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Members' News
Monday
06
July 2020

Accessing Europe: an introduction to marketing funds

By JFA member firm Langham Hall

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

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

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

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

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

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

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

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

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

JFA member firm Langham Hall takes a look at the options open to managers looking to market funds into Europe...

JFA News
Tuesday
09
June 2020

Jersey Funds Association Chair delivers virtual update

With this year’s JFA Annual Dinner being postponed until later this year, Chair Tim Morgan gave a webinar update last week (3 June), when he provided an overview of the current funds landscape, the work of the JFA and also outlined future opportunities for the industry.

Resilience in the face of an uncertain market, including the Covid-19 pandemic, and a stable platform designed to provide the perfect ecosystem for alternative funds should position Jersey strongly in the short and long-term, according to the chairman of the Jersey Funds Association (JFA).

With this year’s JFA Annual Dinner being postponed until later this year, Chair Tim Morgan gave a webinar update last week (3 June), when he provided an overview of the current funds landscape, the work of the JFA and also outlined future opportunities for the industry.

 Pointing to the fact that Jersey’s funds industry recorded a new record high of fund assets being administered last year (£346bn), a figure that included a 19% year-on-year jump in private equity business in particular, Tim commented

“In the first part of 2020, we continued to see a steady demand for Jersey funds, including from existing managers continuing to launch, often with larger, successor funds. Just as importantly, we’ve seen a sustained strong take up of the Jersey Private Fund, with managers converting to the structure and a growing number of smaller, start-up and spin-out managers opting for it too where the JPF's scalability and cost effectiveness, combined with Jersey's opt in approach for EU marketing, makes it a particularly strong choice for new structures. There are now more than 350 JPFs, which is a hugely positive story and a great endorsement of Jersey’s reputation as a specialist centre for alternatives.”

In addition, Tim highlighted some key findings from a recent survey of JFA members, which revealed a widespread positivity around key issues such as Brexit:

“The European market is still grappling with Brexit uncertainty, but actually more than 80% of our members consider that Brexit will have either a neutral or positive impact on business flows – due largely to the success of Jersey’s market access model,including private placement into Europe and seamless global access into other geographies.

“Of course, the coronavirus pandemic remains front and centre of minds at the moment too, but Jersey has shown real resilience, flexed its digital muscle and introduced measures such as enhanced digital filing and electronic powers of attorney, as well as guidelines on meetings during the pandemic to help keep business flowing in difficult times. In fact, with 100% of homes and businesses in Jersey connected to a pure fibre gigabit-speed network which is the fastest of any jurisdiction in Europe, Jersey’s connectivity has supported high service levels and has helped launch some notable funds during the course of lockdown.”

Looking to the future, Tim highlighted that Jersey’s strengths in alternatives would position it ideally against global market trends, with PwC forecasting growth of almost 9% across the asset classes over the coming five years*. He said:

“Our core strengths as an alternative funds centre, particularly across private equity, real estate,infrastructure and credit funds remain the same – our stability, experience, expertise,service levels, cost-effectiveness, legal framework, tax transparency and regulatory standards. However, competition from other centres remains strong and the regulatory environment remains highly complex, so we need to keep innovating and adapting to meet the needs of alternative fund managers.

“To that end, we are focused on enhancing our range of structuring options, and we are focused on promoting our capabilities in the ESG space. We’re also anticipating a rise in co-investment and fund finance activity, a resurgence in the use of Jersey property unit trusts to facilitate investment into the real estate market, and opportunities in outsourced work as managers look for specific support expertise such as governance and compliance, areas where Jersey excels.”

 

*PwC Market ResearchCentre

JFA News
Wednesday
08
April 2020

Sustained private placement rise reinforces Jersey alternative fund market access credentials

New figures from the JFSC show that the number of alternative fund managers choosing to market their funds into the EU through Jersey using private placement continued to grow in the second half of 2019...

The number of alternative fund managers choosing to market their funds into the EU though Jersey using national private placement regimes (NPPR) continued to grow in the second half of 2019, according to the latest figures from Jersey's financial services regulator.

Data from the Jersey Financial Services Commission (JFSC) shows that, as at 31 December 2019, there were 183 Jersey-registered managers opting to market into the EU through NPPR, a figure that has risen 6% since June 2019 and by 9% year-on-year.

Meanwhile, the total number of Jersey alternative funds being marketed into the EU through NPPR also increased to stand at 320, representing a 3% increase since June 2019 and an annual rise of 2%.

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

“Reflecting the period in the immediate run-up to the UK’s formal exit from the EU, these are really positive figures reinforcing just how attractive the private placement route to market is for non-EU managers wanting to access EU investor capital. We’ve seen a sustained and consistent rise in the number of alternative managers and funds making use of private placement through Jersey over the past few years. It is a tried and tested route that provides certainty and flexibility and that is cost-effective, and those qualities are hugely attractive – particularly in the current challenging market.”

The figures follow shortly after the publication of the latest quarterly statistics for Jersey’s funds industry. They showed that the total net asset value of regulated funds under administration in Jersey grew by 8% over 2019 to stand at £345.7bn, a new record high, with private equity and venture capital driving growth, increasing by 19% over the year.

 Tim Morgan, Chair, Jersey Funds Association, added:

"Our alternatives sector continued to perform extremely strongly in 2019, reflecting the ideal ecosystem we have created in Jersey, and our market access and distribution capabilities are very much a part of that. The fact that we’ve seen a growing number of private equity, venture capital, real estate,infrastructure and debt funds opt for a private placement route to market through Jersey is testament to just how well it works. We expect this figure to continue to rise as managers look for robust and straightforward solutions to help navigate the complex and uncertain global environment we all now find ourselves in.”

JFA News
Thursday
05
December 2019

Jersey Funds Association presents findings of annual member survey

The findings of the second annual survey of the Jersey Funds Association’s (JFA) members will be instrumental in informing the organisation’s future direction and strategy, according to Chair Tim Morgan.

The findings of the second annual survey of the Jersey Funds Association’s (JFA) members will be instrumental in informing the organisation’s future direction and strategy, according to Chair Tim Morgan.

Highlighted to an audience of industry professionals at a presentation held at the Jersey Museum last week (28th November), the survey explored key opportunities and issues for Jersey’s funds industry and the sentiment of practitioners.

Amongst its key findings were that the industry’s approach to Brexit and new economic substance rules were balanced but largely positive, with over 80% saying Brexit would be neutral or increase business and around three quarters saying the same about substance rules.

Members were also very positive in terms of their growth outlook, with 84% saying they were confident or very confident of growth, a significant increase from last year.

In addition, in respect of technology the survey indicated a clear trend, with over 56% of respondents saying that they had employed automation technology over the past year.

Tim commented: “The past year has posed a number of significant challenges, including Brexit and the introduction of substance legislation however we really shouldn’t underestimate just how positive the outcome of Jersey's work around these issues has been for our industry. The recognition from the EU at the beginning of the year has shown without doubt that as a jurisdiction we are serious about cooperation and global standards, and that has translated into good business flows. The fact that our industry now administers in excess of £340bn of assets – a record high - is no accident. That buoyancy really comes through in our survey this year.

“We are pragmatic as an industry too, though. What our survey shows us is that our members are keen to maintain a growth trajectory by looking at innovation, continuing to source the best talent, engaging with stakeholders, and differentiating ourselves through service quality, ease of doing business and stability.

“These findings will be vital in informing how we continue to enhance our funds ecosystem, and I’d like to thank our membership for their time and support in putting their views forward.”

JFA News
Monday
28
January 2019

Supporting private equity fund managers with their EU distribution through Brexit

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.

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.

JFA News
Thursday
26
July 2018

Jersey’s private placement regime continues to find favour amongst alternative managers

The number of alternative fund managers choosing to future-proof their EU-focused funds through Jersey continued to grow in the first six months of 2018, according to the latest figures from Jersey’s financial regulator.

The number of alternative fund managers choosing to future-proof their EU-focused funds through Jersey continued to grow in the first six months of 2018, according to the latest figures from Jersey’s financial regulator.

Data from the Jersey Financial Services Commission (JFSC) for the period ending 30 June 2018 shows that the number of Jersey-registered managers opting to market into EU Member States through national private placement regimes (NPPR) under the Alternative Investment Fund Managers Directive (AIFMD) rose 8% between January and June 2018 and 23% year-on-year to stand at 161.

Meanwhile, the total number of Jersey alternative investment funds being marketed into the EU through NPPR also increased to stand at 306, representing a 5% increase on the December 2017 figure and an 11% rise since June 2017.

Commenting on the figures, Geoff Cook, CEO, Jersey Finance, said:

“Brexit ‘deadline day’ is now less than a year away and it’s looking increasingly like EU market access will prove to be a key challenge for UK fund managers. Our message is clear – Jersey is ready to play a supportive role in enabling non-EU, including UK, managers to continue to market their funds to EU investors through our tried-and-tested private placement regime.

“These are strong figures for the first half of 2018 and a vote of confidence in Jersey as a future-proof jurisdiction from the alternative management community. We fully anticipate this figure will continue to rise as we approach Brexit.”

Meanwhile, the JFSC has also reported that, as at 30 June 2018, they had granted authorisation to 128 Jersey Private Funds (JPF), a fast-track regime that was launched in April 2017 to cater for limited numbers of professional and institutional investors. This figure represents an increase of 190% since August 2017, with the 100th JPF having been registered in March this year.

Mike Byrne, Chairman, Jersey Funds Association, added:

“The overall indications are that Jersey is continuing to find favour right across the alternatives spectrum, spanning private equity, real estate, hedge, debt and infrastructure. Alternative funds business in Jersey grew 18% over 2017, and we absolutely see this dynamic continuing through 2018.

“The impressive growth in our Jersey Private Fund product in particular is evidence of the jurisdiction’s innovative approach to supporting institutional investors, with the structure often being used for EU-focused funds.

JFA News
Monday
23
July 2018

UK Managers Can Look to Jersey for Continued EU Access Post Brexit

Coinciding with the publication of the UK government ‘s white paper on Brexit, ESMA issued a public statement earlier this month aimed at UK managers wishing to submit applications for authorisation in the EU once the UK leaves the EU.

Coinciding with the publication of the UK government ‘s white paper on Brexit, ESMA issued a public statement earlier this month aimed at UK managers wishing to  submit applications for authorisation in the EU once the UK leaves the EU. Commenting on the statement, Mike Byrne, Chairman of the Jersey Funds Association said:

“Of course, there might well be situations where UK managers need to establish a  full EU operation. However, doing so is only one option and in many cases Jersey is actually well positioned to play a helpful supportive role for UK managers wanting to maintain ongoing access into the EU alternative investor market.

“Private placement is tried-and-tested and is continuing to work well through Jersey. There are now in excess of 150 managers and 300 funds marketing into EU in this way through Jersey and we continue to see a strong pipeline of activity right across the private equity, real estate and infrastructure asset classes in particular. In fact, the EU’s own figures suggest that only 3% of EU funds market into more than three EU markets, so in the vast majority of cases, Jersey can actually provide a perfectly viable and much more flexible, cost-effective solution. We’d certainly encourage UK managers not to panic and to assess all the options open to them as they look to navigate life post-Brexit.”

JFA News
Tuesday
22
May 2018

JFA Chair Highlights Importance of Innovation

Jersey’s focus on the alternatives market has positioned it positively given ongoing strong sentiment amongst allocators, but innovation will remain key to Jersey’s future success, according to the chairman of the Jersey Funds Association.

Jersey’s focus on the alternatives market has positioned it positively given ongoing strong sentiment amongst allocators, but innovation will remain key to Jersey’s future success, according to the chairman of the Jersey Funds Association.

Speaking at this year’s annual JFA Dinner (11th May) held at the Royal Jersey Showground, Mike Byrne told an audience of over 480 funds professionals, senior politicians and regulatory representatives that Jersey provides “the very best ecosystem for a funds industry”, with figures for the end of 2017 indicating that the total net asset value of funds under administration in Jersey stood at more than £291bn, up 15% year-on-year.

Pointing to rising levels of business across the alternative asset classes, Mike commented:

“Global allocation to alternatives continues to increase, from pensions, sovereign wealth funds and institutional investors, and we are seeing that in Jersey, with ever-increasing allocations to private equity, private debt, real estate and infrastructure. Our latest figures indicate that Jersey’s funds industry is in excellent health.

“However, those figures are only part of the story – they don’t take into account the Jersey Private Fund (JPF). We know that over the thirteen months since the JPF was introduced, 121 have been launched. I’m optimistic that if we were to include JPF data, that would push us clearly through the £300bn mark.

“We’re also seeing a growing community of managers who are fully resident in the island, across private equity, hedge funds, debt, real estate and crypto. These managers are bringing a real depth and diversity to our industry, at a time when questions around substance are never far from the agenda. Vitally, they are also providing some excellent opportunities for further diversity in career choice for our school leavers and graduates.”

Meanwhile, Mike pointed to challenges faced by the industry:

“The industry has faced a number of significant challenges over the past year. Brexit continues to be one area of uncertainty but it has not had the impact on our industry that might have been feared. In fact, since Brexit we have seen some of the largest funds ever raised in Jersey – Softbank’s Vision Fund, CVC Fund 7, and Nordic 9 to name just a few.

“A key question around Brexit has been how we bring to life the Jersey proposition for both EU and non-EU investors. It is vital that we continue to develop clear and compelling messages, in particular in relation to the opportunity afforded by our private placement regime. There are now close to 150 alternative fund managers going to market through private placement in Jersey, with almost 300 funds distributed into Europe through these channels, a 15% year on year increase.”

Looking to the future, Mike emphasised the importance of innovation for Jersey’s success:

“Product innovation remains key to how we stay on top. With that in mind we look forward to shortly welcoming onto the statute books our Limited Liability Company (‘LLC’) and Jersey Registered Alternative Investment Fund (‘JRAIF’) products, which we envisage will help us maintain the momentum we’ve seen with JPF and LLP vehicles.  We must continue to evolve and respond to the world in which we operate. If we can do that I remain confident of the future of the funds industry in Jersey.”

Lead sponsor for the evening was Mourant and Silver sponsors were BNP Paribas Securities Services, Moore, Ogier and PwC, whilst the champagne reception was sponsored by Carey Olsen.

JFA News
Tuesday
10
April 2018

Blog: Statistics, the Brexit Gap, and the Jersey Solution

JFA Committee Member Elliot Refson takes a look at figures quoted by the European Commission as part of a package of proposed amendments to cross-border investment fund regulations and explores how Jersey can provide a solution to benefit both managers and investors in the UK and EU...

JFA Committee Member Elliot Refson takes a look at figures quoted by the European Commission as part of a package of proposed amendments to cross-border investment fund regulations and explores how Jersey can provide a solution to benefit both managers and investors in the UK and EU...

Figures published last month by the European Commission as part of its proposed package of amendments to regulation surrounding the cross-border distribution of collective investment funds made for interesting reading.

By the Commission’s own admission, “only 37 % of UCITS and about 3 % of AIFs are registered for sale in more than three Member States”. Otherwise put, the vast majority of EU-based AIFs are concentrated on three investor markets or less. Sure, an AIFMD passport is the best bet for the 3% of AIFs wanting to market across the EU, but it begs the question: for the vast majority of funds, is an AIFMD passport really the most efficient and cost-effective means of accessing EU investor capital?

For AIFs, private placement is a tried and tested model for distributing into limited numbers of specific markets. It offers flexibility, speed to market, appropriate regulatory oversight and cost-effectiveness. By the EU’s own statistics, therefore, 97% of all EU-focussed AIFs would be most efficiently and cost-effectively marketed from a Jersey base, outside of the full scope of the AIFMD.

It’s why Jersey continues to see strong growth from AIFMs wanting to make use of the regime. At the end of 2017, there were 149 Jersey based AIFM’s marketing over 291 funds into the UK and the EU using the private placement route. This represents three year growth of 304% and 165% respectively, as reported by the Jersey Financial Services Commission.

And there’s a further problem on the horizon - over 75% of all European investment emanates from the UK, the Netherlands and Switzerland. Post-Brexit, only one of those will be a EU Member State, and there is no guarantee that UK managers will qualify for the AIFMD passport, restricting their ability to market in the EU. It also means that EU AIFMs will be restricted in marketing into the UK. Again, Jersey can provide the solution here, having good relations with all three of those markets.

Which is why we fully expect to see strong sustained interest in private placement through Jersey in the lead up to Brexit, with AIFMs establishing either a full or hosted presence in Jersey that can support them in bridging the gap between the UK and the EU, enable them to market into both via private placement, and ultimately generate better future returns for investors.

JFA News
Monday
05
March 2018

100 Up for Jersey Private Funds

The Jersey Financial Services Commission (JFSC) has reported a sustained strong uptake in the Jersey Private Fund (JPF), with 100 structures being formed less than one year since its launch.

The Jersey Financial Services Commission (JFSC) has reported a sustained strong uptake in the Jersey Private Fund (JPF), with 100 structures being formed less than one year since its launch.

The 100th JPF was registered by the JFSC last week (2nd March), underlining the interest in the product since it was launched in mid-March last year.

The latest addition to Jersey’s suite of fund structuring options, the JPF was introduced to provide institutional and professional investors with a more streamlined and fast-track regime with tailored ongoing regulatory requirements, under which funds for up to 50 investors could be established in as little as 48 hours.

By providing a more flexible and versatile framework, the JPF has markedly improved the speed and ease with which funds marketed to professional investors can be established, whilst at the same time ensuring continued compliance with international standards by requiring the appointment of a Jersey-based administrator.

The JPF is also available to managers seeking some vital certainty in marketing their funds into Europe through National Private Placement Regimes (NPPRs).

Commenting on the 100th registration of the JPF, Geoff Cook, CEO, Jersey Finance, said:

“We’re focused on providing forward-thinking solutions for the alternative funds community to ensure their future success, and the JPF is an example of that. Our excellent reputation as a specialist funds centre is based on our ability to provide genuine speed to market and expertise as well as appropriate regulatory oversight. The clear evidence is that the prospect of 48-hour authorisation for funds with up to 50 investors is playing out well amongst fund managers and cementing our position as a market leader.”

John Harris, Director General, JFSC, added:

“The 100th JPF approval marks a successful and welcome milestone in the positive development of Jersey’s fund offering. The encouraging market take up of the JPF since its launch in 2017 strongly suggests the right balance has been found between product innovation on the one hand and on the other proportionate regulatory treatment that works with such innovation whilst still delivering an appropriate level of investor safeguards. The JFSC is pleased to play its part in this clear success story.”

Pointing to the fact that the majority of JPFs are newly created fund vehicles, rather than conversions from existing structures, Mike Byrne, Chairman, Jersey Funds Association, said:

“In less than a year, the JPF has really come to the fore as the go-to product for alternative fund structuring, right across the private equity, real estate, infrastructure and debt and credit fund asset classes. It’s particularly pleasing that the vast majority of JPFs are brand new funds – indeed, some of the largest funds brought to market globally this year have been structured as JPFs. It’s a really positive indication as to the future health of our funds industry, and we fully expect this upward trajectory to continue.”

JFA News
Friday
16
February 2018

Uptick in fund managers choosing Jersey private placement regime

A growing number of Jersey-registered fund managers are opting to future-proof their strategies and market into Europe through national private placement regimes (NPPRs) under the Alternative Investment Fund Managers Directive (AIFMD).

A growing number of Jersey-registered fund managers are opting to future-proof their strategies and market into Europe through national private placement regimes (NPPRs) under the Alternative Investment Fund Managers Directive (AIFMD), according to the latest figures from Jersey’s regulator the Jersey Financial Services Commission (JFSC).

As at December 2017, 149 alternative investment fund managers (AIFMs) had been authorised in Jersey to market into Europe through NPPRs, up 17% compared to December 2016, clearly highlighting that the use of private placement continues to work well as a means of marketing funds into the EU.

Over the same period, the total number of Jersey alternative investment funds (AIFs) being marketed into Europe through NPPRs also increased significantly to stand at 291, representing a 15% year-on-year increase.

In addition, the JFSC has now authorised a total of 31 depositaries in Jersey under AIFMD, a figure that has risen 7% over the year.

Commenting on the figures, Geoff Cook, CEO, Jersey Finance, said:

“We’re continuing to work together with the fund management communities both in and outside of the EU, so it’s pleasing to see such a strong uptake of Jersey’s tried-and-tested private placement regime. Five years on since AIFMD was introduced, it’s a route that is proven to work, providing alternative managers with a clear, effective and future-proof means of accessing EU investor capital.”

Mike Byrne, Chairman, Jersey Funds Association, added:

“We believe that Jersey is extremely well positioned to play a positive role in supporting alternative managers right across the private equity, real estate, hedge, debt and infrastructure asset classes, particularly against a Brexit backdrop.

“Whilst these latest figures reinforce that Jersey has a key role to play in giving non-EU managers, including those in the US, Asia and soon the UK, with a means of marketing into Europe, we are also seeing EU managers structuring through Jersey to tap into the vital UK market.  In doing so, we are enabling them to get on with generating good returns for investors – something that is in everyone’s interest.”

The use of private placement as a means of accessing EU capital in the context of Brexit will be one of the issues to come under the microscope at the 2018 Jersey Finance Annual London Funds Conference later this year (24 April), which will also examine how market trends, shifts in regulation and protectionist movements are challenging and shaping the global funds industry.

JFA News
Wednesday
13
September 2017

Jersey sees sustained appeal of private placement and strong JPF uptake

The number of alternative fund managers marketing into Europe through Jersey’s national private placement regimes (NPPRs) continued to rise during the first half of 2017 whilst there has been a strong uptake in the latest addition to Jersey’s regulatory regime.

The number of alternative fund managers marketing into Europe through Jersey’s national private placement regimes (NPPRs) continued to rise during the first half of 2017 whilst there has been a strong uptake in the latest addition to Jersey’s regulatory regime, according to mid-year figures from Jersey’s regulator the Jersey Financial Services Commission (JFSC).

As at 30 June 2017, 131 alternative investment fund managers (AIFMs) had been authorised in Jersey to market into Europe through NPPRs under the Alternative Investment Fund Managers Directive (AIFMD), up 14% compared to the same time last year.

In addition, the total number of Jersey alternative investment funds (AIFs) being marketed into Europe through NPPRs also increased to stand at 276, representing a 10% year-on-year increase.

Meanwhile, the JFSC has also reported a strong uptake in the Jersey Private Fund (JPF) regime, the latest addition to Jersey’s suite of fund structuring options, which was launched in April. As at 31 August 2017, there were 44 JPFs, with the majority being newly created fund vehicles with just under a fifth being conversions from existing structures.

The JPF was introduced earlier this year to provide sophisticated investors with a more streamlined and fast-track regime, under which funds for up to 50 investors could be established in as little as 48 hours.

Geoff Cook, CEO Jersey Finance, believes the figures show that private placement continues to give fund managers a good option for marketing funds into the EU:

“The clear indication is that, although there is a lot of talk about AIFMD passporting, private placement is giving non-EU fund managers a really reliable, straightforward and efficient route for marketing alternative funds into Europe. It’s stable, it’s cost-effective and it’s tried and tested and, against a complex geopolitical backdrop in Europe, that’s a really attractive proposition for fund managers right across the private equity, real estate, hedge and infrastructure fund asset classes.”

Meanwhile, commenting on the strong uptake in Jersey’s new JPF vehicle, Mike Byrne, Chairman, Jersey Funds Association, added:

“In the four months since the JPF was brought to market, this is a really encouraging initial uptake, and it’s particularly pleasing that more than 80% of JPFs are brand new funds. At the outset, we felt that there was real demand for this type of structure amongst institutional and professional investors across the alternative asset classes, and the figures support this view. In addition, we have also seen a positive reaction from family offices, who are using the new regime for co-investment purposes and to pool investments from multiple families.”

JFA News
Thursday
06
July 2017

Brexit: the Jersey Solution for London-based Alternative Investment Fund Managers

Over recent months, there have been numerous articles speculating on how Brexit might unfold.

Over recent months, there have been numerous articles speculating on how Brexit might unfold. Whilst the UK government’s White Paper set out their ambitions for Brexit, the reality is that we do not know what the eventual position will be. So what do we know and how can Jersey help London based Alternative Investment Fund Managers future-proof their fund structures?

“There are known knowns; these are things we know we know. There are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don't know we don't know….” (Donald Rumsfeld 2002)

We do know:

• That in the referendum over a year ago the UK electorate voted to leave the EU
• The triggering of Article 50 earlier this year has opened a two year window to negotiate the withdrawal
• The negotiating period has now formally started
• If no agreement is reached within two years, and no extension has been agreed then Brexit occurs with the UK leaving the EU and all EU treaties, with no replacement regime in place
• For a negotiated agreement to be reached it will need to be adopted by a qualified majority of 20 of the remaining 27 member states representing 65% of the total EU population and also approved by the European Parliament which has the right to veto both any agreement and any extension of the negotiation period
• We also know that if no agreement is reached the free movement of goods, services, people and capital will be severely impacted

In the alternative investment arena, aside from any impact on the availability of talent in London as a result of restrictions to freedom of movement, the key impact of Brexit as the UK becomes a third country will be the loss of the EU marketing passport for both Alternative Investment Fund Managers (AIFMs). This means the loss of the right to freely market funds across the member states of the EU.

What is equally certain is that whatever form Brexit takes - including the much touted “equivalence” route where companies from countries that are deemed to have equivalent regulatory standards are permitted to trade freely across borders - it will result in a period during which UK managers will not be able to directly access investors across the EU and possibly EU managers will also lose access to UK investors.

This is because of the two stage process required. Firstly any agreement will be subject to a technical review by the European Securities and Markets Authority (ESMA), which is under-resourced and therefore slow. ESMA’s advice will then be considered by the EU Parliament, Commission and Council which must reach a political decision acceptable to all three bodies. Further, EU Member States may have a limited appetite for an amicable agreement with the UK, due to a desire not to leave the UK in a better position post-Brexit than it was as a Member State. The issue of the loss of the passport and access to EU investors is the key point to address.

For some larger managers, opening an office within the EU to preserve access to the passport may be an answer. However, this is a costly option particularly for smaller managers. In addition, Preqin statistics indicate that the majority of UK managers only market into one or two EU countries, so if the fund’s target investors are in countries that have an accommodative private placement regime (NPPR), doing this through Jersey will be a better solution.

Globally 20% of investment in hedge funds is from European investors, of which almost three quarters is from the UK, The Netherlands and Switzerland (ex EU). For managers seeking to distribute into the EU, a Jersey-based manager can use NPPR to access almost all of the European Investor base. NPPR is guaranteed into the UK and The Netherlands has a very low barrier to entry for Jersey based Managers (Switzerland has its own marketing regime).

As at 31st December 2016 there were 127 Alternative Investment Fund Promoters marketing 254 funds in this way (this figure reported bi-annually has grown with every release since 2014). Jersey’s efficient and world-respected regulatory regime coupled with its ability to offer funds to investors outside of the scope of AIFMD, and therefore without the need for a depository, capitalisation and other associated costs, can result in higher investor returns in a more attractive and certain tax environment.

Despite the uncertainty around Brexit, UK alternative fund managers can rely on Jersey’s cost-effective and future-proof solution.

JFA News
Thursday
20
October 2016

Jersey and Brexit: a Q&A with Geoff Cook

The head of Jersey Finance discusses what the UK’s vote to Brexit means for Jersey, the long-term future of the private placement regime and the why the outcome of a recent ESMA review is good news for the jurisdiction.

This Q&A was first published in Real Deals on 20th October 2016.

The head of Jersey Finance discusses what the UK’s vote to Brexit means for Jersey, the long-term future of the private placement regime and the why the outcome of a recent ESMA review is good news for the jurisdiction.

The UK’s vote to leave the European Union caught many in the financial services industry by surprise and created much economic uncertainty. What does the referendum mean for Jersey and its access to the EU?

GC: The fact of the matter is that the vote doesn’t impact Jersey directly at all. There is often a mistaken assumption that Jersey accesses the EU through the UK. Jersey’s access to Europe is not secured through a UK treaty but through bilateral treaties with individual member states or by being deemed to be ‘equivalent’ for specific initiatives. There is cooperation with regulators across Europe and we have equivalent standards in place.

Even though the Brexit vote will not restrict Jersey’s access to the EU, could the referendum have any indirect consequences?

GC: We want Britain to negotiate a successful agreement with Europe as a large number of the investment managers that use Jersey are based in the UK. In some respects you could say that after the referendum Jersey is in a position that that UK will need to get to, so we have been contributing to the regulatory work streams that have been set up in the UK to look into passporting post-Brexit and how the UK can operate as a third country.

Going back to the point you mentioned earlier about the equivalent regulatory standards Jersey shares with the EU, the jurisdiction has recently undergone a review by the European Securities and Markets Authority (ESMA), the EU body that supervises funds activity. What was the outcome of that review and what is its significance?

GC: ESMA provides a pan-European overlay to the bilateral agreements that Jersey has in place and in July it announced that Jersey was one of only five non-EU jurisdictions to have “no significant obstacles” impeding the application of the AIFMD passport. This reinforced ESMA’s initial advice of July 2015 recommending that Jersey should be granted an AIFMD passport.

What this demonstrates is that Jersey’s standards have passed muster. Jersey has transparency checks and balances in place and shares information with regulators and tax authorities globally. Its standards for the prevention of aiding and abetting crime and tax evasion are as, if not more, robust than those in the EU. Jersey engaged with AIFMD early and was the first third country with equivalence selected by ESMA for assessment. In terms of the significance of this, it shows that Jersey is in a very strong position having set up an AIFMD equivalent regime early on.

What does it mean for fund managers?

GC: It means that fund managers can take a lot of confidence in the Jersey platform. It offers a straightforward regulatory regime and the confidence of continued access to the European market, whether that be through private placement or, in time, the passport. The regime also provides a framework for conducting funds activity outside Europe. That flexibility makes the jurisdiction very attractive for fund managers, which is reflected in the growth in the number of fund promoters using Jersey. The number of Jersey-based fund promoters has almost doubled during the last five years. At the end of June 2016, there were 134 Jersey-based fund managers, up fiver per cent annually.

What about the future of private placement? In the long-term will it eventually be overtaken by the passport?

GC: There has been a great deal of conjecture that private placement will be superceded by the passport and phased out, but figures suggest that appetite for private placement is as strong as ever.

At the end of June this year, 115 alternative investment fund managers had been authorised in Jersey to market into Europe through national private placement regimes, up 11 per cent when compared to the period to the end of December 2015. During the same period the number of Jersey alternative investment funds marketed into Europe through national private placement regimes was 9 per cent higher at 251.

Managers do find national private placement appealing and continue to use it. This, and potential for an AIFMD passport in the future, gives managers real confidence in Jersey’s long-term future as a jurisdiction to domicile a fund.

JFA News
Monday
05
September 2016

Enhancing the Framework

As more capital moves across borders the structuring of funds and investments is becoming more complex. Fortunately, real estate's fund services industry is meeting managers' ever-increasing demands, says Geoff Cook, chief executive of Jersey Finance.

This article was first published in the PERE Fund Services Guide 2016.

As more capital moves across borders the structuring of funds and investments is becoming more complex. Fortunately, real estate's fund services industry is meeting managers' ever-increasing demands, says Geoff Cook, chief executive of Jersey Finance.

In the alternative investments world, global trends such as the shift in wealth towards Asia Pacific and the increase in cross-border investment flows are driving the demand for sophisticated investment support, with estimates from PwC indicating that the global asset management industry will grow to more than $100 trillion within the next five years.

With this comes a greater interest in property investment. Institutional and private investors in markets now stretching from the US to the Middle East and Africa to Asia are seeking efficient means of deploying investment capital into real estate funds, and fund managers in those markets are also looking to diversify their portfolios into non-domestic assets.

The Knight Frank Wealth Report 2016 notes that the general trend over the past decade has been for significant growth in cross-border investment, led by outflows from China (+1,471 percent), and certainly it is Jersey’s experience that Asian investors continue to be attracted to London property.

As such, international finance centers (IFCs) located in close proximity to the UK, such as Jersey, remain essential among Chinese, Malaysian and Singaporean private, institutional and sovereign wealth funds. There is a strong rationale for the appeal of IFCs. For instance, Jersey is independent yet has close connections with the UK and is a jurisdiction of substance, with the expertise of more than 13,000 professionals working in its finance industry and has a strong focus on high-end real estate and private equity funds business.

Yet the work of these real estate service providers is becoming more challenging as this increasingly global real estate investment continues apace. More than ever these cross-border investment flows require precise alternative fund structuring and servicing expertise, particularly against the backdrop of international regulatory change and the drive towards international standards. Fortunately, IFCs can provide the framework for the increased complexity caused by shifting capital across borders.

This is made possible by offering a comprehensive range of fund structuring options, including limited partnerships and separate limited partnerships which are commonly used for private equity deals. This is backed up by a range of regulatory regimes catering to a full spectrum of investor types, including the well-used expert and private fund regimes, tailored for the needs of professional and institutional investors.

This regulatory environment, however, needs to be underpinned by an infrastructure of high quality, experienced service providers, including major offshore law firms, accountancy firms, administrators, depositaries and custodians, as well as an impressive pool of non-executive directors to bolster corporate governance credentials.

For Jersey this infrastructure has formed the bedrock of a growing fund management community, underlining Jersey’s commitment to demonstrating fund management substance – a vital concept under the OECD's Base Erosion and Profit Shifting (BEPS) initiative.

Entering Europe

Looking at continental Europe the same theme applies, with more global capital wanting to get into the region's property markets. Yet since the advent of the pan-European fund management regulation, the Alternative Investment Fund Managers Directive (AIFMD), this has become more difficult.

This is because until non-EU fund managers can opt into the AIFMD they must navigate a patchwork regulatory environment requiring a country-by-country analysis of the new marketing rules in each EU jurisdiction. Additionally, some nations have gone above and beyond what the AIFMD requires when updating their local marketing rules, creating even more burdensome regimes for non-EU managers.

As such the world's largest and most sophisticated fund managers require expertise and regulatory frameworks to efficiently structure both pan-European funds, through an ‘opt-in’ regime that is fully compliant with the AIFMD, and non-European funds through a ‘rest-of-the-world’ regime.

Jersey can offer this dual approach and provide globally-focused fund managers with the stability and flexibility they need to successfully market to investors both inside and outside the EU.
Within Europe, the AIFMD-compliant National Private Placement Regime (NPPR) option is giving non-EU private equity and real estate fund managers, including, increasingly, those based in the US or Asia, added flexibility in accessing the European investor market without the headache and costs of full onshore AIFMD ‘passporting’ compliance. This solid AIFMD structuring is a key driver behind Jersey’s funds growth, providing the right frameworks to offer Jersey funds to EU and non-EU investors.

Figures from the Jersey Financial Service Commission show that there are currently 115 Jersey fund managers and 251 Jersey funds with authorisation to actively market into the EU through the NPPR.

In July 2016, Jersey’s appeal as an IFC was further enhanced when the European Securities and Markets Authority (ESMA) reconfirmed Jersey as one of only five non-EU jurisdictions to have no obstacles at all in being able to apply for the full-EU wide AIFMD passport in due course. Whilst the authority’s announcement showed that satisfying ESMA’s criteria was not straightforward for all jurisdictions, it also emphasised that Jersey’s foresight in creating an AIFMD-equivalent regime some time ago had put it in a very strong place.

At the same time, an ability to offer a ‘rest–of-the-world’ regime completely outside the scope of the AIFMD but in a European time zone is proving popular for managers, meaning that Jersey is well set-up to cater to managers targeting, for instance, the rapidly growing Asian private equity and real estate fund market, or the African infrastructure sector.

This flexibility offered by IFCs is giving managers genuine confidence for the long-term. They appreciate the flexibility of accessing Europe through private placement or, in due course, the passport, as well as a regime for funds targeting non-EU based investors.

In a complex world where wealth patterns are driving demand for private equity and real estate investment expertise in all corners of the world, Jersey is well placed to provide robust cross-border investment platforms and demonstrate a mature response to regulatory change.

This is backed up by the numbers. The rate of fund formation in Jersey remains healthy, with more than 1,300 fund entities being serviced in the jurisdiction. Figures for the first quarter of 2016, collated by the Jersey Financial Services Commission, also show that the value of regulated funds being administered in Jersey has grown to $300.9 billion, the second highest figure since 2008. In particular, the real estate and private equity fund sectors reported strong numbers, with assets being serviced in Jersey growing by 20 percent and 10 percent year-on-year respectively.

The familiarity, flexibility and expertise that Jersey offers are proving highly attractive to both the manager and investor communities across not just the UK and Europe but also, increasingly, Asia, the US and Africa.