Last week, the Jersey Financial Services Commission (JFSC) announced that it intends to permit certain investment funds to be established and domiciled in Jersey on a "registration only" basis, beginning in January 2008.
This class of funds, Unregulated Funds for Eligible Investors, is primarily designed to make Jersey a more attractive domicile for alternative investment funds, including hedge funds. These funds also demonstrate a willingness by the JFSC to adapt to changing market conditions in the offshore investment funds market. Traditionally, Jersey has been recognised as a regulated funds jurisdiction with considerable exposure in the retail, private equity, and property fund markets. By recognising the demands of the alternative investment management industry, the JFSC has taken this step to ensure Jersey becomes a front runner in the funds industry across all asset classes.
Criteria for "Unregulated Funds for Eligible Investors"
The most significant characteristics of this new funds class are the following:
- schemes or arrangements for collective investment that are offered solely to "Eligible Investors" will not be regulated or subject to review by the JFSC and will not constitute Collective Investment Funds for the purposes of the Collective Investment Funds (Jersey) Law 1988;
- the regime applies to both open and closed ended funds;
- the fund does not have to appoint a local Jersey-based fund administrator;
- the fund does not have to appoint local Jersey-based directors;
- there is no requirement for the fund to have an audit. Local audit sign-off is not required for those funds that do have an audit.
Service providers to the funds will be responsible for ensuring that both the requirements of the regime and the eligible investor criteria are satisfied and continue to be met throughout the life of the fund. From an investor perspective, this oversight will provide assurance that the principles of the new regime will be followed.
In order to register as an Unregulated Fund for Eligible Investors, the investment manager must complete and sign a declaration stating that the proposed fund complies with all the requirements of the unregulated fund regime. The form is filed with the JFSC and a receipt is issued. The offering document must contain certain investment warnings stating that the fund has not been reviewed nor is it subject to regulation by the JFSC.
Definition of "Eligible Investors"
The JFSC also outlines who qualifies as an "Eligible Investor". The criteria are:
- an investor who makes a minimum initial investment or commitment of US$1,000,000 (or currency equivalent) in the fund whether through the initial offering or by subsequent acquisition; or
- a person, partnership or other unincorporated association or body corporate, whose ordinary business or professional activity includes, or it is reasonable to expect that it includes, acquiring, underwriting, managing, holding or disposing of investments whether as principal or agent, or the giving of advice on investments; or
- an individual who has a net worth, or joint net worth with that person’s spouse, greater than US$1,000,000 (or currency equivalent) excluding that person’s principal place of residence; or
- a company, partnership, trust or other association of persons which has (or which is a wholly owned subsidiary of a body corporate which has) assets available for investment of not less than US$1,000,000 (or currency equivalent) or every member, partner or beneficiary of which falls within the definition of Eligible Investor; or
- a functionary to the fund (eg. the investment manager, an investment advisor, the administrator etc) or an associate of a functionary; or
- a person who is an employee, director, consultant or shareholder of or to a functionary of the fund or an associate of a functionary who is acquiring an investment in the fund as part of his remuneration or an incentive arrangement or by way of co-investment.
The Demand for Registered Funds
This proposed funds class will be of significant interest to UK- and European-based alternative investment managers, hedge fund managers, and institutions who have traditionally chosen other offshore jurisdictions as a domicile for their fund vehicles. By bringing Jersey into line with such jurisdictions, the JFSC, working with the funds industry in Jersey, is seeking to attract managers and promoters who would ordinarily have been sceptical about Jersey as an alternative or hedge funds domicile. With Walkers’ expertise working with investment managers around the world, we are well-positioned to help institutions and funds managers take advantage of these new opportunities in Jersey.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.