Expertise Underlines Enduring Strength of Jersey
Jersey has long held significant appeal as a domicile for the management and administration of alternative funds, and there has been a noticeable rise in recent months in high-value private equity funds being structured through Jersey.
With the end of the transitional period for implementing the Alternative Investment Fund Managers Directive (AIFMD) now imminent (22nd July 2014), managers have been exploring the long-term options open to them. There are incredibly encouraging signs that the enormous amount of hard work that has gone in to establishing Jersey’s ‘future proof’ model in relation to the AIFMD is being very well received, particularly in targeting sophisticated investors wanting to make global private equity and infrastructure investments.
In fact, when asked at our Annual Funds Conference in London earlier this year where they saw most opportunities for growth, the audience of funds professionals indicated that they were most optimistic about the real estate (33%) and private equity (27%) asset classes, both areas where Jersey has significant fund servicing strength.
An encouraging response from the private equity community has seen a number of major asset management businesses and service providers establish a presence or expand in the Island recently.
Moreover, a number of landmark private equity and real estate funds have been structured through Jersey, involving both European and non-European assets and investors, including the largest ever real estate fund to be listed on the London Stock Exchange.
With the global asset management industry expected to grow from $65trn to in excess of $100trn by 2020 (PwC, ‘Asset Management 2020: a Brave New World’, February 2014) and alternative investments to grow from $6.5trn to over $13trn, there is positive news for the alternative asset servicing industry and Jersey in particular, where we are already seeing a post-crisis surge in new funds.
As cross border finance grows, so too will the demand for tax neutral capital raising and pooling centres. Jersey is well placed to meet that demand, which is why we are seeing this surge and why organisations as diverse as the Scandinavian Private Equity Industry and Asian Sovereign Wealth funds are structuring through Jersey.
It’s clear that, in a post-AIFMD landscape, what managers require above all else from their domicile is a combination of certainty and flexibility. This has been borne in mind and is reflected in Jersey’s three-pronged response to the AIFMD that allows funds to be marketed into the EU through national private placement regimes, with the option of an EU-wide passport as anticipated from July 2015, or to the rest of the world through existing regimes outside the scope of the AIFMD.
Where marketing into the EU is concerned, ‘offshore’ is very much alive. Jersey’s regulator, the Jersey Financial Services Commission (JFSC), is currently granting licences for fund managers actively targeting European markets through private placement arrangements, with limited AIFMD reporting and disclosure requirements.
Jersey was also the first third country to offer managers a fully compliant AIFMD option, meaning that Jersey 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 anticipated from July 2015.
In comparison with onshore, Jersey’s AIFMD regime is incredibly competitive, with regulatory approval for private placement under AIFMD including options which can take from between just three and ten days, depending on the structure. A survey conducted in January this year by BNY Mellon found that less than a fifth of global AIFs had submitted their application for an EU-wide passport, which can take months to secure.
Moreover, and importantly, 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.
From a fund servicing point of view, there are real opportunities for Jersey. Managers getting the right sort of governance and back-office experience and expertise will be key in the face of increasingly complex reporting requirements under AIFMD. With that in mind, there is likely to be a growing demand from managers to outsource their administration and governance requirements to Jersey’s highly experienced administrators.
Complementing this, there is also potential for UK fund promoters to use Jersey as part of a ‘wait and see’ strategy, giving them time to assess the full impact of the AIFMD in a safe, secure, familiar environment before committing to the onshore requirements under the AIFMD.
Meanwhile, managers are also of course adopting global strategies and raising capital in growth markets, sophisticated investors in the Middle and Far East, for instance, are increasingly looking at major infrastructure and property investment opportunities and there has been a noticeable increase in the volume of non-UK and non-European fund activity being channelled through Jersey recently.
As wealth is created in the growth markets, investors are looking for jurisdictions with structuring expertise, respect for the rule of law, use of a common business language, time zone convenience and protection of property rights.
Among their favourite investment destinations is London and, given Jersey’s strong connection to the City of London, it is not surprising that significant deals and investments are being made through the Island - The Shard, Battersea Power station, and significant chunks of Canary Wharf are just three examples of capital flow translating into iconic investments structured through Jersey.
This was reflected in a further poll at our London funds Conference this year, which indicated that senior funds professionals see most alternative fund opportunities (42%) coming from outside of Europe, particularly Asia, in the coming months.
For this reason, it has been important for Jersey to offer a regime that is fully outside the scope of the AIFMD too, which can cater for an anticipated rise in the number of Jersey funds targeting growth markets across Russia, Africa and Asia this year.
It’s important that Jersey keeps an eye on the long-term, however, and there are a number of further regulatory, legislative and product innovations in train to further support growth across our funds industry.
In particular, following an amendment to the relevant legislation, Jersey is now able to offer Limited Liability Partnerships (LLPs) to private equity advisors for use in their structures, an option that is expected to become increasingly popular in the context of UK Limited Partnerships. The change means that Jersey can now offer licensed LLPs as managers or general partners for private equity funds, which can be bolted on as an additional GP or in substitution for an existing GP. It’s a move that reflects Jersey’s commitment to evolving its private equity landscape.
As we look beyond the end of the AIFMD implementation phase next month, the future for Jersey’s private equity fund management and servicing industry looks bright. Recent figures show that Jersey’s funds volumes have scaled their pre-crisis peak and that new structures are being formed at the fastest rate since 2008.
Despite the onslaught of complex regulation and managers still being cautious about the full impact of AIFMD, there are real solutions. Flexibility, expertise and clarity are absolutely key for private equity managers and Jersey, as the recent pick-up in high value private equity activity demonstrates, is extremely well placed to offer these qualities and provide managers with a compelling long-term solution.
This article first appeared in Private Equity International's 'Fund Administration and Technology Guide 2014', published June 2014.