In a welcome development, Jersey's Chief Minister has signed into law new legislation designed to simplify and encourage the establishment and operation of hedge fund management businesses in Jersey.
To date, hedge fund managers established in Jersey who operate managed accounts as well as managing funds have often been required to be regulated under Jersey's 'investment business' regulations as well as under Jersey's 'funds' regulations. This has brought a degree of complexity, as businesses have had to operate simultaneously under two (similar but different) regulatory frameworks.
The new legislation (the Financial Services (Investment Business (Qualifying Segregated Managed Accounts - Exemption)) (Jersey) Order 2014 - the "QSMA Order") has addressed this, by enabling hedge fund managers to be regulated solely under Jersey's 'funds' regulations, provided the managed accounts are 'qualifying segregated managed accounts'.
The relevant criteria include:
- Investors in a qualifying managed account must commit at least US$ 1 million to the managed account, and acknowledge a prescribed investment warning.
- A qualifying managed account must pursue one or more hedge fund strategies which replicate, or contain material elements from, hedge-fund strategies pursued by a fund also managed by the manager.
- A qualifying managed account cannot be held in the name of the manager, and the manager cannot have custody of the managed account assets.
If all requirements are met, the QSMA Order grants an exemption from 'investment business' regulation, although the Jersey Financial Services Commission retains relevant regulatory powers. The Commission will also be issuing guidance to industry adding detail on the scope and intended application of the exemption.
Bedell Cristin partner Martin Paul has been heavily involved in designing the new regime and commented:
"The new exemption is a proportionate response intended to simplify matters and encourage growth in the hedge fund sector in Jersey, whilst retaining appropriate levels of regulation. Of particular benefit is that the use of managed entities will now be possible where managed account activity is undertaken, which will facilitate the incubation and hosting of start-up and smaller hedge fund businesses in Jersey."
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