New regulation, both domestic and international, is creating significant opportunities for Jersey’s funds sector – but at the same time is requiring industry participants to be more agile than ever before, according to speakers at a recently held Masterclass event organised by the Jersey Funds Association (JFA).

Expert speakers at the recent event, held in September at the Royal Yacht Hotel and attended by over 50 industry representatives from Jersey's funds sector as well as colleagues from the Government of Jersey and the Jersey Financial Services Commission (JFSC), provided valuable insights into the evolving regulatory environment and the impact on Jersey’s funds sector.

In particular, the event emphasised the significant ongoing regulatory changes in both the UK and EU, including the UK’s ongoing efforts to enhance its ecosystem for asset managers and the EU’s review of the AIFMD. Prem Mohan, Partner at Kirkland and Ellis, highlighted how evolutions to AIFMD II could bring greater compliance challenges, whilst also pointing to how National Private Placement (NPP) arrangements, such as those through Jersey, still provide a good route to EU capital for non-EU managers with the current expectation that the NPP regime will remain in place for the mid-term.

Helen De La Cour, Director of Financial Services for he Government of Jersey highlighted Jersey's focus on developing regulation to ensure inclusive and appropriate access to financial services while being committed to enabling the funds sector to continue to grow and innovate.

David Eacott, Executive Director of Supervision at the Jersey Financial Services Commission (JFSC) shared his observations on Jersey's funds sector from his first half-year in post leading the JFSC's supervisory activities. David pointed to tokenisation and digital assets being very much on the JFSC's agenda.

Closing the session, David Postlethwaite, Sustainability and ESG Lead at KPMG, explored how ESG regulation was being integrated across the funds sector and how managers were having to increasingly apply an ESG lens to their due diligence procedures – something that is driving greater data sophistication when it comes to reporting and disclosure.

Jon Stevens, Chair of the JFA’s Regulatory and Compliance Sub-Committee and Deputy Managing Director of Mourant Consulting, hosted the event. He commented:

"Our latest Masterclass offered our broad funds sector a valuable opportunity to delve into crucial areas of regulatory progress. It’s clear that regulation in multiple areas – from sustainable finance and digital assets to domestic compliance and shifting international standards– are all impacting our industry, and firms at all levels of the supply chain are having to be nimble in responding to those changes.

“At the same time, Jersey has an opportunity to playa role in the inter-operability of these regulatory changes – helping investors to navigate and make sense of what it all means, across borders. And that will be an invaluable role for Jersey's funds practitioners to play in the years to come. Against that backdrop, I’m really pleased that there was such strong interest in our latest Masterclass event.”

Further details about the JFA’s Masterclass series and other events can be found here.

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

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

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

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

The Rise of Inflation

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

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

Uncertainty Surrounding Valuations

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

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

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

Ability to Raise and Retain Capital

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

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

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

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

ESG Impact

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

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

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

Jersey’s Role

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

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

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

New regulation and industry wide adoption of ESG and sustainability metrics have created significant opportunities for service providers, while data management now occupies a central role in achieving ESG compliance, both in the eyes of regulators and investors.

Expert speakers at a recent Masterclass event, organised by the Jersey Funds Association, provided valuable insights into these dynamic developments and their implications for the local industry.

The event, held on 6th June at the Royal Yacht Hotel, attracted over 40 industry participants from Jersey's funds sector. The guest speakers explored various key topics, including the rapidly evolving regulatory landscape, Jersey's potential to grow as a leading centre for ESG funds, the integration of ESG principles in private equity, and the growing importance of data management in the ESG sphere.

The event emphasised the intricate nature of global ESG and sustainable investment regulation, noting the considerable differences in disclosure frameworks between Europe, the US and Asia. The differences present clear opportunities for Jersey domiciled service providers, managers and funds, who may opt in or out of differing jurisdictional frameworks, while relying on the robustness of the JFSC as their home regulator.

As global standards continue to evolve, especially in relation to nature and climate disclosures, the significance of "financial grade" data management is poised to grow. This, according to visiting speaker Antonello Argenziano, creates potential avenues for fund administrators and managers aiming to drive progress and differentiate themselves.

The speakers highlighted Jersey’s strong position, underscoring the alignment of its flexible ESG disclosure framework with international standards and that Jersey implemented anti-greenwashing rules in 2021, with further enhancements in the pipeline.

Tom Powell, Chair of the JFA's ESG Sub-Committee and CEO of Amthe Capital, led the first session on regulation and disclosure. Powell remarked: "Our latest Masterclass offered industry participants a valuable opportunity to delve into crucial areas of regulatory progress in the ESG investment landscape. The rapidly evolving lexicon of acronyms can be overwhelming. There is a genuine sense that Jersey's expertise in administration, data management, risk, compliance, and governance is highly desirable as the industry continues its forward momentum."

He continued: “It’s really important that as a jurisdiction Jersey continues to tell its story in this area, because it has a fantastic story to tell.”

The JFA thanks all those who attended and facilitated the event. More about Jersey’s proposition in sustainable finance can be found here.

The speakers at the masterclass were: Tom Powell, CEO of Amthe Capital - Jersey; Alison Cambray, ESG, Sustainability & NetZero Director at PwC Channel Islands; David Postlethwaite, ESG Associate Director at KPMG in Jersey; Antonello Argenziano, Product Director at Intertrust Luxembourg; and Jane Burns, Sustainability and Climate Change Engagement Manager for the Government of Jersey.

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Jersey’s funds industry is maintaining its upward trajectory – but evolution in the market, regulatory change and competition means that the Jersey Funds Association (JFA) is busier than ever, according to committee members speaking at the JFA’s recent Chairman’s Update event.

Held at the Pomme d’Or recently (1 March), the event saw Chairman Michael Johnson and Vice Chairman Joel Hernandez assess the current landscape and set out some of the priorities for the JFA over the coming year, whilst sub-committee heads also took part in a Q&A session highlighting some of the trends, challenges and opportunities on the horizon.

Pointing to the fact that the value of assets serviced in Jersey rose to new record levels of more than £0.5trn in 2022,Michael also emphasised how important it was to be alive to the potential for change in the wider landscape:

“Our figures continue to illustrate an upward trend, but it’s really important we stay ahead of the curve and anticipate regulatory change and shifts in investor behaviour to maintain our attractive ecosystem for alternative funds.

“Speed to market, cost-effectiveness and service quality are absolutely crucial in our segment of the alternatives market and we are fully focused not only on safeguarding our position but on enhancing our proposition in those areas. On the ESG front, for example, the key is to establish a robust framework but without creating hurdles, whilst on the innovation front we see opportunities to build up a track record in blockchain, tokenisation and digital assets.”

Joel added:

“From a legal and technical perspective, it has never been busier in terms of the need to respond to consultations and international and domestic regulatory change – such as looking at our AML/CFT frameworks, enhancing our range of fund structures and regimes, and ensuring we keep the cost of doing business with Jersey competitive.  We are fortunate in the JFA to have broad and diverse expertise through our membership to support our efforts in these areas.”

The JFA will be holding a series of further events for members over the coming months to explore key areas of note for the industry, including a Legal and Tax Masterclass (20 April) and two Town Hall events on ESG (15 May) and Digital (5 June). The JFA’s annual dinner has also been confirmed for 14 July. Further information can be found via the JFA website.

Following its recent Annual General Meeting (8 July), the Jersey Funds Association (JFA) has elected a new-look committee as it continues to champion Jersey's ecosystem for alternative funds.

With outgoing Chairman Tim Morgan completing his three-year tenure, Michael Johnson takes over the role, with Joel Hernandez taking on the position of Vice Chairman. Michael is Group Head of Institutional Services at Crestbridge, whilst Joel is a Partner at law firm Mourant.

The new committee features some continuity whilst also introducing a number of new faces, with Robin Wilson, Sophie Reguengo, Stephanie Hopkins, Clive Spears and John Riva all joining. Remaining on the committee this year are Richard Anthony, Mike Byrne, Steve Cartwright, Ben Dixon, Ben Honeywood, Dilmun Leach, Robert Milner, Tim Morgan, Simon Page, Martin Paul, Tom Powell, Peter Rioda, Ben Robins, Martin Rowley, Sarah Sandiford and Elliot Refson.

At the AGM, outgoing JFA Chair Tim Morgan, who is a Partner at law firm Maples, provided an assessment of achievements and highlights from the past year:

“Jersey's funds industry continues to operate in a fast-evolving market, with regulatory, economic and geopolitical uncertainty continuing to pose challenges – but the fact that Jersey’s funds industry succeeded in reaching new record highs of assets under administration in 2022 and in each of the past three years speaks volumes about the appeal of Jersey’s platform of stability. As ever we need to continue to work hard to underpin this.

“Reflecting on the past three years, there’s no doubt it has been a busy but exciting time to lead the JFA, through a complex period encompassing the implications for Jersey of the effects of Brexit, to the challenges of the global pandemic, to on going enhancements to Jersey’s international standing for tax and regulation. It is a credit to the committee and to the wider industry that Jersey’s funds offering has gone from strength to strength throughout this period. I’m really grateful for the efforts of all those who have given their time to the committee, including Caroline Harrington, who is retiring from her role as secretary of the JFA after many years. We have achieved a lot – from navigating tax and regulatory changes, to integrating ESG into our thinking and supporting cutting-edge training for our members.”

Meanwhile, newly appointed JFA Chairman Michael Johnson added:

“There’s no doubt that the landscape continues to pose challenges. Geopolitical developments have significantly worsened since the increased hostilities in Ukraine, and from a macro-economic perspective, inflation rates, interest rate changes and other economic indicators are pointing to a significantly more challenging economic environment. Jurisdictionally, the competitive environment remains intense and evolving too.

“But there is plenty for Jersey to be positive about. We have a compelling proposition, an industry that is growing at an impressive rate, and more and more managers of substance looking at Jersey to support their cross-border needs. Private equity, venture capital and real assets are at the heart of global economic rebuilding efforts, and we have precisely the experience and platform here to support that and make a positive impact.”

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

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

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

Read the full article here.

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The total number of registered Jersey Private Funds (JPFs) has surpassed the 500 mark, according to the latest figures, as the structure continues to assert its appeal for flexible alternative fund structuring.

According to the latest quarterly statistics collated by the Jersey Financial Services Commission and published by Jersey Finance, there were 502 JPFs at the end of September 2021, a number that has risen by 38% compared to the same time the previous year.

Launched in 2017, the JPF structure is tailored to the needs of small numbers of sophisticated investors and offers high levels of flexibility, fast-track authorisation and lighter touch ongoing regulatory requirements. Further, the nimble nature of the structure mean it chimes particularly well with the tried and tested private placement route for marketing funds into Europe as well as within the ESG space.

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

“These latest figures show the enduring strength of the JPF, particularly when it comes to private capital co-investment and cross-border institutional alternative fund structuring. By being cost-effective, flexible and swift to market, the structure has genuinely become a go-to vehicle that has, undoubtedly, played a part in the sizeable growth we’ve seen in our funds sector as a whole.”

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

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

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

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

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

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

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

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

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

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

‍Accessibility

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

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

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

Speed to market and cost efficiencies

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

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

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

Legislative flexibility

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

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

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

Regulatory flexibility

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

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

Tax neutrality

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

Service providers

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

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

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An ability to remain agile in a changing landscape, deliver innovative solutions and offer a platform of stability are key differentiators for Jersey’s funds industry that are resonating clearly with managers and investors, according to the chairman of the Jersey Funds Association (JFA).

JFA Chair Tim Morgan gave his update at the JFA Annual Dinner recently (23 September), attended by more than 350 funds and wider industry professionals, including an overview of the current funds landscape, the ongoing work of the JFA with its key stakeholders in Jersey, and future opportunities for Jersey’s funds sector. It was the first physical return to events for the JFA since 2019, since when all updates had been provided on a digital basis.

Pointing to the fact that Jersey’s funds industry recorded another new record high of fund assets being administered at the half-way point in 2021 (£436bn), with private equity and venture capital increasing by 21% year-on-year and the number of Jersey Private Funds (JPFs) rising to 456, Tim commented:

“The latest figures show that Jersey’s focus on alternative investment funds continues to provide a stable platform of long-term capital. From the start it was clear that the pandemic was affecting participants differently. Large, well-known sponsors with strong platforms continued to fundraise. Conditions were more challenging for new and smaller investment groups. However, many have in any case proceeded with the raising of successful, small, first funds and club deals, and that correlates with the continued growth in the number of JPFs we have seen. It’s a real endorsement of Jersey’s appeal and expertise.”

In addition, Tim, who is also a partner at the Jersey legal practice of the Maples Group, highlighted the importance of Jersey’s funds industry maintaining momentum in delivering innovative solutions to global investors:

“Jersey has continued to test innovations in digital assets, as well as increased amounts of structures aimed at sustainable technologies and related assets, which is very positive. In addition, significant changes have also occurred in the administration space – increasingly tech is a key component of how services are being provided, which is enhancing how governance, risk management and compliance are managed in practice. Jersey service providers have been impressive in adopting a digital first approach over the past year and this is undoubtedly a key part of our success.”

Meanwhile, Tim also highlighted that shifts in global geopolitics, regulation and competition were providing challenges, with Jersey’s focus on maintaining a perfect ecosystem for alternative funds putting it in a strong position:

“The political environment is volatile – the change in US administration; increased pressures from the EU and OECD in relation to tax; numerous policy initiatives from UK in the post Brexit and post pandemic environment; upcoming elections in Germany and France. All this means that there is a need for continual engagement in relation to Jersey’s position internationally. At the same time, jurisdictionally, the competitive environment is intense.

“However, Jersey’s ability to pivot in an agile manner, in particular between JPFs and more narrowly-held joint venture and co-investment vehicles, is valuable and provides popular, efficient solutions. At the same time, Jersey has an incredibly strong culture of partnerships with the JFSC, government, and other industry elements all working together on areas of opportunity or concern for our funds and wider finance industry. This is a real differentiator for us, as we continue to focus on our core message - that Jersey offers a unique ecosystem to provide a platform of stability in a rapidly changing market.”

Entertainment at the event, which was held at the Trinity Showground, was provided by comedian and writer Jo Caulfield and London-based singer-songwriter and former Jersey Young Musician of the Year Sam Walwyn.

The main sponsor of the dinner was Mourant, whilst silver sponsors were BNP Paribas Securities Services, IQ-EQ, Ogier and PwC, and the champagne sponsor was Carey Olsen.

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Sustained buoyant private equity activity continued to drive growth in Jersey’s investment funds sector as the total value of fund assets administered in the jurisdiction grew by £26.3bn to stand at a new record level of £436.3bn at the mid-year point, according to new industry data.

The latest quarterly figures for Jersey’s finance industry, collated by the Jersey Financial Services Commission (JFSC) and published by Jersey Finance for the period ending 30 June 2021, show that the value of total funds business booked in Jersey grew by 15% over the first half of 2021.

In particular, the figures show that funds sector performance has been driven by private equity, which has grown by 24% over the half year to stand at £203.6bn. Combined, the alternative asset classes, including private equity, venture capital, hedge, real estate, infrastructure and debt funds, now account for 89% of all funds business in Jersey.

In addition, the number of registered Jersey Private Funds (JPF), a structure designed for small groups of sophisticated and professional investors, grew by more than 50 over the six-month period to reach 456 (up 13%). JPFs hold total Assets Under Management of £78bn – these are not included in the headline quarterly data.

Commenting on the figures, Jersey Finance Deputy CEO, Amy Bryant, said:

“These latest quarterly figures reinforce some important points. First, the fact that corporate activity has remained strong and our banking sector has been resilient despite significant currency movements in an uncertain environment, underlines the robust nature of our industry.

“In addition, the fact that our investment funds sector has shown such impressive and sustained growth – in particular in the private equity and alternatives space – highlights our strengths as a centre focused on putting significant and high quality institutional and private capital to work around the world. Investors and managers clearly recognise Jersey as an IFC that offers specialist alternative fund expertise. That is important not just for Jersey but for global economies as we all look to rebuild in a sustainable way.”

Tim Morgan, Chair of the Jersey Funds Association, added

“These are once again really positive figures underlining Jersey’s reputation as a specialist funds centre. We work tirelessly to maintain the perfect ecosystem for alternative funds - an ecosystem that is straightforward, well-regulated, effective, flexible and driven by genuine expertise - and those efforts are reflected in the ongoing growth we are seeing in the alternative asset classes, particularly private equity. That the JPF continues to grow its appeal across the range of investors from institutional investors through to family offices is also very welcome and demonstrates our ability to innovate to meet the range of needs across the market.”

 The full set of quarterly statistics is available here.

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Over the past 40 years, the private markets (or alternatives) sector has grown to become a bedrock of high value employment and prosperity in Jersey – the sector now accounts for nearly 90% of funds under administration in the jurisdiction.

As assets under management (AuM) in the private markets sector continue their rapid expansion worldwide, they’re set to play a key role in driving recovery and creating more sustainable and socially inclusive economies both here and across the globe.

Mainstream

The private markets designation brings together private capital (private equity and credit) and real assets (infrastructure and real estate), and this has real relevance for Jersey which has a formidable reputation in private equity and real estate in particular.

As investors go in search of returns that other asset classes may struggle to deliver, private markets are one of the fastest growing areas of asset management globally. It’s a sector that is now by no means niche – it’s fast becoming mainstream.

Reflecting that, earlier this year, PwC published Prime time for private markets: The new value creation playbook, an in-depth exploration of how the sector is evolving and how to capitalise on the potential. According to that report, it is anticipated that private markets AuM will increase by $4.9 trillion to reach $14.4 trillion by 2025 - around 10% of overall AuM worldwide.

Further, in the JFA’s own survey of its members at the end of last year, respondents painted a clear picture of an industry that is looking to grow and diversify, driven by the private markets. In an industry with alternatives at its core, 69% of respondents said they were confident that their business would grow over the next five years, whilst both short and medium term strategic priorities for Jersey’s funds industry remained focused on private equity, real estate, venture capital and debt funds, according to respondents.

Increasingly challenging

As the PwC report highlights, however, this is an increasingly challenging market in which the prizes will be hard won.

·        In search of return: with entry multiples so high and economies still fragile, traditional value levers such as financial engineering and cost reduction may no longer be enough to deliver target returns. Forward-looking private markets managers are therefore broadening their value creation lens in areas ranging from strategic repositioning and top-line growth to longer hold and ‘permanent capital’ models.

·        Competing in a concentrated market: Institutional investors’ growing demand for multi-asset mandates is making it difficult for smaller, single-asset-focused managers to compete with big, diversified rivals. There’s still room for specialised players with the right capabilities. The firms that are most vulnerable are those that have neither scale nor specialisation. They risk being squeezed out of the picture.

·        Keeping pace with changing stakeholder expectations: the other, and in many ways most far-reaching, challenge is the shift in stakeholder attitudes. As environmental, social and governance(ESG) priorities in areas such as health, sustainability and social inclusion come to the fore, ESG performance has become as important as financial returns.

This isn’t just altruism. As pension and sovereign wealth funds’ private markets allocations increase, reflecting the ‘people’s priorities’ will be ever more important in securing large mandates and sustaining scale and growth. Embracing ESG would help private markets managers to reframe public perceptions, cultivate closer affinity with investors and generate new forms of value. Investment opportunities include helping portfolio companies to move towards net zero production. Private markets managers could also help to bridge the funding gap for small and innovative growth businesses and boost infrastructure investment in areas ranging from healthcare to digital communications.

With government coffers drained by the COVID-19 pandemic, the record levels of dry powder at private markets managers’ disposal could make them a vital contributor to recovery and regeneration – a Marshall Plan for the 21st Century. This would need to be weighed against the increased public scrutiny that would come from a more prominent role in socially-critical areas such as small business finance and infrastructure development.

Opportunity

Jersey’s specialist expertise, record of innovation and supportive regulatory environment puts it in a strong position to take advantage of private markets expansion. But just as the sector as a whole must adjust to a changing world, firms in Jersey are working hard on sustaining relevance and where they can take the lead:

·        Picking their spot: the most crucial decision is whether to be a scale or niche specialist player. Firms in Jersey are carefully considering what it is exactly that might make business want to come here, and how they can build on their standout capabilities.

·        Challenging assumptions: Further questions centre on how to address changing investor demands. The ever-increasing risk of being called out for ‘greenwashing’ is a clear case in point. As a result, governance – the G in ESG – is rightly at the centre of the agenda. Firms in Jersey are deeply aware of the principal areas needing to be addressed, including gauging what investors really want and how to stay ahead of the game – the goalposts are moving all the time.

·        Nurturing talent: Firms are committed to addressing the need to deepen skills and talent, including creating more diverse boards and stepping up the recruitment and upskilling of women.

The evolution and expansion of private markets offer the win-win of high value economic growth locally, and an opportunity to help address pressing social and environmental priorities globally.

With so much at stake, Jersey’s funds sector is focused on tracking how investor demands are changing, ensuring it can keep pace, and articulating what it can offer that other financial centres can’t.

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Accelerated digital adoption, upskilling and product innovation will be key themes for a “confident and ambitious” funds industry in Jersey over the coming years, according to the findings of the third annual survey of Jersey Funds Association (JFA) members.

Presented by JFA Chair and Maples Partner Tim Morgan at a recent virtual event, the findings of the survey, which explored key opportunities and issues for Jersey’s funds industry and the sentiment of practitioners, will be instrumental in informing the JFA’s strategy over the coming years.

Tim was joined at the event by a panel of experts including Mike Byrne, Partner at PwC, Amy Bryant, Deputy CEO at Jersey Finance, Martin Moloney, Director General at the Jersey Financial Services Commission, and Alex di Santo, Group Head of Private Equity at Crestbridge.

Amongst its key findings were that digital transformation will continue to be pivotal to the core operation of funds businesses in Jersey, shaping approaches to regulation, tax and governance over the coming years. Highlighting the impact of Covid-19in particular, 92% of respondents said that the pandemic had changed the way their business uses technology to some degree, with 63% saying it had significantly accelerated digital adoption within their business.

Further, while the vast majority (62%) considered that current skills training was sufficient, around 37% suggested that greater support was needed to support upskilling for a more digitised future.

Meanwhile, on the regulatory front, the survey indicated that Jersey’s response to economic substance rules had been broadly welcomed by the industry, with 42% of respondents claiming that substance rules had had a positive impact on Jersey’s competitiveness, while 70% suggested that Jersey is striking the right balance between ease of doing business and regulation.

It also highlighted that Brexit is still seen as, on balance, a neutral or positive factor for Jersey’s funds industry, with almost a third (31%) of respondents anticipating an increase in business as a result of Brexit.

The survey also painted a picture of an industry that is looking to grow and diversify, with 69% of respondents saying they were confident that their business would grow over the next five years, driven largely by organic growth (69%).

In terms of strategic priorities, both in the short and medium terms, the focus remains on private equity, real estate, venture capital and debt funds, whilst geographically, Jersey’s funds industry is increasingly global in nature, with the US West and East coasts and Middle East markets seen as increasingly important, complementing the existing strong focus on the UK.

Commenting on the findings, Tim said: “Despite the challenges of the last year, Jersey’s funds industry has continued to see hugely impressive growth, with the latest figures for funds business registered in Jersey rising to a new record level of some £378 billion in 2020. The ecosystem Jersey provides for alternatives – its stable platform, quality regulatory framework, expertise and service quality – is clearly resonating with investors, and the outlook for the coming years remains very positive.

“Nevertheless, what this survey shows is that Jersey’s funds industry is both confident and ambitious, and continues to look to push boundaries, innovate and improve. The focus on digital adoption and upskilling comes across clearly this year, with the industry keen to position itself as an authority in the alternatives space, while there are also real ambitions to diversify and grow, including in the ESG space.

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

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The rise of sustainable finance, the impact of Brexit, EU regulation and the fallout of the pandemic all have the potential to shape considerations around alternative fund domicile selection, according to new research published recently by IFI Global and supported by Jersey Finance.

Based on the views of alternative managers, law firms and advisors from across North America, Europe and Australasia, including some of the world’s largest investors in alternatives, the research for this new report – entitled ‘The Future of International Fund Domiciliation 2021’ – was carried out between October 2020 and February 2021.

More information and the full report can be found here.

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