Preparing for a private placement regime under Alternative Investment Fund Manager Directive (AIFMD)
Introduction
Following the introduction of the AIFMD in late 2010, Jersey has, true to its previous announcements, released the Jersey Private Placement Fund regime. This new regime is aimed at providing fund managers with a flexible and uncomplicated fund regime for private placement access to the European market until at least 2018.
Requirements
A PPF is a closed ended fund established in Jersey, i.e. a Jersey fund vehicle or a foreign fund vehicle which is managed in Jersey as a closed ended fund.
Units in the fund vehicle cannot be offered to more than 50 potential investors overall who must be professional investors or sophisticated investors as defined in the PPF guidelines. Like with the other Jersey fund regimes, all legal vehicles available in Jersey, incorporated in particular protected or cell companies or one of the four different types of limited partnerships can be a PPF vehicle.
The fund can also consist of more than one limited partnership but for all fund vehicles it is important that they are serviced by a Designated Service Provider which is in essence a Jersey based administrator who holds a fund services business license. The main function of the Designated Service Provider is to provide a registered office to the fund vehicle, to carry out the necessary promoters/ investment manager due diligence checks, make the required certifications to the Regulator and to support the fund with its anti-money-laundering obligations.
PPF's are restricted to professional investors or sophisticated investors, which are defined in various classes in the Law, the easiest being a person who has invested £250,000 into the fund. Each investor must have received and acknowledged an investment warning, contained in the subscription agreement and in the form set out in the PPF Guide.
The fund must also have two resident directors and the fund's Private Placement Memorandum (PPM) must contain certain prescribed content and be submitted to the Regulator together with the application. As with other Jersey fund regimes there are no investment restrictions or gearing limitations for the PPF.
The most significant innovation of this fund regime is that the Regulator has abandoned its usual promoter policy and will instead rely on certificates from the Designated Service Provider that the promoter of the fund is of good standing, solvent and that it and its principal persons have not been in the last 5 years subject to disciplinary sanctions or convictions.
To qualify for a PPF the promoter must be established and regulated in an OECD member state or another jurisdiction with which the JFSC has a regulatory memorandum of understanding. If the promoter is not regulated in its country of origin it must instead possess amongst its principal person's relevant experience in relation to promoting, managing and advising of institutional professional or sophisticated investors using similar strategies. The consequence of this dramatic change in policy is that the commission can therefore now offer a fast track authorisation process for the PPF of 72 hours from submission of a complete application.
A complete application for a PPF will contain the following:
- A written statement from the promoter that the new fund satisfies the promoter requirements set out in the PPF guidelines, countersigned by the Designated Service Provider confirming that it has carried out its own general due diligence in relation to the promoter.
- A draft of the PPM.
- A written certificate of the Designated Service Provider confirming that the PPM complies with the content requirements of the guidelines.
- Complete personal details of all of the promoter's principal persons and anybody named in the PPM.
Tax
PPFs are not subject to taxation in Jersey provided that all income and profits other than bank interest are generated outside of Jersey. They also fall outside of the scope of the European Savings Directive so that gross profits can be distributed to investors.
With the introduction of this new fund regime and the number of International Tax Exchange Agreements Jersey has already entered into with various European union countries, together with its reputation as a highly regulated jurisdiction, Jersey seems well prepared to turn the AFIM Directive from a threat for offshore jurisdictions to an exciting new business opportunity.
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.
