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JFA News
Monday
28
January 2019

Supporting private equity fund managers with their EU distribution through Brexit

Elliot Refson, Business Development Director, Funds at Jersey Finance, and committee member at the Jersey Funds Association, recently spoke to PFM about how Jersey is supporting private equity fund managers with their EU distribution through Brexit.

Elliot Refson, Business Development Director, Funds at Jersey Finance, and committee member at the Jersey Funds Association, recently spoke to PFM about how Jersey is supporting private equity fund managers with their EU distribution through Brexit.

JFA News
Thursday
22
November 2018

New CGT Rules a 'Positive Outcome' for UK Real Estate Funds

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.

JFA News
Tuesday
27
February 2018

Blog: Jersey, boosting global prosperity by maximising pension fund returns

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.