Previously published on www.assetservicingtimes.com
AST talks to Nick Solt of Moore Stephens Fund Administration about what Jersey has to offer in a stormy marketplace.
GEORGINA LAVERS REPORTS
What is your career background?
I trained as an accountant in general practice in the UK, and after qualifying, I moved to Jersey to work for Moore Stephens in the audit department. Early on, I was seconded into an area dealing with large real estate and fund promoting clients in order to cover for a period of staff change.
This was a growing area that has since become the separate fund services business that is Moore Stephens Fund Administration, and when the opportunity to extend my time in this area was offered, I gladly accepted, as it was an exciting time of growth in the Jersey funds sector.
Since then, I have worked my way up through the ranks to become a director of Moore Stephens Fund Administration, a role in which I am involved in overseeing the provision of a quality, bespoke fund administration service to our clients, as well as sitting on the board of a number of fund structures and being responsible for a great deal of the business development effort being undertaken by the company.
How would you sell Jersey as a domicile to fund promoters?
Jersey is a politically stable and well-regulated jurisdiction. It provides fund investors with comfort that the funds that they invest into are being operated under sound guidelines by duly qualified and regulated professional service providers.
The benefit of this to a promoter is not only that they can be confident in the service that they will receive but also that the pool of potential investors is widened, as many investors are now keen to seek the more stable fund regimes for their investments.
While overseeing a 'blue chip' regulatory environment, the Jersey Financial Services Commission (JFSC) is able to adapt to changes to the funds industry to ensure that Jersey continues to provide the best possible service.
While it would be disingenuous to ignore the benefit of being a tax neutral jurisdiction, the strength of the regulatory framework and the depth and quality of service providers in Jersey ensures that it compares well to other destinations when promoters are looking at suitable domiciles for their funds.
What regulations are currently causing you concern?
Regulation has expanded significantly in recent years, which is probably an understandable reaction to various events during the financial crisis.
Given our location, it would be fair to say that AIFMD probably heads that list, especially as it still seems to be continually evolving.
In Jersey, we have the benefit of strong industry bodies in the shape of the Jersey Funds Association and Jersey Finance Limited, which, in conjunction with the JFSC, are working hard to ensure that the island as a whole is able to react positively and be compliant with the directive in whatever form it finally takes. Having said that, it is clear that, until such time as we can be certain how the directive will operate, Moore Stephens Fund Administration and Jersey as a whole will have to ensure that we are continually aware of developments.
As for the wider regulatory framework, we works with these professional bodies in Jersey to ensure that this is continually reviewed and updated to ensure that Jersey's regulatory environment is one that allows us to provide a comprehensive and effective service to clients. An example of this is the recent introduction of the Private Placement Fund Regime in Jersey, which provides a fast track, lighter-touch regulatory regime for promoters setting up funds for sophisticated investors.
Do you think consolidation will reduce competition, and is it worth considering?
Clearly, a large-scale consolidation will reduce the number of service providers and, being someone who is by nature an advocate of competition as a means to ensure the maintenance of quality and comprehensive services, I think that too much consolidation isn't necessarily a good thing. Moore Stephens Fund Administration has grown organically over the years as it allows us to control culture and quality, but that does not mean that we would rule out growth by acquisition in the future if the right opportunity arose.
In either case, I believe that there will continue to be a place for a wide spectrum of service providers from the smaller bespoke operation to the larger fund houses as the differing cultures and expertise provide the variety that is important for clients and is healthy for the wider industry.
Do you feel that the time from enquiry to the launch of a fund is longer than it should be?
Clearly, in recent years the timescale for fund launches has got longer. This is the result, in part, of greater regulation, but also an understandable increase in investor caution.
The greater pre-launch work being required during the promotional phase is perhaps inevitable, but for certain promoters and larger investors that do not need the extra regulatory protection, this can prove frustrating.
However, in Jersey there is a regulatory move towards offerings for such sophisticated investors and those promoting funds to them, which will allow for shorter fund establishment times. A prime example of this move is the Private Placement Fund Regime, which allows for faster fund launches to enable opportunities to be targeted where speed to market is of an essence, as these can be launched in three days.
What funds do you think are coming back into fashion?
In our experience, the effect of the economic uncertainty has led investors to change their attitude to risk quite a lot. The acceptable risk profiles and returns of funds that we are dealing with are less than they used to be.
We are noticing that this has had a couple of main effects. Firstly, there seems to be a return to a preference for safer cash generating assets in sectors such as real estate. Secondly, the smaller, private pooled investment schemes seem to be back in vogue as they allow greater control and bargaining power for the larger lead investors.
This latter move has in some cases reached its ultimate conclusion with promoters winning single investor mandates from large institutions to ensure that they have complete control over the portfolio of assets.
What are some of the extra demands being placed on administrators?
The increase in regulation and demands by government and other bodies in the form of legislation such as AIFMD in the EU and FATCA in the US are obviously placing extra demands on administrators. They have to ensure that they are on top of these changes and have the procedures and controls in place to be able to operate under them.
The changing profile of both investors and investment opportunities, as the global economy shifts and the new emerging markets develop, also place greater demands on administrators to ensure that they have the expertise and processes in place to be on top of the due diligence and other challenges that these present.
In recent years, we have found that there has been a drive for closer scrutiny and greater attention to the detail of fund performance by investors and this has led to a demand for tailored reporting that is specific to their individual needs. This is especially prevalent with new start up fund promoters, which is an area in which Moore Stephens Fund Administration can provide that added value, as one of our key strengths is the provision of bespoke accounting and reporting solutions.
At Moore Stephens Fund Administration, we see these extra demands as an opportunity for the quality service providers to differentiate themselves as they meet these challenges without allowing them to affect the service that is provided.
What are your feelings on outsourcing?
As a rule, Moore Stephens Fund Administration does not outsource many services, as we feel that the bespoke services that we provide are best served by us. This is because we have a high level of in-house expertise, which allows us to control and maintain quality of service.
However, there are certain niche services that may need to be outsourced, and for larger service providers offering homogenous platforms, there may indeed be efficiencies to be found by outsourcing certain services. In these cases, there is no reason not to do so as long as there are proper processes in place that can ensure that these services are properly monitored and controlled.
A prime example is the provision of technical accounting services, where a fund administrator does not have the expertise in-house to do this. As this is a service that we can provide, I am obviously not adverse to this.
I would say that there is an inherent risk if outsourcing is taken to an extreme. This is particularly true when a fund operation is not maintained and controlled in the jurisdiction in which it is regulated, as this can create issues for both the fund administrator and the regulator in the local jurisdiction.
Are you expecting more fund administrators to enter into the Jersey market?
Given the current climate and upfront costs required, I do not expect too many new fund administration providers to be set up in the short term. This is because the existing market has a wide range of service providers already supplying quality services, from bespoke operations such as Moore Stephens Fund Administration up to the larger, bank-owned operations.
Having said that, the positive approach of the JFSC in helping businesses to migrate to Jersey and the positive regulatory environment could lead fund managers and administrators to move their businesses and the funds that they operate to Jersey. I am aware that there have been enquiries to this effect already.
Hopefully, the slow economic recovery will gather pace and, along with possible business migrations, this will lead to an expansion of the Jersey funds sector, which can only benfit us all.
How will AIFMD affect your business, and what do you expect for its final draft?
AIFMD continues to be something that takes up a certain amount of our time, as there is still some of uncertainty as to its final form.
While this uncertainty reigns, predicting the final draft is at best tricky, but clearly the final result will place the greater regulatory controls on funds (and hence fund administrators operating those funds) that wish to promote to investors within the EU. However, I do not see this as being a barrier to entry to other jurisdictions that are prepared to maintain the same standards. This would be as much of a detriment to the EU as it would to those jurisdictions.
The JFSC and industry bodies are confident that Jersey as a whole will be able to provide AIFMD compliant structures, and we at Moore Stephens Fund Administration are equally confident that our high standard of procedures and controls will enable us to continue to provide an efficient service in whatever form the directive finally takes.
Is the on-going review of corporate governance welcomed?
As a service provider with already strong corporate governance processes operating in the current environment, any review does not concern us. In fact, it could be said that the on-going changes should be welcomed by providers such as Moore Stephens Fund Administration operating under regulations such as those that exist in Jersey. It is better if all service providers and jurisdictions are maintaining the same standards, so that the playing field is level.
What are the challenges of working and living in an offshore jurisdiction?
The challenges of working and living in an offshore jurisdiction are both business and personal.
On a business level, offshore jurisdictions can suffer from staffing problems, but in Jersey we are fortunate in having a large pool of quality professionals to recruit from where necessary. Not being too far from the rest of Europe allows us to bring in additional expertise.
The relative remoteness is less of a problem as modern communications are such that there are few problems with maintaining work relationships and contact with clients. The only possible issue is that you have to allow a little extra time for travel when you are meeting with people face-to-face, but we factor this into our plans.
The challenges for me on a personal level are maintaining contact with family and friends, as I am not from Jersey originally, although they seem less concerned, which might be a cause for concern for me!
A challenge or perhaps frustration that can raise its Head occasionally is that often, outside of finance, the role of a tax neutral jurisdiction in facilitating the efficient movement of capital for the benefit of the world economy is often misrepresented. You can occasionally find yourself justifying things to those that have been, perhaps, misinformed.
What about the benefits?
Jersey is a lovely place to live, with access to both the countryside and the sea. Compared the commute in London, my commute to work is slightly less onerous, because if you travel too far in Jersey you are going to get a little wet! This means that, even in busy periods when working long hours, it is easier to wind down after a hard
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