Focused on Global Opportunities
The much hyped transitional phase for implementing the EU Alternative Investment Fund Managers Directive (AIFMD) has, finally, come to an end. For Jersey, contrary to some speculation from some onshore commentators, the deadline has actually been welcomed with a noticeable rise in high value private equity and real estate funds being structured through the jurisdiction targeting UK and continental European assets.
Figures from the Jersey Financial Services Commission (JFSC) indicate a strong take-up in Jersey's private placement route into Europe. In total, as at the end of July 2014, 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.
Equally as encouraging is that, at the same time, promoters are also making use of Jersey structures for their real estate and infrastructure funds targeting assets and investors in non-European markets around the world.
Thanks to its approach to EU regulation together with its specialist global real estate expertise, Jersey is affirming its position as the leading domicile for real estate funds business in Europe.
It is with good reason that Jersey's AIFMD regime is proving incredibly competitive. Under Jersey’s AIFMD framework, managers can benefit from the market access that private placement under AIFMD brings but with minimal additional AIFMD disclosure and reporting requirements, subject to the applicable requirements of the relevant EU/EEA Member State.
Through Jersey, 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.
In comparison with onshore, according to a recent survey of firms in Europe, the US and Asia by BNY Mellon and FTI Consulting, more than two-fifths of asset managers had not received AIFMD authorisation of their alternative investment funds from their local regulator within the EU ahead of the 22 July AIFMD deadline.
Meanwhile, additional data from the JFSC also shows that the UK remains a key market for Jersey managers. As at 30 June 2014, in indicating which EEA Member States they intended to market into, most managers licensed to carry on fund services business in Jersey said they intended to market their funds into the UK. The next most important intended markets were Sweden, Belgium, the Netherlands, Ireland, Denmark, France, Germany and Luxembourg.
The fact that managers are primarily intending to target the UK market is not surprising, given Jersey’s strong links with the UK. In fact, there has been a spike in recent months in the number of high value private equity, real estate and infrastructure funds being routed through Jersey into the UK. 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.
Meanwhile, Jersey has seen a number of landmark European-focused funds being structured through the jurisdiction recently. The Jersey offices of Carey Olsen and Crestbridge, for instance, worked on the largest real estate fund to be listed on the London Stock Exchange since the downturn, the Kennedy Wilson Europe Real Estate fund, which raised around £1 billion and will target investments in European real estate linked assets – with Crestbrige now handling the local on-going administration work for the fund.
In a further development, major fund houses, such as Brevan Howard and Apex Fund Services (Jersey) Limited, have moved to or expanded their presence in Jersey, adding to Jersey’s alternative investment fund community and reflecting a real confidence in Jersey as an alternative funds domicile.
In addition, in the face of increasingly complex reporting requirements under the AIFMD, there is also likely to be a growing demand from onshore managers to outsource their administration and governance requirements to a centre like Jersey that has a sophisticated network of highly experienced administrators.
Meanwhile, Jersey was the first third country to offer managers a fully compliant AIFMD option, which means 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.
This recent data provides evidence that offshore centres still have a key role to play in Europe, and that real estate fund managers are finding genuine appeal in establishing their funds in Jersey, thanks to its flexible and less onerous private placement regime compared to the onshore full passporting route, its property fund governance expertise, and its close ties with the UK market.
Meanwhile, there is still significant property fund potential and activity in non-European markets. At the Jersey Finance Annual London Funds Conference held earlier this year, not only did 33% of the audience of fund professionals indicate that real estate was the biggest growth area for them, they also said that most opportunities would come from outside of Europe, with 37% suggesting Asia was the most likely growth market, followed by Africa and Latin America (26% each).
India and China will soon resume their place as the largest economies of the world, whilst seven of the ten fastest growing economies of the last few years have been African. A recent PwC asset management survey indicated that the global asset management industry will grow from $65trn to in excess of $100trn by 2020, and that alternative investments will grow from $6.5trn to over $13trn.
As cross border finance grows, so too will the demand for tax neutral capital raising and pooling centres. Top of the wish list for investors in growth markets are jurisdictions with structuring expertise, respect for the rule of law, use of a common business language, time zone convenience and protection of property rights, and Jersey is well placed to meet this demand and these criteria.
London is amongst their favourite investment destinations, and a report by Capital Economics published last year showed that Jersey acted as a conduit for £1/2trn of foreign investment into the UK. The Shard, Battersea Power Station, and significant chunks of Canary Wharf are just three examples of this capital flow translating into iconic London investments structured through Jersey, and this trend is growing.
Recently, Appleby’s Jersey office advised on two landmark UK property transactions with a combined value of £2.5bn. The first was Blackstone’s sale of its interest in the Broadgate Estate to Singaporean sovereign wealth fund, GIC, one of the largest real estate transactions in UK history. The second was the sale of Blackstone’s beneficial interest in the Chiswick Park Estate to the China Investment Corporation (CIC).
Meanwhile, with the US residential and commercial real estate markets also proving increasingly popular targets for investors in growth markets and with a growing amount of property and infrastructure investment into Asia too, it has been important for Jersey to continue to offer a ‘business as usual’ regime for non-EU funds that are fully outside the scope of the AIFMD framework, offering potentially lower operational costs.
Mourant Ozannes, for instance, recently provided Jersey advice to CVC Capital Partners on the launch of its latest Asia Pacific Fund, which raised $3.5 billion to invest in the Asia Pacific region.
Examples like these reflect that Jersey’s regulatory approach as well as its deep knowledge of the private equity and real estate sectors, including its experience in asset servicing and its governance expertise, are giving fund managers a great deal of confidence. With its ability to offer attractive solutions both in and outside of Europe, Jersey remains extremely well placed to maintain its position as Europe’s leading real estate fund domicile with a truly global dynamic.
This article first appeared in Private Equity Real Estate's Fund Service Guide in September 2014.