Private investments funds are one of the most successful fund types in Jersey. They have been developed to accommodate bespoke professional or institutional investor structures where investment opportunities are to be limited to a smaller group of investors, usually a select number of institutional or semi institutional investment groups or friends and family, without the regulatory burden and costs that are usually associated with public funds. The very private fund is therefore frequently used for institutional private equity, real estate fund structures, and/or family office fund structures.
Requirements
Due to the private nature of the fund, it can only be offered to a maximum of 50 people and have no more than 15 investors. The fund can be open or closed ended. Investors who have redeemed can be replaced with new investors provided the amount of offers does not exceed 50 and the number of investors at any given time does not exceed 15. All investors are required to sign a specific risk warning acknowledging that the fund structure is not licensed by the Jersey Financial Services Commission. They are also subject to local anti-money laundering regulations and procedures.
Each investor must be a professional investor which is the case if each investor invests a minimum of £250,000 (or currency equivalent) or if the investor can be considered to have professional experience with investments in general by virtue of his profession or business.
If these conditions are fulfilled the fund and its functionaries (such as a general partner or investment manager) can take advantage of a general exemption under the Financial Services (Jersey) Law 1998. There is thus also the possibility to establish a Jersey company that acts as investment manager or advisor for the fund without having to demonstrate previous investment management experience and having to obtain regulatory approval or a licence to perform this function.
The fund will have to obtain a consent under the Control of Borrowing (Jersey) Order 1958, which is the usual regulatory consent for any Jersey entity issuing units, including any company issuing shares. This consent is usually granted within 5 business days at the one off cost of £200 for companies.
Very private funds are not subject to any regulations for valuations and pricing, investment restrictions or investment limits.
There is also no requirement for a prospectus or an audit of the fund, although in reality every promoter will prefer to have the fund independently audited and circulate a term sheet describing the investment objective, specific risk warnings and make any disclosure that is relevant to the fund's investment strategy.
Fund vehicles
The very private fund can be established in all legal structures available under Jersey Law including non par value share companies, protected cell companies, limited partnerships and unit trusts. Limited partnerships are in particular popular for private equity and real estate investments, whilst private unit trust structures have become popular for UK real estate investment and the related Stamp Duty and Land Tax planning or as feeder funds into UK funds.
Tax
Very private funds 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.
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.