Jersey offers private equity managers stability and flexibility in the build-up to AIFMD
By Nigel Strachan, Chairman, Jersey Funds Association
Whilst global market conditions remain challenging, Jersey’s funds sector has continued to demonstrate resilience. Despite the raft of regulation being introduced across the global funds sector and concerns about difficulties in fundraising, the latest figures suggest that Jersey is keeping favour with the needs of the funds industry with assets being administered remaining around the £190bn mark.
In particular, Jersey continues to assert itself as a major player in the alternative funds space, with alternative fund classes accounting for around 70% of the total value of funds under administration in Jersey - and private equity funds alone accounting for almost a quarter of that overall total.
One key issue that remains in the spotlight for funds jurisdictions globally is the EU Alternative Investment Fund Managers Directive (AIFMD). There’s no doubt that the reach of the AIFMD is broad and significant for private equity funds that are domiciled in Europe, have an EU manager or are marketed in the EU. Whilst the Directive is intended principally to regulate fund managers, it will also inevitably impact service providers, as well as the ongoing transparency, reporting and marketing of the funds themselves.
Given Jersey’s strength in alternative funds, it is not surprising that the AIFMD is firmly on its radar too. As EU Member States go through the motions of implementing AIFMD, private equity fund professionals will be encouraged to know that Jersey, as a non-EU ‘third country’ for the purposes of the AIFMD, has been working hard to ensure it is in a strong long-term position to offer a blend of stability and flexibility.
Jersey’s funds industry, government and the regulator have been, and continue to be, intensively engaged on the AIFMD. With the AIFMD due to come into play in July, the overwhelming message is that Jersey intends to give the private equity community confidence by maintaining a ‘business as usual’ approach for funds business within the EU. It will be able to do this through private placement arrangements with individual EU countries, until at least 2018.
At the same time, Jersey is also committed to introducing the option of a fully AIFMD-compliant regime and obtaining an EU-wide passport by 2015 - as soon as is possible for non-EU ‘third countries’.
Meanwhile, as a non-EU jurisdiction, Jersey is able to continue to offer a completely separate regime that lies outside the scope of the Directive, for private equity fund managers who don’t want to access EU capital or who don’t operate in the EU.
In this way, Jersey will be able to continue operating its existing fund regime whilst at the same time offering an option that is fully compliant with the Directive, providing fund managers with the flexibility to market to investors both inside and outside the EU.
Committed and Compliant
The saga of the AIFMD has been a complicated one, and so too are the next steps involved in its implementation – particularly for ‘third-countries’ – so the focus for Jersey all along has been on giving private equity professionals the level of certainty they require.
Barring any unanticipated delays to its implementation, EU-Member States will need to be fully compliant with the Directive from July 2013. However, national private placement regimes in individual EU-member states can remain from that date – and until at least 2018 - for non-EU funds being marketed into the EU by non-EU managers, and this is the route that Jersey private equity funds can follow.
The continuation of private placement will require individual agreements between Jersey’s regulator and the regulator of each Member State, and Jersey’s regulator is already engaged with ESMA and Member State regulators to ensure such agreements can be in place in good time. With bilateral cooperation agreements already in place with the majority of key EU Member States, Jersey is confident that it will be able to sign all necessary agreements and be in the first tranche of jurisdictions to be authorised to utilise the private placement route.
Beyond private placement, Jersey is also well on track. EU-wide marketing passports, which will allow managers to market to investors across the EU, will become available to non-EU managers, such as those domiciled in Jersey, from 2015, provided they are fully authorised under AIFMD.
In terms of obtaining a passport and introducing a fully compliant AIFMD regime in 2015, Jersey is well-placed. The Directive is about regulating and authorising alternative fund managers, and this is something that Jersey already does, in line with IOSCO standards.
Keen to embrace AIFMD as soon as possible, Jersey intends to have a fully-compliant regime ready to go ahead of the 2015 date for non-EU countries, with Jersey’s regulator and government ready to progress any additional agreements required by ESMA.
Jersey already has information exchange agreements, either TIEAs or DTAs, in place with 13 Member States, including the UK, France, Germany, Sweden, Norway, the Netherlands and Ireland, with more expected to be ratified in the coming months. This number of agreements, combined with the excellent independent reports Jersey has received on its regulation, corporate governance and stance on anti-money laundering, means that Jersey is confident it will be able to satisfy all criteria needed to comply with AIFMD ahead of the 2015 deadline.
Between 2015 and 2018, meanwhile, non-EU private equity funds and fund managers will have the option to either use an EU-wide passport or continue marketing through the national private placement regimes, as they prefer.
The AIFMD could pose some opportunities for Jersey as an expert, specialist, safe, ‘no-change’ solution.
It is anticipated that maintaining an offshore option for non-European investors will make a great deal of sense for private equity fund managers. In the current climate, for instance, fund managers are thinking increasingly about sourcing capital from sophisticated Asian and Middle Eastern investors – for which an offshore solution will remain very attractive. Jersey is positioned superbly in this regard.
In addition, Jersey remains a top option for private equity managers to relocate to. The prevailing sentiment is that Jersey’s approach to the AIFMD, combined with its appropriate regulation, expert supporting infrastructure, geographical location and high quality of living, is proving attractive to managers – indeed a number have made the move in recent months.
Stability and flexibility are key considerations for private equity fund managers in the new alternative funds landscape and have been very much at the forefront of Jersey’s response to the AIFMD, as it looks to assert its position as a specialist centre for private equity business in the years ahead.
This article was published in Private Equity Manager's Fund Domiciles Guide 2012.