AIFMD Will Enhance Jerseys Appeal
By Geoff Cook, CEO, Jersey Finance
Despite ongoing challenging market conditions, Jersey has continued to demonstrate a significant degree of resilience across its funds sector. Figures up to the end of 2012 suggest that the global funds industry remains attracted to Jersey, with the value of assets being administered and managed in the jurisdiction totalling more than £200bn.
The value of assets under administration in Jersey stood at £192.8bn as at December 2012 – up around £3.5bn year-on-year. In particular, Jersey continues to assert itself as a major player in the alternative fund space, with alternative asset classes accounting for around 70% of its total value of funds under administration. Specifically, it is pleasing that the value of hedge fund administration business done in Jersey grew in the fourth quarter of 2012 by around £5bn.
Maintaining such a healthy funds sector against a volatile economic backdrop emphasises the positive reaction to Jersey‘s approach to the EU Alternative Investment Fund Managers Directive (AIFMD).
Hedge fund professionals have now had some time to fully digest the AIFMD’s Level II measures and, with the July implementation date now imminent, things are finally moving forward, at quite a pace - EU countries are bringing the AIFMD into national law, non-EU countries are responding in different ways and fund managers and service providers are gearing themselves up for a post-AIFMD world.
Thanks to the flexible and distinct way Jersey has approached the AIFMD, hedge fund managers using Jersey to domicile their funds could be presented with a number of opportunities. As a non-EU ‘third country’ for the purposes of the AIFMD but a well-established jurisdiction at the centre of European funds business, the feeling is that the AIFMD could actually enhance Jersey’s appeal to hedge fund professionals and affirm its long-term position as a European alternative funds centre of excellence far beyond the introduction of the AIFMD this summer.
Jersey’s funds industry, government and the regulator have been, and continue to be, intensively engaged with the AIFMD and, as a result, Jersey is now in a very strong position. The overwhelming message is that the jurisdiction will give the hedge fund community confidence by maintaining a ‘business as usual’ approach to funds business within the EU.
Jersey will be able to do this through private placement arrangements with individual EU countries until at least 2018. In order to demonstrate it meets EU requirements, in April Jersey introduced its own set of AIFMD regulations for managers wishing to market to European investors that mirror EU requirements.
In addition, Jersey is well on track in working with ESMA to ensure it is in the first tranche of jurisdictions to sign a pan-European multilateral agreement with EEA Member State regulators that will authorise it to utilise the private placement route.
At the same time, Jersey is also committed to obtaining an EU-wide AIFMD passport by 2015 - as soon as is possible for non-EU ‘third countries’ – giving hedge fund managers the option to market their Jersey-domiciled funds to investors across the EU.
Jersey is also well on track in this regard and intends to have a fully-compliant regime ahead of 2015. The AIFMD is about regulating and authorising alternative fund managers, and this is something that Jersey already does, in line with IOSCO standards.
Meanwhile, as a non-EU jurisdiction, Jersey is able to continue to offer a degree of flexibility through a completely separate funds regime that lies outside the scope of the AIFMD, just as it does at the moment, for hedge fund managers who are marketing to the rest of the world and don’t want to access EU capital.
This makes sense - in the current climate, hedge fund managers are not just focusing on Europe, they are adopting global strategies and raising capital in markets around the world, not touching Europe at all. In such cases, using a non-EU but European time-zone jurisdiction that is experienced in handling non-European hedge fund business, such as Jersey, will be attractive.
Combined, these routes put Jersey in a unique position. It can offer hedge fund managers a route that is absolutely in line with the AIFMD, in close proximity to Europe and benefiting from all the stability and comfort the AIFMD brings. And at the same time, it offers managers the ability to market funds outside of Europe without the need to worry about the AIFMD at all.
So while there has been some speculation around the AIFMD prompting a migration of fund business away from offshore centres, this is not Jersey’s expectation at all. Overall, Jersey’s position will actually be enhanced by its approach to the AIFMD. Managers will be able to base themselves in Jersey and meet EU requirements while at the same time serving the rest of the world with potentially lower costs. Offering both will not be available in all offshore centres or in EU member states.
As a result of its approach to the AIFMD, a growing number of hedge fund managers are also seeing Jersey as an attractive centre to relocate to. Jersey is increasingly being seen as a safe environment, a flexible option and a ‘no-change’ solution for hedge fund managers. Indeed, a growing number of fund managers are establishing a presence in Jersey – seven asset managers have set up in Jersey in the past 12 months alone.
Meanwhile, Jersey is not resting on its laurels and continues to innovate across its fund regimes and respond to market demands to stay ahead of its competitors. Besides the AIFMD, the industry is working with other global regulatory changes, such as the US Foreign Account Tax Compliance Act (FATCA) and Dodd-Frank.
Remaining flexible to the needs of the industry and responding appropriately to regulatory developments, particularly the AIFMD, is ensuring Jersey can not only maintain but actually enhance its long-term appeal as a major European alternative funds centre.
This article was first published in Hedge Fund Manager Week, 30 May 2013.