Jersey has long held significant appeal as an alternative investment funds domicile, but there has been a noticeable rise in recent months in high-value real estate funds targeting UK and continental Europe that are being structured through Jersey.

Sophisticated investors are making more use of Jersey structures for their global real estate and infrastructure investments. This is due, in no small part, to Jersey’s approach to EU regulation, particularly the EU Alternative Investment Fund Managers Directive (AIFMD), as well as its specialist real estate expertise.

With the end of the transitional period for AIFMD implementation in sight, there are a number of real estate funds already being structured through Jersey. These utilise its attractive and future-proof funds offering to structure some of the most ground-breaking transactions completed in recent times, involving a combination of European and non-European assets and investors. For example:

• Carey Olsen advised on the establishment of the largest ever real estate fund to be listed on the London Stock Exchange – the Kennedy Wilson Europe Real Estate fund plc, a closed-ended collective investment fund incorporated in Jersey, which announced a capital raise of up to £1 billion through its IPO on the LSE's Main Market; and

• Appleby advised on two major 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. Appleby also advised Blackstone on the sale of its beneficial interest in the Chiswick Park Estate to the China Investment Corporation (CIC).

Examples like these reflect Jersey’s flexibility and expertise, and provide evidence that Jersey’s approach to regulation, and the AIFMD in particular, is proving very attractive to UK, EU and non-EU fund managers.

From Jersey’s perspective, the AIFMD is fast proving something of an opportunity. Within Europe, Jersey offers an EU private placement option, with limited AIFMD reporting and disclosure requirements for Jersey funds marketing into the EU, and a fully AIFMD-compliant option for Jersey funds marketing throughout the EU once third country passporting becomes available.

There are real opportunities for real estate fund managers to draw on Jersey’s specialist expertise and outsource their administration requirements, to help facilitate complex AIFMD reporting requirements. Jersey’s deep knowledge of the real estate sector, including its experience in asset servicing, tax, accounting and filing, its network of qualified surveyors and its governance expertise, can give real estate fund managers a great deal of confidence.

Growth

The signs are that this trend is set to continue. At the Jersey Finance Annual London Funds Conference held last month, 33% of the audience of fund professionals indicated that real estate was the biggest growth area for them.

Attendees also thought 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).

For this reason, Jersey continues to offer a ‘business as usual’ regime for funds marketing outside the EU that is fully outside the scope of the AIFMD framework, offering potentially lower operational costs.

Jersey is seeing the tangible results of this trend first hand. Whilst it remains a popular domicile for real estate funds targeting the UK commercial and the wider European property market, a significant amount of non-European real estate investment activity is also being channelled through Jersey. This includes funds targeting the US residential and commercial real estate markets and investors in the Middle and Far East.

Flexibility, expertise and clarity are key for real estate fund managers. With its ability to offer attractive solutions both in and outside of Europe, Jersey is extremely well placed to sustain this high value real estate fund growth and maintain its position as Europe’s leading real estate fund domicile.

This article was first published in Estates Gazette, Finance Report, April 2014.