AIFMD Comes Into Force

July 28, 2014

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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