Enhancing the Appeal of Jersey
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 Jersey totalling over the £200bn mark.
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 – and private equity fund administration business specifically done in Jersey continuing to perform strongly.
Maintaining a healthy funds sector and actually growing alternative funds business against a volatile economic backdrop emphasises the positive reaction to Jersey‘s approach to the EU Alternative Investment Fund Managers Directive (AIFMD).
With private equity professionals having had some time now to digest the AIFMD’s Level II measures and with the July 2013 implementation date now imminent, things are finally moving forward. While EU countries are bringing the AIFMD into national law, so too are managers and service providers having to come to terms with exactly what the detail of the AIFMD means to them, and how they need to act in order to ensure they are fully geared up in time.
Thanks to the flexible and distinct way Jersey has approached the AIFMD, however, private equity fund managers using Jersey to domicile their funds will actually be presented with a number of opportunities as a result of the new regulation.
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 will actually enhance Jersey’s appeal to private equity professionals and affirm its long-term position as a European alternative funds centre of excellence far beyond this summer’s AIFMD deadline.
Jersey’s funds industry, government and the regulator have been, and continue to be, intensively engaged on the AIFMD. As a result, Jersey is now in a very strong position. By maintaining a ‘business as usual’ approach to funds business within the EU, the overwhelming message is that Jersey is focused on giving the private equity community confidence and certainty.
From July, access to EU markets for Jersey will be through private placement arrangements with individual EU countries, until at least 2018. In order to achieve this, new regulations were introduced in Jersey in April this year, mirroring EU requirements and allowing for the creation of an opt-in regime for managers wishing to market to European investors.
Individual agreements between Jersey's regulator and the regulators of Member States will be required, and Jersey's regulator is well down the road and making excellent progress in ensuring such agreements with ESMA and Member State regulators are in place in good time ahead of the July implementation date.
With bilateral cooperation agreements already in place with the majority of key EU Member States, Jersey intends to be in the first tranche of jurisdictions to be authorised to utilise the private placement route. These reassurances will give private equity professionals confidence that Jersey will provide a seamless transition for facilitating ongoing funds business within Europe this summer.
In fact, the Netherlands have already designated Jersey as one of the ‘third-countries’ they deem to be subject to adequate supervision to continue to privately place there without the manager needing a licence from the Dutch regulator.
Beyond private placement arrangements, Jersey is also committed to being fully AIFMD-compliant and obtaining an EU-wide AIFMD passport by 2015 - as soon as is possible for non-EU ‘third countries’. This will give private equity fund managers the option to market their Jersey-domiciled funds to investors right across the EU.
Jersey is also well on track in this regard, with the new regulations introduced in Jersey in April this year also paving the way for Jersey to have this Europe-wide fully-compliant regime in place ahead of 2015. In addition, 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 offer the private equity community a welcome 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 private equity fund managers who are marketing to the rest of the world and don’t want to access EU capital.
In the current climate, this makes absolute sense – private equity managers are not merely focusing on Europe: they are adopting global strategies and raising capital in markets around the world, in a large variety of cases not touching Europe at all.
In such situations, using a non-EU but European time-zone jurisdiction that is experienced in handling non-European private equity business and that isn’t touched or impacted by AIFMD regulation, such as Jersey, will be attractive.
Combined, all these routes put Jersey is a unique position. It can offer private equity fund managers a route that is absolutely in line with the AIFMD, that offers all the stability and comfort the AIFMD brings, from a centre that is in close proximity to Europe. And at the same time, it offers managers the ability to market their funds outside of Europe without the need to consider the impact of the AIFMD at all.
So while there has been some speculation that the AIFMD may prompt a migration of fund business away from offshore centres, this is not Jersey’s expectation at all. In fact, a rational analysis of the situation shows that overall Jersey’s position will actually be enhanced by its approach to AIFMD. Managers will be able to base themselves in Jersey and, from one location, meet all 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.
Based on its strong track-record of supporting international private equity business, backed up by its approach to the AIFMD, Jersey is also being seen as an attractive centre to relocate to by a growing number of alternative fund managers. Increasingly recognised for its safe environment, flexible approach and the ‘no-change’ solution it offers private equity professionals, a growing number of fund managers are establishing a presence in Jersey - seven asset managers have established a presence in Jersey over the past 12 months alone.
As the international funds community embarks on the final stretch towards the long awaited July AIFMD implementation date, competition between jurisdictions will only increase, and Jersey is not resting on its laurels.
There is a firm focus on continuing to innovate across its fund regimes and responding appropriately and effectively to market demands in order to stay ahead of its competitors.
Besides AIFMD, for instance, the industry is working with other regulatory changes, such as adopting the US Foreign Account Tax Compliance Act (FATCA) and engaging in the evolving debate on global tax information exchange, while enhancements have also been made to Jersey’s Limited Liability Partnership Law.
Remaining flexible to the needs of the private equity community and responding appropriately to regulatory developments is ensuring Jersey’s long-term appeal as a major European alternative funds centre.
With only a matter of weeks now until the AIFMD becomes a reality, Jersey’s hard work and preparation has ensured it is in a very strong position indeed to continue to support the private equity community in the long-term and remain at the forefront of international private equity business.
This article was first published in Private Equity International magazine's Fund Administration and Technology Special, July 2013.