By Alistair Horn, Mourant LP Partner and JFA committee member, John MacFeeters, Counsel and Rachel Fowler, Senior Associate at Mourant
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.
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.
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.
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.
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.
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.
In our latest blog, JFA Committee Member and Mourant LP Partner Alistair Horn, together with Mourant colleagues John MacFeeters (Counsel) and Rachel Fowler (Senior Associate) explain why now is an opportune time to look at how Jersey can support trends in the UK real estate investment space...
Speaking at the recent JFA Dinner, Chair Tim Morgan provided an update on Jersey's funds industry...
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.
The latest quarterly figures for Jersey's finance industry show that the total NAV of funds administered in Jersey grew to a new record level of £436.3bn at the mid-year point...
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.
In our latest blog, JFA Committee Member and PwC’s Asset Management Leader, Mike Byrne, looks at how Jersey’s alternatives sector can be an engine of growth and a force for good in a rapidly changing world…
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.
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.
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.
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.
The findings of the third annual survey of Jersey Funds Association (JFA) members have highlighted digital adoption, upskilling and product innovation as key drivers for Jersey's funds industry over the coming years...
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.”
A new report by IFI Global, supported by Jersey Finance, has been published, exploring post-pandemic fund domiciliation trends...
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.