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Service Providers
Towards the end of 2022, Jersey Finance embarked on its first US roadshow, hosting events in Miami, Chicago and San Francisco, as well as New York, where it has had an office for three years.
A number of industry professionals from Jersey Funds Association member firms were involved in the roadshow, including Ian Horswell, Global Head of Business Development for Funds at Suntera Global. Here, Ian reflects on the roadshow and how Jersey is evolving its proposition for US managers…
Q: What sort of business is currently being undertaken between Jersey and US?
Ian Horswell (IH): We continue to believe that Jersey is a fantastic jurisdiction for US managers looking to access European assets or working with European investors – it is well respected, well-regulated and has tax neutrality, all of which is appreciated increasingly by managers we speak to.
In May last year, for instance, we acquired US-based fund services provider Socium Fund Services and since then we have seen rising levels of new business flows between both jurisdictions.
Q: Why is the US such an interesting market for Jersey?
IH: The US is the largest funds market in the world and we’ve seen some exciting growth in the US this year. It’s also a market that is experiencing a sharp movement towards the outsourced model – so it’s a space where Jersey can add real value.
Against that backdrop we hired a dedicated senior Business Development lead in the US to help tell our and Jersey’s story. The feedback is that US managers are increasingly used to the IFC model and see Jersey as an interesting gateway to Europe.
Q: How is Jersey’s reputation evolving in the US?
IH: I think Jersey’s reputation is growing all the time. Jersey Finance and JFA member firms are more and more active in the US, which is giving Jersey greater visibility, while a number of US law firms have a large presence in London, which means that Jersey is already familiar to them. US managers and lawyers are using Jersey and having a good experience in doing so – that quality of service is a really strong play in the US market.
Q: How useful was the Jersey Finance US Roadshow in getting Jersey’s message across?
IH: The roadshow was really useful, both from a jurisdictional and an industry perspective. Jersey Finance and Suntera are already well known in New York and its surrounding areas, and this series of roadshow events brought our story to a much wider audience and new groups of stakeholders.
Chicago, for example, was a new city for both Jersey Finance and Suntera, but actually Chicago has several managers who use Jersey and we had lots of legal contacts in the area too. The roadshow gave us an opportunity to reinforce our message face to face with a new audience, which was vital, and gave managers a chance to ask questions.
It also gave us an opportunity to really focus and ensure our clarity of message – that Jersey is well positioned to support the US market, with excellent experience in all major asset classes. One important point which we highlighted a lot during the week was our political stability, whilst we also pointed consistently to how, as a small jurisdiction, Jersey punches well above its weight with over 14,000 financial services employees.
Q: How well is Jersey perceived in the US market?
IH: Overall, the Roadshow has really helped move the dial in terms of Jersey’s proposition for the US. What was clear was that those managers and lawyers that use Jersey already are big fans.
However, we also need to continue to focus on other groups, those that are less familiar with what we do, and do some educational work to explain our USP over other IFCs – in particular in relation to our responsiveness, pragmatic regulator, and the impressive flexibility and experience we offer. That will be our focus for the US in 2023.
Find out more about Jersey's US proposition for US managers here and about Jersey Finance's US roadshow here.
Ian Horswell, Global Head of Business Development for Funds at JFA Member Firm Suntera Global, reflects on Jersey Finance's recent US Roadshow and how Jersey is evolving its proposition for US managers…
Why Jersey provides such a compelling proposition for alternative funds compared to other jurisdictions...
With figures from the JFSC confirming that total regulated funds business grew by a fifth over 2021 and now stands at almost £460bn (March 2022) and with 200 managers and around 370 funds currently marketing into the EU through private placement in Jersey, the JFA has worked with industry to put together a new factsheet designed to illustrate why Jersey provides such as compelling proposition for alternative funds compared to other jurisdictions.
You can access that factsheet here.
With reference to Jersey Finance's ground-breaking 'Jersey's Contribution to Global Value Chains' report, JFA Chair Tim Morgan writes in Funds Europe magazine, looking at the importance of evidencing the positive global impact of Jersey's funds sector...
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.
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...
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.
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.
Jersey Finance hosted a Masterclass looking at fund domiciliation in a post-Brexit landscape on 4 February 2021. Watch it again here...
Live streamed last week (4 February), the latest Jersey Finance Funds Masterclass, which featured a number of industry and Government of Jersey representatives, explored what lies ahead for the European alternative funds landscape in the wake of Brexit with the transition period having now come to an end. Amongst the themes explored by panellists were the change stemming from Brexit, the review of the AIFMD, the shifting global corporate tax environment and the stability Jersey offers the alternative funds community in light of this period of change.
Watch the Masterclass again here.
Elliot Refson, Business Development Director, Funds at Jersey Finance, and committee member at the Jersey Funds Association, recently spoke to PFM about how Jersey is supporting private equity fund managers with their EU distribution through Brexit.
Elliot Refson, Business Development Director, Funds at Jersey Finance, and committee member at the Jersey Funds Association, recently spoke to PFM about how Jersey is supporting private equity fund managers with their EU distribution through Brexit.
Commenting on the recent publication of the UK Finance Bill (7 November), which included legislation enabling the introduction of new Capital Gains Tax (CGT) measures for non-resident investors in UK property, Mike Byrne, Chairman of the Jersey Funds Association (JFA)
Commenting on the recent publication of the UK Finance Bill (7 November), which included legislation enabling the introduction of new Capital Gains Tax (CGT) measures for non-resident investors in UK property, Mike Byrne, Chairman of the Jersey Funds Association (JFA) said:
“These measures are the result of a period of really positive consultation between the UK authorities and a range of industry stakeholders and, from a Jersey perspective, it is pleasing that the points we would make as a funds industry body have clearly been listened to.”
In particular, the original proposal made as part of the UK’s November 2017 Budget to extend the UK CGT regime to include all disposals by non-UK residents of UK property, raised a number of key concerns. These included the effect they would have on deterring foreign investment into UK property, the potential for multiple layers of taxation within investment structures, and the likelihood of tax-exempt investors suffering tax leakage on their property holdings.
However, the approved rules reflect these concerns and instead create two new elective regimes: a ‘transparency regime’, which will ensure that income-transparent UK property-rich fund vehicles will continue to be treated as transparent for gains purposes, and an ‘exemption regime’, which will enable certain structures to elect to meet additional criteria so that gains by the fund or within its structure will not be taxable, but the fund's investors will be taxed on disposal of their interest in the fund.
Mike continued: “Overall, the measures that have been introduced are a positive and pragmatic outcome. As well as maintaining the UK’s core proposal, the targeted exemptions approach should help address the concerns previously raised and, fundamentally, ensure that the UK real estate market remains an attractive one for overseas investors.
“In particular, the new rules take into account the wide range of investment vehicles which are used for investing in UK property, including the transparent vehicles available through Jersey, such as JPUTs. For this reason, we fully expect that Jersey, which has developed huge experience and expertise and created a highly sophisticated regulatory environment for cross-border real estate investment over many years, will continue to provide a compelling proposition for UK-focused real estate fund structuring. Indeed, the expertise Jersey can offer will be absolutely vital in supporting managers with the new rules and advising them around the options now open to them.”
According to figures from the Jersey Financial Services Commission, the net asset value of real estate assets held in Jersey fund structures was £39.6bn as at 30 June this year, reflecting growth of 78% over the past five years.
It is uncontroversial that tax-exempt investors (pension funds, endowment funds, sovereign wealth funds), are spared local taxes to maximise the return for their tax-paying beneficiaries.
It is uncontroversial that tax-exempt investors (pension funds, endowment funds, sovereign wealth funds), are spared local taxes to maximise the return for their tax-paying beneficiaries.
Those local exemptions are lost, however, where tax-exempts invest cross-border, which could discourage international investment, prejudicing returns from high-growth regions and risk diversification. The solution presents itself in tax-exempts investing internationally through a tax neutral investment platform in a specialist domicile like Jersey.
The debate around the use of lower tax centres raises the question "why do people invest in offshore funds?". The answer is simple: for alternatives, they're best in class. Expert domiciles like Jersey provide the optimum (regulatory, capital efficiency, cost, tax and service) environment for alternative investment structuring, offering mature expertise and higher returns.
This attracts "best in class" managers who produce the best returns for their tax-exempt investors. Monterey Insight statistics for 2017 showed a healthy 14.7% annual increase in AuMs in Jersey funds, with private equity and venture capital strategies (53%) and real estate strategies (20%) representing a significant share.
The need for tax-exempt exposure to alternatives has been driven by two recessions, budget challenges, the demographic shift and a long period of low interest rates: traditional pension investments in government securities, investment-grade bonds, blue-chip stocks and fixed-income strategies have been bolstered by allocations to alternatives to provide better overall returns, diversify portfolios, add inflation protection and keep return assumptions relatively constant, as returns on "less risky" investments have declined.
Private Equity
On recent averages, public and private sector pension funds have allocated just over 4% of their investable pool to private equity, which has delivered an 8.3% median net IRR over the past decade for public pension funds vs. 5.3% for their total portfolio.
Such is private equity's appeal, investors are struggling to reach their target allocations to private equity as 94% of LPs want to maintain or increase their allocations (Sources: Preqin and Bain Global Private Equity Report 2017). Private equity also offers tax-exempts long-term strategies which mitigate volatility risk and provide in-built diversification across portfolio companies and an ever-increasing range of geographical and sector strategies. 2017 saw the launch from Jersey of Softbank's (largest ever) Vision Fund and CVC Fund VII - funds of real global consequence.
Real Estate
Similarly, private sector pension funds constitute 19% and public sector pension funds 15% of the institutional investors in private real estate funds - more than any other investor type. Higher risk, value-added, real estate strategies are used by 49% of private and 60% of public sector pension funds.
Recent real estate fund performance has been strong, with annualised returns of 14.9% over last three years and 93% of investors happy with their returns. (Source: Preqin). Private real estate funds provide tax-exempts with portfolios combining capital appreciation and a rising stream of inflation-adjusted income, to balance out the ups and downs of the securities markets, and they provide marginally increased liquidity versus real assets, whilst allowing passive investment.
Jersey has long hosted real estate structures channelling tax-exempt investment into UK property and infrastructure, whether industrial parks, office blocks, apartments, retail complexes or student accommodation (eg the Malaysia Employees’ Provident Fund co-investment in Battersea Power Station project).
This all demonstrates how Jersey boosts global growth and prosperity by facilitating secure and efficient cross-border investment and maximising pension fund returns.
