IFCs and the fund management landscape: a Q&A with Geoff Cook
This Q&A was first published in Real Deals on 17 November 2016.
Jersey Finance’s chief executive Geoff Cook explains how the fund management industry is evolving and what international financial centres (IFCs) should be doing to meet the industry’s changing needs.
From the perspective of someone involved in running an international financial centre (IFC), how do you see the fund management environment changing?
GC: The OECD’s base erosion profit shifting (BEPS) initiative has changed the tax landscape and substance has become very important. Where a fund is based is becoming less of a technical question and more a question of substance. A fund needs to show that it has offices and ‘boots on the ground’ to conduct the business of the fund. A physical presence is important.
Where do these trends leave Jersey as a jurisdiction?
GC: After Brexit and the ongoing developments around BEPS Jersey is in a good position. With regards to Brexit, there is no change to Jersey’s status, as it has bilateral treaties in place with EU member states so there is no need to seek re-approval or renegotiate access. There is certainty for fund managers.
On the BEPS initiative, Jersey is strong on the substance point. There are more than 13,000 people working in the finance sector, more than a fifth of total employment in the Island, and Jersey has one of the largest number of finance industry professionals of any IFC.
The fund administration and legal sectors are strong and well-equipped to service the needs of fund managers. We have more than 2,000 people working in fund management and legal services alone and that number is growing. There is a new waterfront development with accommodation and office space, so the infrastructure is place to support further expansion.
To what extent do these factors influence how managers decide where to domicile their funds?
GC: Substance and certainty are crucial. There are other important hallmarks for fund managers too. Political and tax stability is a big factor. We are lucky to have a steady parliament and a tax system that has not changed a great deal since 1945. Jersey is tax neutral for funds and offers competitive personal tax rates for professionals who want to work here. A robust and appropriate regulatory environment is also key, and we have shown that our system works and is proportionate.
Jersey offers a platform that is stable and open. It is governed by English Common Law and is close to London. Finally, as a well-regulated and credible IFC, Jersey offers good access to markets around the world through its private placement regime.
All of these elements are important for managers deciding where they should domicile their funds.
Has the fact that the Panama Papers have cast the spotlight on how IFCs operate, and that the BEPS program is building momentum, prompted managers to take a step back, reevaluate the jurisdictions they use and possibly relocate?
GC: I think that is a fair assumption. If you are a fund manager you have to look at this and make sure you are comfortable with the jurisdictions you are using. There has been a lot of relocation and managers have been moving to IFCs that are stable, well-regulated and are in good standing with tax authorities.
Following the financial crisis Jersey appointed McKinsey to look into the risks facing Jersey’s financial services industry, so the Island has been addressing these questions for a long time now and has developed a clear strategy to address fund manager needs Managers have taken note and Jersey has enjoyed solid growth in the number of alternative asset managers using the jurisdiction.
The NAV of assets under administration for Jersey’s fund industry climbed to £228.4bn in the first quarter of 2016, the second highest level since 2008. Private equity, which was up by 10 per cent a year, and real estate, up 20 percent annually, underpinned this strong performance. Jersey is also now the sixth largest center for hedge funds.
The private placement regime is clearly as popular as ever, offering managers stability and certainty.
We are confident that we have put a very strong platform in place, but we are not complacent and always looking at ways to ensure that our proposition is strong.