IQ-EQ, Ogier, Praxis IFM and PwC, whilst the champagne reception was sponsored by Carey Olsen

New Guidance Notes, published last week (26 April) to give industry clarity around the interpretation of recently introduced economic substance legislation in Jersey, are reflective of Jersey’s ongoing commitment to nurture a substance-driven environment for fund managers, according to the Chair of the Jersey Funds Association.

The governments of Jersey, Guernsey and the Isle of Man published the ‘Joint Guidance Notes’ following the introduction of new economic substance legislation on 1 January this year. That legislation was brought onto the statute to meet the requirements of the EU's Code of Conduct Group for Business Taxation relating to levels of substance for certain tax resident entities in Jersey, following a comprehensive assessment from the EU that ultimately saw Jersey formally recognised as a cooperative jurisdiction.

Mike Byrne, Chairman of the Jersey Funds Association, said:

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

“Jersey has long been a jurisdiction of substance with a regulatory environment that is internationally-recognised and already in tune with global thinking on substance, and the expectation is that managers here will be able to meet the criteria. Against that backdrop, these Guidance Notes are a further example of Jersey’s approach to governance best practice and a natural next step that further bolsters Jersey’s proposition as a fund management jurisdiction.”

The recent publication of a new policy from the European Investment Bank (EIB) Group provides some welcome clarity around Jersey’s ability to continue to support the objectives of the European Investment Fund (EIF), according to the head of Jersey Finance.

The EIB Group published its updated policy last week (25 March), replacing an interim approach that was in place whilst the EU Code of Conduct Group on Business Taxation undertook a comprehensive screening process to assess non-cooperative tax jurisdictions.

With EU Finance Ministers (ECOFIN) having formally confirmed Jersey’s position last month (12 March) as a cooperative jurisdiction following the introduction of substance legislation in Jersey, the new EIB policy confirms that there should be no impediment to private equity firms in Jersey continuing to carry out ‘business as usual’ with the EIF.

The EIF, which is part of the EIB Group, aims to foster innovation and entrepreneurship in Europe by supporting small and medium-sized businesses (SMEs) and helping them to access finance.

Joe Moynihan, CEO, Jersey Finance, said:

“This is a really positive repercussion of the efforts of Jersey’s government and financial regulator over the past couple of years to work with counterparts in Europe and demonstrate that Jersey is a cooperative and transparent jurisdiction. Our focus is on supporting future growth in Europe and other international markets, and with that in mind this new policy provides some welcome clarity around Jersey’s relationship with the EIF. It is clearly excellent news - for those firms in Jersey that do business with and through the EIF and for those SMEs across Europe that are benefiting from it.”

Mike Byrne, Chairman of the Jersey Funds Association, added:

“Our industry has developed over many decades to offer a sophisticated environment for cross-border funds, with a particular focus on alternatives including private equity, with around a third of funds business here touching Europe. With that in mind, we feel we have a great deal of experience and expertise to support the EIF in its ambitions. The EIF has long been a key investor into funds raised in Jersey and the confirmation that it is able to continue to engage with and draw on the strengths of our funds industry is really positive for everyone and will undoubtedly be a shot in the arm for private equity managers and service providers here too.

The ongoing success of Jersey’s funds industry, which registered a record £320bn in assets under administration at the end of 2018, is set to be marked at this year’s Jersey Funds Association (JFA) Annual Dinner next month.

Taking place on Friday 3 May at the Royal Jersey Showground, the black-tie event aims to be a celebration of success for Jersey’s funds industry over the past twelve months. Expected to be attended by more than 400 funds professionals, the event’s gold sponsor is Mourant whilst silver sponsors are BNP Paribas Securities Services, Moore, Ogier, PraxisIFM and PwC.

The event starts at 6.45pm with a champagne reception, sponsored by Carey Olsen.

Guest speaker for the dinner this year will be ventriloquist Nina Conti who has wowed audiences all over the world, from Las Vegas to Melbourne to the Edinburgh Festival.  She will be joined by her regular sidekick Monkey, with other characters including poetry-writing Owl, Scottish grandmother Granny, loud-mouthed New Yorker Lydia and possibly a member of the audience also likely to make an appearance.

There will also be musical entertainment provided by a local band both during and after the dinner.

Mike Byrne, Chairman of the JFA, said:

“Despite the political uncertainty in Europe over recent years, 2018 was actually a good year for Jersey’s funds industry. We achieved record levels of fund servicing business, stellar growth in alternatives, big-ticket fund launches and rising numbers of managers choosing Jersey to bring their funds to market. Our annual dinner is a fantastic way to reflect on and celebrate that success and recognise the professionals who contribute so much to the island’s industry.
“I’m delighted that Nina will provide our entertainment at what should be an extremely enjoyable evening. The dinner has always been popular so I encourage those wanting to attend to book tickets in advance.”

Tables can be booked for either 10 or 12 people and tickets are £85 per person.  To make a booking please contact JFA Executive Secretary Caroline Harrington at enquiries@jerseyfunds.org.

The value of regulated funds serviced in Jersey saw double digit growth to reach a new all-time high while bank deposits also increased over the course of 2018, according to the latest figures to be collated by the jurisdiction’s financial regulator the Jersey Financial Services Commission (JFSC).

Figures for the final quarter of 2018 (ending 31 December 2018) show that the net asset value of regulated funds under administration in Jersey grew 10% annually to stand at £319.9bn, the highest recorded figure to date, while the value of bank deposits held in Jersey grew 4% to stand at £122.9bn, the highest figure since 2016.

Within the funds industry, the statistics show particularly strong performances in the alternative asset classes, which now represent 86% of Jersey’s total funds business recorded a year-on-year increase of 23%. Specifically, private equity fund values rose by 38% over the year to cross the £100bn mark for the first time ever and finish the year standing at £114.5bn.

Meanwhile, the combined total value of infrastructure, credit and debt funds also showed impressive growth, increasing by 28% to stand at £64.8bn while the value of real estate funds grew by 10% to £41.4bn and hedge funds increased by 3% to £52bn.

JFSC data also shows that there were 205 Jersey Private Fund (JPFs) registered in Jersey at the end of December 2018, although the value of assets they manage, which totaled £19.4bn according to the latest statistics reported by the JFSC, is not included in these quarterly figures.

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

“These are really strong figures for the 2018, clearly demonstrating that Jersey is continuing to provide a solid, resilient platform for international investors and an attractive proposition for fund managers. Over the past five years, Jersey’s funds business has grown some 66% to reach a new all-time high at the end of 2018, which is a fantastic achievement and reflective of the fact that managers are finding long-term appeal in Jersey’s regulatory standards, the global market access it can offer, its specialist expertise, and its forward-thinking approach.

“In addition, our banking sector, the backbone of our finance industry, is also going through a significant evolution to ensure it can support the aspirations of investors, and the evidence of these figures is that this is clearly working and positioning us strongly for the future.”

Mike Byrne, Chairman of the Jersey Funds Association added:

“The private equity asset class was the stellar performer and the driver of growth in our funds industry last year, with a number of big-ticket fund launches, while we’re also seeing strong performances across the alternatives spectrum. It’s a fantastic endorsement of Jersey, particularly in the lead up to Brexit, as we continue to work with managers to give them some much-needed support and certainty.”

The full set of quarterly statistics is available here.

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Commenting on ECOFIN’s recognition of Jersey as a cooperative centre yesterday (12 March), Mike Byrne, Chairman of the JFA, said:

"Jersey has close ties with the EU through its funds industry – around a third of funds business in Jersey touches the EU in some capacity, whilst the number of alternative fund managers opting to structure their funds through Jersey to market into the EU through private placement grew by 13% last year. Maintaining a good working relationship with the EU is therefore absolutely vital, so this recognition, which comes after a period of really positive engagement between Jersey’s government and EU officials, is welcome news.
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"In Jersey we take our obligations as a responsible centre that upholds the highest standards of oversight and governance extremely seriously, and we’re confident that our existing approach, coupled with the new economic substance legislation, demonstrates that we are a genuine funds industry of substance here.”

The Government of Jersey's full statement can be found here.

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A new Memorandum of Understanding (MoU) signed between Jersey’s financial regulator the Jersey Financial Services Commission (JFSC) and the UK’s Financial Conduct Authority (FCA) should give fund managers added certainty around accessing UK investor capital through Jersey in the lead up to Brexit, according to Jersey Finance and the Jersey Funds Association (JFA).

The MoU, signed this week (Monday 11th March) allows funds domiciled in Jersey to continue to be marketed to UK investors through private placement unimpeded, should EU law cease to apply in the UK in the event of a ‘no deal’ Brexit or at the end of any transitional period.

Commenting on the MoU, Jersey Finance CEO, Joe Moynihan, said: “This MoU is a precautionary measure and should give managers using Jersey for their fund structuring added confidence that access into the significant UK investor market will continue uninterrupted and irrespective of how Brexit unfolds. It’s a reflection of the efforts Jersey puts in to working with key stakeholders in the UK to support international investment.”

Mike Byrne, Chairman of the Jersey Funds Association added:

“With the UK being such a vital market for Jersey, this is an important measure that underlines Jersey’s commitment to supporting managers looking to market into the UK. At the same time, of course, we are also successfully supporting a growing number of managers marketing funds into the EU, and it is this flexibility and certainty that is helping to future-proof our industry and drive growth across the alternative asset classes, as recent statistics show.”

The full announcement from the Jersey Financial Services Commission can be found here.

As well as the 29 March, the 6 April 2019 is another fast-approaching date of note – the date from which non-resident capital gains tax (“NR CGT”) will be payable on both commercial and residential property disposals, whether direct or indirect.  

There is a rebasing to market value or historic cost if this provides a better outcome which given current valuations may be the case.

These changes will affect all offshore entities that derive at least 75% of their gross asset value from UK land. Rules will be introduced to avoid inter-company artificial boosting of non-land assets. For investors with less than 25% ownership disposing of their interest in the property holding entity for two years preceding the sale there is no tax consequence.
Jersey collective investment entities have key decisions on two elections that need to be fully considered.  These options stem from a period of positive consultation between the UK authorities and a range of industry stakeholders, including the JFA, and are designed to prevent the potential for multiple layers of tax in structures.

Transparency election

Current entities such as Jersey Property Unit Trusts (“JPUTs”) can elect to become transparent for NR CGT.  This means there will be no tax at the JPUT level but there will be for unitholders. This will clearly benefit those investors that qualify for an exemption from UK tax such as pension funds.

Exemption election

Provided not ‘close’ and having to abide by certain reporting requirements, then a collective investment vehicle and the structure beneath can elect to all be exempt for NR CGT.  

This will prevent multiple layers of tax within a structure, irrespective of the investors’ tax standing. Currently, there is no threshold and all investors, unless exempt, would be taxed on a disposal of their interest.

There now needs to be a period of consideration of the pros and cons of the elections and reporting requirements balanced with the tax profile of the investors and their anticipated exit from an investment.  

Meanwhile, it should be noted that a further change will be Corporation Tax returns from 6 April 2020 with the need to consider interest deductibility and year ends ahead of the change.

Jersey offers a range of regulated structures all able to utilise these elections, which can be used by investors (whether exempt for UK tax or not) to invest collectively in UK real estate.

For this reason, it is fully expected that Jersey, which has developed huge experience and expertise and created a highly sophisticated regulatory environment for cross-border real estate investment over many years, will continue to provide a compelling proposition for UK-focused real estate fund structuring.

Indeed, the expertise Jersey can offer will be absolutely vital in supporting managers with the new rules and advising them around the options now open to them.

According to figures from the Jersey Financial Services Commission, the net asset value of real estate assets held in Jersey fund structures was £40.7bn as at 30 September last year, reflecting growth of 79% over the past five years.

Recent political manoeuvring in Westminster has done little to resolve the feeling of uncertainty amongst private equity, real estate, infrastructure and other alternative fund managers around the long-term solution to capital raising within the EU.

It won’t be until mid-March now – just weeks before the UK’s expected departure from the UK – that we will have a better idea as to whether the UK is looking at a cliff-edge no deal exit, whether a new deal will be given the green light, or whether the agony will be prolonged by extending Article 50.

Yes, there may be transitional measures in place for fund managers between the UK and European regulators for now, but it’s hardly a satisfactory long-term answer for UK managers looking to access EU investor capital. And with 90% of alternative managers in Europe being in either the UK or Switzerland, that’s a lot of non-EU managers looking for a better solution.

The good news is Jersey continues to play a vital role in supporting managers looking to market vehicles in all or parts of continental Europe, regardless of the outcome of Brexit – deal, no deal or deadline extension.

We’re continuing to see private placement as a very viable and attractive option for managers, with figures announced recently indicating that the number of AIFs marketing into the EU this way through Jersey grew by 8% over 2018, whilst the number of managers doing so rose by 13%. That’s a real demonstration of faith in Jersey’s model.

You can see how private placement is being used in practice here - across all asset classes and fund sizes.

There’s good reason for this confidence. Jersey is already a third country in relation to the EU, with all relevant agreements in place to support private placement across Europe. That means Jersey can continue to operate seamlessly irrespective of the outcome of Brexit.

Doing so is also more targeted – EU figures show that only 3% of managers in Europe actually blanket market to more than three EU countries. In 97% of cases, it makes much more sense to opt for a private placement solution.

In addition, the set-up process for managers is a lot quicker than onshore solutions and a lot more efficient and cost-effective, whether that’s relocating fully or partially to Jersey through, for instance, a Jersey ManCo structure.

There’s long-term security for managers too - changes to the private placement regime are unlikely, but if they do happen, private placement will still be in place for three years from that date, by which time Jersey will have access to the AIFMD passport in any case.

It’s a pretty compelling proposition for UK, and other non-EU managers, looking to market into the EU, and the industry agrees – according to current figures, the value of funds administered in Jersey broke through the £300bn mark in 2018 to reach the highest ever level – any perceived uncertainty around Brexit certainly hasn’t hampered the growth of Jersey’s funds sector.

The message is clear – whatever happens at the end of March, Jersey is ready to play a key role in enabling managers to continue to market their funds to and generate returns for EU investors. No problem.

#JerseyForFunds

Jersey’s funds industry continued to see a rise in the number of alternative fund managers choosing to market their funds through national private placement regimes (NPPR) in the second half of 2018, according to the latest figures from Jersey’s financial regulator.

Data from the Jersey Financial Services Commission (JFSC) shows that the number of Jersey-registered managers opting to market into the EU through NPPR rose 4% between July and December 2018, and by 13% compared to December 2017, to stand at 168.

Meanwhile, the total number of Jersey alternative funds being marketed into the EU through NPPR also increased to stand at 314, representing a 3% increase since June 2018 and an 8% rise year-on-year.

Commenting on the figures, Joe Moynihan said:

“We are now just weeks away from the UK’s departure from the EU and the clear evidence is that alternative managers are putting their faith in Jersey and opting for a regime that offers them market access certainty and a welcome degree of flexibility, thereby enabling them to get on with generating returns for investors.

“These are strong figures for the second half of 2018 that sustain a growth trajectory we have been seeing for some time now as we continue to work with the UK and other non-EU managers to provide them with future certainty.”

Meanwhile, the latest figures follow a masterclass event recently held in London by Jersey Finance in conjunction with the Jersey Funds Association, which focussed on market access and fund distribution post-Brexit.

Attended by around 100 London funds professionals, including lawyers, tax advisers and managers from across the alternatives spectrum, the event featured an expert panel that included Adam Skinner, Partner at Kirkland & Ellis International, Tom Powell, Principal at Alnitak Advisors, Andrew Brizzell, General Counsel at Asante Partners, Robert Milner, Partner at Carey Olsen, and Mike Jones, Director of Policy at the Jersey Financial Services Commission.

Elliot Refson, who hosted the masterclass, said:

“This event provided a fantastic platform to have a robust discussion about the future of fund distribution and take an in-depth look at the benefits of the private placement route to market.

“The reality is that few managers need blanket access to all EU Member States. In cases where they do, then an onshore option works best, but with EU figures* suggesting that 97% of managers actually market to three EU markets or less, then private placement offers a very credible, fast, cost-effective and sensible option. That’s our message to the alternative fund management community and it is clearly resonating.”

#JerseyForFunds

Elliot Refson, Business Development Director, Funds at Jersey Finance, and committee member at the Jersey Funds Association, recently spoke to PFM about how Jersey is supporting private equity fund managers with their EU distribution through Brexit.

Leading offshore law firm, Mourant, has advised international investment firm and longstanding client, Triton, on its latest flagship buyout fund, Triton Fund V.

The fund surpassed the €4 billion target and successfully closed in December 2018 at its hard cap of €5 billion, making it Triton's largest fund in its 22-year history and one of the largest pan-European buyout funds of 2018.

The fund is established in Jersey as an expert fund and received commitments from a diversified range of institutional blue-chip investors including pension funds, insurance companies and sovereign wealth funds. The Triton funds invest in and support the positive development of medium-sized businesses headquartered in Europe. The 38 companies currently in Triton's portfolio have combined sales of around €13.1 billion and around 85,000 employees.

Triton V will continue the 'all weather' mid-market private equity investment strategy and will seek to generate value in the geographies in which Triton has strong local knowledge, such as the Nordics, Germany, Austria, Switzerland, Spain, Italy, France, UK and Benelux. Triton and its executives wish to be agents of positive change towards sustainable operational improvements and growth.

Partner Daniel Birtwistle led the Mourant team, with senior associates Alex Henderson and Gabby Kellogg and associates Roisin Cullinane and Rachel McGuinness. The firm acted as Jersey counsel alongside lead counsel Simpson Thacher & Bartlett.  

Matt Crill, Head of Corporate Governance at Triton commented "we were pleased to partner once again with the Mourant funds team, who were able to field a strong dedicated team to support us in this key fund-raising".

The fund is the latest in a series of multi-billion euro fundraises that Mourant has advised on, and demonstrates the firm's continued position as the leading Jersey law advisers for large and/or complex fundraisings. Mourant's Jersey Funds team is independently recognised as the go-to legal adviser in Jersey's funds industry, advising on over 46% of all funds by market share of assets.