Jersey: Ongoing Appeal Of A Tried And Tested Model

With the transitional phase for implementing the EU Alternative Investment Fund Managers Directive (AIFMD) having finally come to an end this summer, there has been a marked rise in analysis, and some speculative comment, in recent weeks about how it is bedding down in different jurisdictions, what the regulation has meant as far as fund structuring is concerned, and how private equity managers are managing the regulation most effectively.

From a Jersey perspective, far from the AIFMD prompting a re-domiciliation towards onshore locations, something that had been suggested by some corners of the European funds community, in the months since the AIFMD was brought in there has actually been an uptick in the value of private equity fund business being structured through the jurisdiction.

The latest figures, compiled by the Jersey Financial Services Commission (June 2014), show that the total value of funds being administered in Jersey has stayed consistently high, around the £200bn/$330bn mark. Private equity forms a substantial amount of this. In fact, the specific value of private equity assets under administration in Jersey has risen steadily in recent times, almost doubling over the past five years.

Further reflecting the confidence there continues to be in Jersey as an alternative funds domicile, in the real estate funds sector, values under administration in Jersey have grown to their highest since pre-crisis levels.

Moreover, Europe's largest private equity fund raised in recent years enjoyed its final $10bn closing this year from a Jersey management platform, whilst the second largest real estate fund ever to be listed on the London Stock Exchange was structured through Jersey this year and was just two of a number of recent high value Jersey fund launches.

Far from European regulation, including AIFMD, causing a movement away from offshore centres, undoubtedly the trend evidenced across managers in Jersey is one of building significant future management substance.

A number of major alternative fund houses have moved to or expanded their presence in Jersey recently, such as Brevan Howard and Apex Fund Services (Jersey) Limited.

Having opened an office in Jersey in June this year, Carne Group recently received authorisation for an independent AIFMD-compliant management company in Jersey, which is the first to be approved outside the European Union, allowing alternative fund managers, including private equity managers, to comply with the AIFMD regime while maintaining a fund in an offshore, non-EU jurisdiction.

This isn't a one-off, but reflects a general growth in interest from major alternative fund houses and managers in a Jersey structure of this nature, allowing them to access the European market and meet the requirements of the AIFMD but without the need for an EU domicile.

Thanks to its approach to regulation and specialist alternative fund expertise, Jersey is affirming its position as a leading domicile for European private equity business, including structuring and servicing, both in spite of and as a result of the AIFMD.

Private Placement

The first few months of AIFMD being in play have thrown up some interesting issues. Perhaps of particular interest from a private equity manager's point of view is the idea that the much hallowed pan-European AIFMD 'passport' is not automatically the most suitable choice. Contrary to what some onshore commentators suggest, the private placement option is gaining real traction and providing managers and investors with some real, practical benefits.

Increasingly, private equity managers are finding that the private placement option into Europe offered through Jersey can provide them with the certainty of European market access they need, but with added flexibility and without the headache and costs of reporting under full AIFMD 'passporting' compliance.

Figures from the Jersey Financial Services Commission (JFSC) indicate a strong take-up in Jersey's private placement route into Europe. Just months after AIFMD came into play, 176 Jersey funds and 49 Jersey fund managers are already actively marketing into the EU with JFSC authorisation under private placement regimes.

Additional data also shows that the UK remains a key market for Jersey managers and, in indicating which EEA Member States they intended to market into, most managers licensed to carry on fund services business in Jersey say they intend to market their funds into the UK. The fact that the UK remains such a key market is not surprising, given its strong links with Jersey. With the UK Treasury confirming its national private placement regime will be in place until 2018, Jersey will continue to benefit from certainty of access to the hugely important UK investor market.

Interestingly, however, the next most important intended markets for Jersey managers were Sweden, Belgium, the Netherlands, Ireland, Denmark, France, Germany and Luxembourg.

Mixed Reception

Overall, this is a considerable success, reflecting the broad appeal of Jersey within Europe - but it is perhaps not surprising given the mixed reception the passport has been given by managers.

In recent research by IFI Global ('The Impact of AIFMD', October 2014), for example, a significant number of managers said the AIFMD's carrot, the passport, was of 'little' to 'no interest' to them.

Further, the cost of reporting and compliance under AIFMD through the passport, and the possibility of those costs eating into investor returns, remains a major concern. Research by BNY Mellon and FTI Consulting (July 2014), for instance, highlighted that managers expect regulatory, risk and compliance reporting to account for the majority of ongoing costs associated with AIFMD compliance, with the increased costs in some cases looking set to fall onto individual funds.

The actual value of the AIFMD is being questioned too. The BNY Mellon/FTI Consulting research also suggested that only 39% of managers believe that AIFMD will be either very beneficial or slightly beneficial to their organisation, and the same proportion of respondents believe end investors will benefit from AIFMD.

As far as the European fund structuring landscape is concerned, the IFI Global research reveals that managers hold the general view that AIFMD will not require them to change the domiciliation of their funds, and suggests that, whilst the European alternative fund industry is going through a period of substantial structural change, whether that is down to the AIFMD is debatable.

What the AIFMD will prompt, the research says, is for the European alternative fund industry to become even more institutionalised than it is today, with fewer independent alternative managers left in the EU with AUMs below $1 billion by 2020. The indications are that boutique managers cannot see any real advantages to AIFMD, with a number of them indicating that they might move to centres outside Europe. In such circumstances, Jersey can offer a cost-effective base with European market access guarantees.

Overall, the value, benefits and ease of implementation of the AIFMD passport are far from clear. But the private placement option is an attractive and highly credible alternative. And, because of the work that has gone into future-proofing Jersey's regime, if the untested AIFMD brand succeeds in the longer term, the availability of an AIFMD-compliant option in Jersey, when third country manager passporting commences in the EU, will only add to Jersey's appeal across all manager and investor types, and locations.

Longer-Term

Now reluctantly accepted as the unavoidable future regulatory model onshore, the AIFMD brand has provided commentators with an opportunity to second-guess the Channel Islands' dominance in the alternative funds business, but the statistics suggest the tried and tested offshore model will continue to support discerning and successful managers and investors for many years to come.

Of course, there is a real need now for private equity managers to move on from a period of intense focus on AIFMD and consider longer-term market developments. With further regulation on the horizon, Jersey is well placed.

Being a non-EU jurisdiction, for instance, Jersey is ring-fenced from the business risks and distractions of unprecedented levels of EU regulatory creep.

From a private equity servicing point of view, there is expected to be significant opportunity for Jersey service providers to support their onshore counterparts as regulatory pressures, including AIFMD, ramp up the volume and complexity of reporting requirements.

Onshore managers are already looking to outsource their administration and governance requirements to dedicated specialists, and Jersey, with its sophisticated network of highly experienced administrators, is ready to meet that demand.

Global

What is encouraging from Jersey's perspective is that, whilst there has been a noticeable rise in alternative funds being structured through Jersey targeting UK and continental European assets, this has been accompanied by a growing number of promoters making use of Jersey for funds targeting assets and investors in non-European growth markets around the world.

Thanks to its approach to regulation and alternative fund expertise, Jersey is not only affirming its position as a leading domicile for European funds business, but is also strengthening its appeal as a European time-zone centre for global private equity, real estate, infrastructure and hedge fund structuring and servicing.

Growth markets are continuing to offer opportunities from both an asset and investor point of view. India and China will soon resume their places as the largest economies in the world, whilst seven of the ten fastest growing economies of the last few years have been African. A recent PwC asset management survey indicated that the global asset management industry will grow from $65trn to in excess of $100trn by 2020, and that alternative investments will grow from $6.5trn to over $13trn.

Further, a report commissioned by Jersey Finance and published by Capital Economics last month also highlighted that Africa has the opportunity to quadruple living standards by 2040, but to do so it will need to find $11.4 trillion in extra investment over that period. Whilst the report estimates that only around 48% of that can be plugged by a combination of aid, domestic profits and local governments, the remainder, $6.1 trillion, will have to come from foreign direct investment.

By providing protection for investors, expertise and experience, efficient cross-border investment pooling, efficient and robust regulation and tax neutrality, Jersey is well placed to make an important contribution to the economic growth Africa needs. There are clear opportunities for private equity structuring through Jersey against this backdrop.

For this reason, Jersey's ability to offer a regime that is fully outside the scope of the AIFMD has been crucial, positioning it strongly to cater for a rise in the number of funds targeting growth markets across Russia, Africa and Asia.

Law firm Mourant Ozannes, for instance, recently provided Jersey advice to CVC Capital Partners on the launch of its latest Asia Pacific Fund, which raised $3.5 billion to invest in the Asia Pacific region.

And earlier this year, Appleby's Jersey office advised on two landmark UK property transactions with a combined value of £2.5bn, both involving Asian investors - Blackstone's sale of its interest in the Broadgate Estate to Singaporean sovereign wealth fund, GIC, one of the largest real estate transactions in UK history; and the sale of Blackstone's beneficial interest in the Chiswick Park Estate to the China Investment Corporation (CIC).

Careful consideration

As cross border finance grows, so too will the demand for tax neutral capital raising and pooling centres. With its flexible regulatory regime, structuring expertise, respect for the rule of law, use of a common business language, time zone convenience and protection of property rights, Jersey is extremely well placed to meet this demand, both within and outside of Europe.

For over 25 years Jersey has provided an efficient and familiar, appropriately regulated and tax neutral operational model for the structuring of private equity funds, which has helped deliver safe and stable returns for the industry and its international investors through all economic cycles.

Where Europe is concerned, before private equity managers jump aboard the passporting juggernaut, careful consideration of the options available is required – recent figures, research and business flows all suggest the tried and tested offshore model will continue to support discerning and successful managers and investors for many years to come.

Linkedin - www.linkedin.com/company/jersey-finance
Twitter - @jerseyfinance
Youtube - www.youtube.com/jerseyfinance

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Jersey Finance Limited
Jersey Finance Limited
Jersey Finance Limited
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Jersey Finance Limited
Jersey Finance Limited
Jersey Finance Limited
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions