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JFA News
Monday
01
September 2014

Focused on Global Opportunities

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

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

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

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

European Growth

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

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

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

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

The fact that managers are primarily intending to target the UK market is not surprising, given Jersey’s strong links with the UK. In fact, there has been a spike in recent months in the number of high value private equity, real estate and infrastructure funds being routed through Jersey into the UK. Moreover, with the UK Treasury confirming its national private placement regime will be in place until 2018, Jersey will continue to benefit from certainty of access to the hugely important UK investor market.

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

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

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

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

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

Global

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

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

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

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

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

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

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

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

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

The much hyped transitional phase for implementing the EU Alternative Investment Fund Managers Directive (AIFMD) has, finally, come to an end.

JFA News
Monday
28
July 2014

AIFMD Comes Into Force

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

JFA News
Tuesday
01
July 2014

Through the Storm

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

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

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

by NICHOLAS DONATO

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

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

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

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

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

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

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

ON THE HORIZON

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

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

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

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

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

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

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

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

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

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

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

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

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

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

JFA News
Monday
02
June 2014

Expertise Underlines Enduring Strength of Jersey

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

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

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

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

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

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

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

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

Offshore Solution

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

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

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

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

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

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

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

Flexibility

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

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

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

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

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

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

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

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

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

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

JFA News
Monday
04
November 2013

Flexibility and substance in a post-AIFMD world

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

By Geoff Cook, Chief Executive Officer, Jersey Finance

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

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

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

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

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

Substance

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

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

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

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

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

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

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

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

Unique

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

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

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

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

Strong Position

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

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

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

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

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

JFA News
Tuesday
29
October 2013

Jersey offers flexibility and substance

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

By Geoff Cook, Chief Executive Officer, Jersey Finance

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

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

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

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

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

Substance

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

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

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

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

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

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

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

Global

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

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

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

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

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

Future

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

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

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

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

JFA News
Tuesday
10
September 2013

A Post AIFMD World

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

By Geoff Cook, CEO, Jersey Finance

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

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

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

Substance

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

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

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

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

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

Global

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

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

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

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

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

JFA News
Monday
01
July 2013

Keep calm and fundraise on

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

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

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

Nigel Strachan, Chairman, Jersey Funds Association

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

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

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

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

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

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

RESPONSE TO AIFM

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

JFA News
Thursday
06
June 2013

Enhancing the Appeal of Jersey

Despite ongoing challenging market conditions, Jersey has continued to demonstrate a significant degree of resilience across its funds sector.

By Geoff Cook, CEO, Jersey Finance

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

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

Geoff Cook, CEO, Jersey Finance

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

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

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

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

Fully Compliant

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

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

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

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

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

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

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

Enhanced Position

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

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

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

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

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

Innovation

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

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

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

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

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

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

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

JFA News
Monday
03
June 2013

Providing Certainty and Flexibility

After years of build-up and months of analysing the finer points of the Level II implementation measures, the official date for the introduction of the long awaited EU Alternative Investment Fund Managers Directive (AIFMD).

By Nigel Strachan, Chairman, Jersey Funds Association

After years of build-up and months of analysing the finer points of the Level II implementation measures, the official date for the introduction of the long awaited EU Alternative Investment Fund Managers Directive (AIFMD) – perhaps the most fundamental international regulation ever introduced to impact the funds industry - is upon us.

While EU countries have been bringing the AIFMD into national law, so too are private equity fund managers, service providers and other professionals having to come to terms with exactly what the detail of the AIFMD means to them, and how they need to act in order to ensure they are fully geared up to continue to facilitate private equity business after 22nd July.

What the impact will be in terms of how private equity funds are structured once the AIFMD comes into force is undoubtedly something being considered by all private equity managers, who require a combination of certainty about being able to raise capital for and market their funds into Europe, confidence in the ability to effectively and appropriately service and support their funds, and flexibility in how they can manage their funds should they want to target non-European growth markets.

All of these considerations have formed part of Jersey’s flexible and distinct approach to the AIFMD. In fact, private equity fund managers using Jersey to domicile their funds will actually be presented with a number of fund structuring opportunities as a result of the new regulation.

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

This is important for Jersey, given its persistent strength in the alternative investment funds market. Despite ongoing challenging market conditions, Jersey has continued to demonstrate a significant degree of resilience across its funds sector, with figures up to the end of 2012 suggesting that the global funds industry remains attracted to Jersey.

The value of assets under administration in Jersey stood at £192.8bn as at December 2012 – up around £3.5bn year on year. In particular, alternative asset classes accounted for around 70% of that total value of funds under administration, with private equity fund administration business done in Jersey continuing to perform remarkably strongly.

Maintaining such a healthy funds sector and demonstrating real strength and expertise in alternative funds business – particularly against a volatile economic backdrop - emphasises the positive reaction to Jersey‘s approach to the AIFMD and should give private equity managers some real food for thought in how they structure their funds in a post-AIFMD world.

Compliant

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

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

Then in May, Jersey was in the first tranche of jurisdictions for which the co-operation agreement, to be entered into with individual regulators of EEA member states and which will allow Jersey to continue to utilise the private placement route, was approved by the European Securities and Markets Authority (ESMA).

This approach will give private equity professionals the confidence they need that Jersey will provide a seamless transition for facilitating ongoing funds business within Europe this summer.

Beyond private placement arrangements, Jersey is also committed to being fully AIFMD-compliant and obtaining an EU-wide AIFMD marketing passport by 2015 - as soon as it is anticipated such passports will be available for non-EU private equity fund managers. This will have the result that private equity fund managers will be able to market their Jersey-domiciled funds to investors right across the EU.

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

As far as private equity fund structuring in Europe is concerned, Jersey has all the elements in place to ensure this will happen smoothly, with all the comfort, stability and reassurance that the AIFMD brings.

Flexibility

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

In the current climate, this makes absolute sense – private equity managers are not merely focusing on Europe: they are adopting global strategies and raising capital in growth markets around the world where wealth is being created and investment opportunities are sought after. In a large variety of cases, this means not touching Europe at all, but targeting, for instance, markets in the Far East.

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

Combined, all these routes put Jersey is a unique position. It can offer private equity fund managers a route that is absolutely in line with the AIFMD, that offers all the stability and comfort the AIFMD brings and that would be offered by an EU Member State, from a centre that is in close proximity to Europe.

And at the same time, it offers managers the ability to market their funds outside of Europe without the need to consider the impact of the AIFMD at all.

Enhanced

While there has been some speculation that the AIFMD may prompt a migration of fund business away from international finance centres, this is not Jersey’s expectation at all. In fact, a rational analysis of the situation shows that overall Jersey’s position will actually be enhanced by its approach to AIFMD.

Private equity managers will be able to base themselves in Jersey and, from one location, meet all EU requirements while at the same time serving the rest of the world - with potentially lower costs. Offering both will not be available in all international finance centres or indeed in EU Member States.

With this in mind, far from a migration of private equity business away from international finance centres, the expectation is to see continued growth in private equity funds being structured through Jersey.

It may be that more parallel structures will be established in onshore EU markets, for fund managers who need to satisfy overwhelming specific investor demand for keeping a fund onshore - with the potential additional compliance costs that could bring - but this is not anticipated to be in place of funds ‘offshore’, which in Jersey’s case will continue to offer a good value, flexible, robust option to cater for all aspects of private equity business.

In addition, based on its strong track-record of supporting international private equity business, backed up by its approach to the AIFMD, Jersey is also being seen as an attractive centre to relocate to by a growing number of alternative fund managers.

Increasingly recognised for its safe environment, flexible approach, world class legal, accounting and administration supporting infrastructure, and the ‘no-change’ solution it offers private equity professionals, a growing number of fund managers are establishing a foothold in Jersey - seven asset managers have established a presence in Jersey over the past 12 months alone.

Moreover, as the international funds community embarks on the final stretch towards the long awaited July AIFMD implementation date, competition between jurisdictions will only increase, and Jersey is not resting on its laurels. Encouraging fund structuring through Jersey doesn’t stop at AIFMD, and there is a firm focus on continuing to innovate across its fund regimes and responding appropriately to market demands in order to stay ahead of competitors.

Besides AIFMD, for instance, the industry is working with other regulatory changes, such as the US Foreign Account Tax Compliance Act (FATCA) and engaging in the evolving debate on global tax information exchange. At the same time, Jersey’s broad range of fund regimes are kept under constant review - enhancements made to Jersey’s Limited Liability Partnership Law being a recent example.

With the AIFMD shortly to become a reality, Jersey’s hard work and preparation has ensured it is in a very strong position indeed to continue to support the private equity community and remain at the forefront of international private equity business. Managers will have to consider the options most appropriate to them in how they structure their funds but, with the certainty and flexibility it will provide in a post-AIFMD world and the expertise its funds sector can offer, Jersey is a very attractive long-term proposition.

This article was first published in Real Deals magazine's Fund Structuring Guide, June 2013.

JFA News
Thursday
30
May 2013

AIFMD Will Enhance Jerseys Appeal

Despite ongoing challenging market conditions, Jersey has continued to demonstrate a significant degree of resilience across its funds sector.

By Geoff Cook, CEO, Jersey Finance

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

Geoff Cook, CEO, Jersey Finance

The value of assets under administration in Jersey stood at £192.8bn as at December 2012 – up around £3.5bn year-on-year. In particular, Jersey continues to assert itself as a major player in the alternative fund space, with alternative asset classes accounting for around 70% of its total value of funds under administration. Specifically, it is pleasing that the value of hedge fund administration business done in Jersey grew in the fourth quarter of 2012 by around £5bn.

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

Hedge fund professionals have now had some time to fully digest the AIFMD’s Level II measures and, with the July implementation date now imminent, things are finally moving forward, at quite a pace - EU countries are bringing the AIFMD into national law, non-EU countries are responding in different ways and fund managers and service providers are gearing themselves up for a post-AIFMD world.

Thanks to the flexible and distinct way Jersey has approached the AIFMD, hedge fund managers using Jersey to domicile their funds could be presented with a number of opportunities.  As a non-EU ‘third country’ for the purposes of the AIFMD but a well-established jurisdiction at the centre of European funds business, the feeling is that the AIFMD could actually enhance Jersey’s appeal to hedge fund professionals and affirm its long-term position as a European alternative funds centre of excellence far beyond the introduction of the AIFMD this summer.

AIFMD-compliant

Jersey’s funds industry, government and the regulator have been, and continue to be, intensively engaged with the AIFMD and, as a result, Jersey is now in a very strong position. The overwhelming message is that the jurisdiction will give the hedge fund community confidence by maintaining a ‘business as usual’ approach to funds business within the EU.

Jersey will be able to do this through private placement arrangements with individual EU countries until at least 2018. In order to demonstrate it meets EU requirements, in April Jersey introduced its own set of AIFMD regulations for managers wishing to market to European investors that mirror EU requirements.

In addition, Jersey is well on track in working with ESMA to ensure it is in the first tranche of jurisdictions to sign a pan-European multilateral agreement with EEA Member State regulators that will authorise it to utilise the private placement route.

At the same time, Jersey is also committed to obtaining an EU-wide AIFMD passport by 2015 - as soon as is possible for non-EU ‘third countries’ – giving hedge fund managers the option to market their Jersey-domiciled funds to investors across the EU.

Jersey is also well on track in this regard and intends to have a fully-compliant regime ahead of 2015. The AIFMD is about regulating and authorising alternative fund managers, and this is something that Jersey already does, in line with IOSCO standards.

Flexibility

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

This makes sense - in the current climate, hedge fund managers are not just focusing on Europe, they are adopting global strategies and raising capital in markets around the world, not touching Europe at all. In such cases, using a non-EU but European time-zone jurisdiction that is experienced in handling non-European hedge fund business, such as Jersey, will be attractive.

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

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

Innovation

As a result of its approach to the AIFMD, a growing number of hedge fund managers are also seeing Jersey as an attractive centre to relocate to. Jersey is increasingly being seen as a safe environment, a flexible option and a ‘no-change’ solution for hedge fund managers. Indeed, a growing number of fund managers are establishing a presence in Jersey – seven asset managers have set up in Jersey in the past 12 months alone.

Meanwhile, Jersey is not resting on its laurels and continues to innovate across its fund regimes and respond to market demands to stay ahead of its competitors. Besides the AIFMD, the industry is working with other global regulatory changes, such as the US Foreign Account Tax Compliance Act (FATCA) and Dodd-Frank.

Remaining flexible to the needs of the industry and responding appropriately to regulatory developments, particularly the AIFMD, is ensuring Jersey can not only maintain but actually enhance its long-term appeal as a major European alternative funds centre.

This article was first published in Hedge Fund Manager Week, 30 May 2013.

JFA News
Wednesday
07
November 2012

Jersey offers private equity managers stability and flexibility in the build-up to AIFMD

Whilst global market conditions remain challenging, Jersey’s funds sector has continued to demonstrate resilience.

By Nigel Strachan, Chairman, Jersey Funds Association

Whilst global market conditions remain challenging, Jersey’s funds sector has continued to demonstrate resilience. Despite the raft of regulation being introduced across the global funds sector and concerns about difficulties in fundraising, the latest figures suggest that Jersey is keeping favour with the needs of the funds industry with assets being administered remaining around the £190bn mark.

Nigel Strachan, Chairman, Jersey Funds Association

In particular, Jersey continues to assert itself as a major player in the alternative funds space, with alternative fund classes accounting for around 70% of the total value of funds under administration in Jersey - and private equity funds alone accounting for almost a quarter of that overall total.

One key issue that remains in the spotlight for funds jurisdictions globally is the EU Alternative Investment Fund Managers Directive (AIFMD). There’s no doubt that the reach of the AIFMD is broad and significant for private equity funds that are domiciled in Europe, have an EU manager or are marketed in the EU. Whilst the Directive is intended principally to regulate fund managers, it will also inevitably impact service providers, as well as the ongoing transparency, reporting and marketing of the funds themselves.

Given Jersey’s strength in alternative funds, it is not surprising that the AIFMD is firmly on its radar too. As EU Member States go through the motions of implementing AIFMD, private equity fund professionals will be encouraged to know that Jersey, as a non-EU ‘third country’ for the purposes of the AIFMD, has been working hard to ensure it is in a strong long-term position to offer a blend of stability and flexibility.

Flexibility

Jersey’s funds industry, government and the regulator have been, and continue to be, intensively engaged on the AIFMD. With the AIFMD due to come into play in July, the overwhelming message is that Jersey intends to give the private equity community confidence by maintaining a ‘business as usual’ approach for funds business within the EU. It will be able to do this through private placement arrangements with individual EU countries, until at least 2018.

At the same time, Jersey is also committed to introducing the option of a fully AIFMD-compliant regime and obtaining an EU-wide passport by 2015 - as soon as is possible for non-EU ‘third countries’.

Meanwhile, as a non-EU jurisdiction, Jersey is able to continue to offer a completely separate regime that lies outside the scope of the Directive, for private equity fund managers who don’t want to access EU capital or who don’t operate in the EU.

In this way, Jersey will be able to continue operating its existing fund regime whilst at the same time offering an option that is fully compliant with the Directive, providing fund managers with the flexibility to market to investors both inside and outside the EU.

Committed and Compliant

The saga of the AIFMD has been a complicated one, and so too are the next steps involved in its implementation – particularly for ‘third-countries’ – so the focus for Jersey all along has been on giving private equity professionals the level of certainty they require.

Barring any unanticipated delays to its implementation, EU-Member States will need to be fully compliant with the Directive from July 2013. However, national private placement regimes in individual EU-member states can remain from that date – and until at least 2018 - for non-EU funds being marketed into the EU by non-EU managers, and this is the route that Jersey private equity funds can follow.

The continuation of private placement will require individual agreements between Jersey’s regulator and the regulator of each Member State, and Jersey’s regulator is already engaged with ESMA and Member State regulators to ensure such agreements can be in place in good time. With bilateral cooperation agreements already in place with the majority of key EU Member States, Jersey is confident that it will be able to sign all necessary agreements and be in the first tranche of jurisdictions to be authorised to utilise the private placement route.

Beyond private placement, Jersey is also well on track. EU-wide marketing passports, which will allow managers to market to investors across the EU, will become available to non-EU managers, such as those domiciled in Jersey, from 2015, provided they are fully authorised under AIFMD.

In terms of obtaining a passport and introducing a fully compliant AIFMD regime in 2015, Jersey is well-placed. The Directive is about regulating and authorising alternative fund managers, and this is something that Jersey already does, in line with IOSCO standards.

Keen to embrace AIFMD as soon as possible, Jersey intends to have a fully-compliant regime ready to go ahead of the 2015 date for non-EU countries, with Jersey’s regulator and government ready to progress any additional agreements required by ESMA.

Jersey already has information exchange agreements, either TIEAs or DTAs, in place with 13 Member States, including the UK, France, Germany, Sweden, Norway, the Netherlands and Ireland, with more expected to be ratified in the coming months. This number of agreements, combined with the excellent independent reports Jersey has received on its regulation, corporate governance and stance on anti-money laundering, means that Jersey is confident it will be able to satisfy all criteria needed to comply with AIFMD ahead of the 2015 deadline.

Between 2015 and 2018, meanwhile, non-EU private equity funds and fund managers will have the option to either use an EU-wide passport or continue marketing through the national private placement regimes, as they prefer.

Opportunities

The AIFMD could pose some opportunities for Jersey as an expert, specialist, safe, ‘no-change’ solution.

It is anticipated that maintaining an offshore option for non-European investors will make a great deal of sense for private equity fund managers. In the current climate, for instance, fund managers are thinking increasingly about sourcing capital from sophisticated Asian and Middle Eastern investors – for which an offshore solution will remain very attractive. Jersey is positioned superbly in this regard.

In addition, Jersey remains a top option for private equity managers to relocate to. The prevailing sentiment is that Jersey’s approach to the AIFMD, combined with its appropriate regulation, expert supporting infrastructure, geographical location and high quality of living, is proving attractive to managers – indeed a number have made the move in recent months.

Stability and flexibility are key considerations for private equity fund managers in the new alternative funds landscape and have been very much at the forefront of Jersey’s response to the AIFMD, as it looks to assert its position as a specialist centre for private equity business in the years ahead.

This article was published in Private Equity Manager's Fund Domiciles Guide 2012.

JFA News
Thursday
01
November 2012

Jersey is focused on providing stability and flexibility to the hedge fund community

With EU Member States currently preparing to formally implement the Alternative Investment Fund Managers Directive (AIFMD), Jersey, as a ‘third country’ non-EU jurisdiction, has also been working hard to ensure it can continue to offer hedge fund professionals a blend of stability and flexibility.

By Geoff Cook, Chief Executive, Jersey Finance

With EU Member States currently preparing to formally implement the Alternative Investment Fund Managers Directive (AIFMD), Jersey, as a ‘third country’ non-EU jurisdiction, has also been working hard to ensure it can continue to offer hedge fund professionals a blend of stability and flexibility.

Geoff Cook, Chief Executive, Jersey Finance

As one of Europe’s leading centres for funds business, Jersey has been quick to set out a strong long-term position in supporting the hedge fund industry.

To do so is vital - Jersey continues to assert itself as a major player in the alternative funds space, with alternative fund classes accounting for around 70% of the total value of funds under administration in Jersey, and hedge funds alone making up a quarter of that total.

Committed

Overall, Jersey’s message is clear - it has the right frameworks in place to continue to provide hedge fund establishment, management and administration services on a ‘business as usual’ basis.

With Jersey’s funds industry, government and regulator continuing to be intensively engaged on the AIFMD, Jersey is committed to continuing to facilitate hedge funds business within the EU, and will be able to do this through national private placement regimes until at least 2018.

Jersey is also committed to introducing the option of a fully AIFMD-compliant regime and obtaining an EU-wide passport by 2015 - as soon as is possible for non-EU ‘third countries’.

Meanwhile, as a non-EU jurisdiction, Jersey is able to offer a choice by maintaining a separate regime that lies outside the scope of the AIFMD, for managers who don’t want to access EU capital or operate in the EU.

Combined, this range of options places an emphasis on providing managers with the flexibility to market to investors both inside and outside the EU.

Timescales

Whilst EU Member States will have to fully comply with the AIFMD from July 2013, national private placement regimes in individual EU Member States can remain in place for non-EU funds being marketed into the EU by non-EU managers until at least 2018.

For Jersey, these private placement regimes will require individual agreements between its regulator and the regulator of each Member State in which its funds are marketed. Jersey’s regulator is fully engaged with ESMA and Member State regulators on these agreements, to ensure they will be in place in good time.

Beyond private placement, Jersey is also well on track. Keen to fully embrace the AIFMD as soon as possible for non-EU countries, Jersey intends to have a fully compliant ‘passport’ regime ready to go by 2015.

Jersey already regulates and authorises alternative fund managers in accordance with IOSCO standards, and has a number of tax information exchange agreements in place, including with 13 Member States. With this in mind, Jersey is confident that it will be able to satisfy the criteria needed to comply with the AIFMD ahead of the 2015 deadline.

Between 2015 and 2018, non-EU funds and fund managers will have the option to benefit either from an EU-wide passport or to continue marketing through private placement regimes.

Opportunities

The AIFMD may actually present Jersey with some opportunities.

The route adopted by Jersey, for example, offers managers a choice - of an option that is fully AIFMD-compliant and a route that remains outside the EU. In the current climate, fund managers aren’t just focusing on Europe, they are adopting global strategies targeting, for instance, Asian and Middle Eastern investors. In such circumstances, a flexible offshore solution will remain attractive.

In addition, hedge fund managers are still showing significant interest in relocating to Jersey. Driven by high taxation in onshore locations, a prevailing sentiment that they are being unfairly targeted, and a desire for a high quality of living, managers consider the flexibility of Jersey’s approach to the Directive as another real attraction.

Far from being a burden, the Directive could actually pose some opportunities for Jersey as a safe, specialist, ‘no-change’ solution. Jersey recognises that stability and flexibility are key considerations for fund professionals in the new alternative funds landscape and has borne that very much in mind as it responds to the AIFMD.

This article was published in Hedge Funds Review.

JFA News
Monday
10
September 2012

Working with the AIFM Directive: Jersey focusing on stability and flexibility

With the Alternative Investment Fund Managers Directive being formally adopted by EU Member States, alternative fund managers will be encouraged to know that Jersey, as a ‘third country’ non-EU jurisdiction, has been working hard to ensure it can continue to offer long-term stability.

By Nigel Strachan, Chairman, Jersey Funds Association

With the Alternative Investment Fund Managers Directive being formally adopted by EU Member States, alternative fund managers will be encouraged to know that Jersey, as a ‘third country’ non-EU jurisdiction, has been working hard to ensure it can continue to offer long-term stability and flexibility to the international alternative funds industry.

Nigel Strachan, Chairman, Jersey Funds Association

Whilst the Directive is intended principally to regulate alternative fund managers, it will also impact service providers, including administrators and depositories, as well as the ongoing transparency, reporting and marketing of alternative investment funds themselves. There’s no doubt that its reach is broad and significant for private equity and real estate funds that are domiciled in Europe, have an EU manager, or are marketed in the EU.

As one of Europe’s leading centres for alternative funds business, Jersey has been quick to acknowledge this and is on the front foot in working with the Directive to ensure it is in a strong long-term position.

This is vital for Jersey, which has become the jurisdiction of choice for a significant number of private equity and real estate, as well as venture capital, mezzanine, debt and hedge funds - the current value of alternative funds administered in Jersey stands at 70% (£138.4bn) of the total (£196.2bn).

Jersey’s Vision

While Jersey is in legal terms a ‘third country’ for the purposes of the EU single market, in practice its finance industry has a long history of providing financial services in the EU market, most notably with London. To put things in context, it’s worth remembering too that Jersey is as much a third country as any other non-EU country, such as the USA.

Overall, Jersey’s strategy in relation to the Directive is to make it clear that it has the legal, tax and regulatory framework in place to facilitate the continued functioning of fund management and administration services on a ‘business as usual’ basis.

At the same time, Jersey is also pursuing opportunities to improve market access arising from the Directive so that not only can managers have confidence in it as a stable environment for ongoing alternative funds business, but also in targeting growth too.

Jersey’s funds industry, government and the regulator have been, and continue to be, intensively engaged on the Directive, and the overwhelming message is that Jersey is committed to maintaining a business as usual approach for funds business within the EU through the national private placement until at least 2018.

Jersey is also committed to introducing the option of a fully AIFMD-compliant regime and obtaining an EU-wide passport by 2015 - as soon as is possible for non-EU ‘third countries’.

Meanwhile, as a non-EU jurisdiction, Jersey is able to continue to offer an element of flexibility by maintaining a completely separate regime that lies outside the scope of the Directive, for managers who don’t want to access EU capital or who don’t operate in the EU.

In this way, Jersey will be able to continue operating its existing, successful fund regime (designed to meet IOSCO standards) whilst at the same time offering an alternative regime that is fully compliant with the Directive, providing fund managers with the flexibility to market to investors both inside and outside the EU.

Private Placement and Passports

The timescales in relation to the next steps involved in the implementation of the Directive, particularly for third-countries such as Jersey, are complex.

EU-Member States will need to be fully compliant with the Directive as from July 2013. However, national private placement regimes in individual EU-member states can remain in place from that date, for non-EU funds being marketed into the EU by non-EU managers. That will be the case until at least 2018, without a requirement for non-EU managers to comply with the Directive in full.

The continuation of private placement regimes – the way that a number of Jersey funds are already actively marketed into the EU - will require, amongst other things, individual agreements between Jersey’s regulator and the regulator of each member state. ESMA are coordinating guidelines on these cooperation arrangements and Jersey has been heavily engaged in this process. Jersey’s regulator continues to engage with ESMA and member state regulators to ensure agreements can be in place in good time by July 2013.

Jersey currently has in place bilateral regulatory cooperation agreements with the majority of key EU Member States. The pre-existence of these agreements gives rise to a high level of confidence in Jersey's ability to sign the necessary co-operation agreements with the regulators of individual Member States.

Beyond private placement, Jersey is also well on track. Assuming the regulatory architecture necessary is created and approved by ESMA, EU-wide marketing passports, which will allow managers to market alternative funds to professional investors across the EU, will become available to non-EU managers from 2015, provided they satisfy specified criteria and are fully authorised under the directive.

So, whilst July 2013 is the date when EU managers and fund structures will require full compliance with all aspects of the Directive, Jersey, as a third country, won’t be able to - and won’t need to - obtain an EU-wide ‘passport’ before 2015.

It’s worth noting that even between 2015 and 2018, non-EU funds and fund managers will have the option to benefit either from an EU-wide passport or continue marketing through the national private placement regimes. ESMA are expected to provide guidance on whether or not to continue the national private placement route in 2018.

In terms of obtaining a passport, fully embracing the Directive and introducing a fully compliant AIFM Directive regime when it can in 2015, Jersey is also extremely well-placed. The AIFM Directive is about regulating and authorising alternative fund managers, and this is something that Jersey already does, in accordance with IOSCO standards.

Fully Compliant

Keen to fully embrace the Directive as soon as possible, Jersey intends to have a fully-compliant regime ready to go ahead of the 2015 date for non-EU countries, with the regulator and government ready to progress any additional agreements required by ESMA.

For instance, Jersey has agreements in place to exchange information on tax matters under the OECD Model Tax Convention with each Member State where alternative investment funds are to be marketed for passporting purposes from 2015. These include TIEAs or DTAs with 13 Member States, including the UK, France, Germany, Sweden, Norway, Finland, Denmark, The Netherlands and Ireland, whilst a number of other EU nations are expected to ratify TIEAs with Jersey in the coming months.

In addition, Jersey is able to comply with all required international reporting and transparency requirements, and leads the way in anti-money laundering, being more compliant with FATF recommendations than many larger onshore asset management jurisdictions.

With this substantial number of agreements in place and the excellent reports it has received on its regulation, oversight, corporate governance and stance regarding anti-money laundering, Jersey is confident that it will be able to satisfy the criteria needed to comply with the Directive ahead of the 2015 deadline.

Ahead of clear guidelines from ESMA, Jersey is preparing for every eventuality in terms of the agreements it will need to have in place or amendments it will need to make to existing regimes. In all cases, Jersey is confident it will be able to meet the requirements necessary.

For Jersey’s ongoing non-EU route, no changes are initially envisaged to Jersey’s existing fund products or structures.

For the EU AIFM Directive route, however, in order to satisfy the requirements of the Directive’s model for obtaining an EU-wide passport, some of Jersey’s licensing policies and codes of practice will be augmented in due course. Any changes to existing products are anticipated to be minimal and simple to implement.

Long-Term Growth

Whilst there has been some speculation that the Directive may prompt a migration of private equity and real estate fund business away from offshore centres to onshore centres, which are deemed to offer a greater degree of certainty where the Directive is concerned, this is not Jersey’s experience to date or expectation at all.

Although a handful of managers have publicly expressed a desire to use onshore EU structures in future, the vast majority of alternative asset advisors (71%) confirmed in a survey conducted by Jersey Finance that they would not replace non-EU managers and non-EU funds with onshore solutions.

The route adopted by Jersey actually allows managers choice: of a route that is fully compliant with the Directive, and a route that remains outside of the EU completely, giving them more flexibility and certainty than onshore centres could. Some managers may well decide that they need an onshore option but it is anticipated that they will maintain a parallel offshore one too for non-European investors – it makes sense to do so.

Moreover, in the current climate, fund managers aren’t just focusing on Europe, they are thinking increasingly about adopting global marketing strategies to source capital. For sophisticated Asian and Middle Eastern investors in alternative investment funds, for instance, offshore solutions will remain attractive.

Far from being a burden for Jersey, the Directive could actually pose some opportunities. For example, whilst EU jurisdictions will have to deal rapidly with implementation of the AIFM Directive and indeed a raft of other EU financial services regulation, Jersey will be able to carry on business as usual until at least 2015 through national private placement regimes. Jersey can offer certainty, a safe environment and a ‘no-change’ solution, affording private equity and real estate fund managers the opportunity to focus their efforts on long-term growth.

Jersey recognises that certainty, stability and flexibility are key concerns across the alternative investment fund sector. In gearing up for the implementation of the AIFM Directive, Jersey has been sure to be able to offer all these things.

For those managers wishing to remain outside of the EU, the management and administration of Jersey funds will continue without change.

For those wishing to access European markets, the national private placement regimes will effectively mean business as usual for Jersey funds.

At the same time, the new AIFM Directive ‘brand’ is likely to have real appeal to some fund managers and their investors. In constructing the option of an AIFM Directive-compliant model, Jersey will also allow those managers who are seeking to operate within the Directive and who value the simple tax neutrality, sterling currency and excellent service standards offered by Jersey, the means to combine those features.

This article was first published in the Private Equity Real Estate Fund Administration and Technology Guide 2012.