Jersey Expert Funds were introduced to enhance Jersey's attractiveness as a jurisdiction for the establishment of funds aimed at institutional and high net worth investors. Expert Funds can be established within a matter of days on the basis of a self-certification approach without the requirement for any formal regulatory review of the fund or its promoter. There are currently over 400 expert funds authorised.
What constitutes an Expert Fund?
An investment fund constitutes an Expert Fund if each investor signs an investment warning and falls within one of the following categories:
- a person who makes a minimum initial investment of $100,000 (or currency equivalent); or
- a person whose ordinary business includes buying or selling investments or giving investment advice; or
- a person with a net worth (individually or jointly with their spouse) of more than $1 million (or currency equivalent) excluding their place of residence; or an entity with assets available for investment of not less than $1 million (or currency equivalent) or every member or partner of which is an expert investor; or
- a fund service provider to the fund or person connected with a fund service provider of the fund (including 'carried interest' investors).
An Expert Fund is subject to a very light degree of regulation. In particular:
- the promoter of an Expert Fund is not subject to any regulatory review or approval; and
- an Expert Fund is not required to adopt any prescribed investment restrictions or risk diversification strategy.
The regulatory requirements applicable to an Expert Fund are as follows:
- The Investment Manager/Adviser must satisfy the following
- have had no convictions or disciplinary sanctions imposed on it;
- be solvent;
- be regulated in relation to managing or advising on investment funds in an OECD state or jurisdiction or any other state or jurisdiction with which the Jersey Financial Services Commission (the Commission) has entered into a Memorandum of Understanding (or equivalent) on investment business and collective investment funds or be approved by the Commission;
- have relevant experience in managing or advising on investors' funds using similar investment strategies to those to be adopted by the Expert Fund; and
- satisfy the Commission's general principles of corporate governance by maintaining an adequate span of control over its business.
- If the Distributor of the fund is independent of the Investment Manager/Adviser and is a driving force behind the fund, it must satisfy the same requirements as the Investment Manager/Adviser (other than in relation to investment management experience).
- An Expert Fund must appoint an administrator, manager or (in the case of a closed-ended unit trust) trustee (the Administrator) which is regulated and has staff and a physical presence in Jersey. The Administrator will be required to monitor the compliance of the Investment Manager/Adviser with any investment or borrowing restrictions set out in the Offer Document and must have access to appropriate records of the Investment Manager/Adviser to enable it to carry out such monitoring function.
- All Jersey fund service providers to an Expert Fund (including the Administrator) must be regulated in Jersey under the Financial Services (Jersey) Law 1998 (the FSJ Law), and will be required to comply with applicable Codes of Practice. A fund service provider established for the purpose of acting for an Expert Fund which relies upon the services of a Manager of a Managed Entity (such as an Administrator) to satisfy any part of its regulatory obligations (such as an SPV general partner) shall be subject only to the core principles of the Codes of Practice for Fund Services Business (the Codes) unless it elects to follow the Codes in full.
- An open-ended Expert Fund must appoint a Jersey custodian or, in the case of a hedge fund, a prime broker with a credit rating of A1/P1 (in which case a Jersey custodian is not required).
- An Expert fund which is established as a limited partnership or unit trust must have a Jersey general partner/trustee.
- The Fund company, general partner or trustee (as the case may be) must have at least two Jersey resident directors.
- An Expert Fund must appoint an auditor.
- The Offer Document must contain certain specified information, including all information that investors would reasonably require to enable them to make an informed judgement about an investment in the Expert Fund.
- An investor in an expert fund must acknowledge in writing receipt of a prescribed investment warning which includes acceptance of the reduced regulatory requirements applicable to Expert Funds.
If an Expert Fund does not comply in all respects with the above requirements, it is possible to obtain derogations from the Commission in relation to such non-compliance. There are no other structural or documentary requirements applicable to an Expert Fund.
Stock Exchange Listings and Transfers of Interests
An Expert Fund may be listed on a stock exchange which permits restrictions on transfers of interests. This is to ensure that no one other than an Expert Investor can participate in the fund. Reasonable steps must be taken to ensure that non-Expert Investors do not become the registered holders of interests in the fund.
The application process for an Expert Fund is simple and quick. An application form setting out the key features of an Expert Fund, including a confirmation from the Investment Manager/Adviser that it complies with the above regulatory requirements, must be countersigned by the Administrator and submitted along with documentary evidence as to the Investment Manager/Adviser's regulation to the Commission, together with an application fee, structure chart and the draft Offer Document. The Commission will check that the application form has been appropriately completed, but will not carry out any regulatory review of an Expert Fund. In addition, an application form to register the Expert Fund under the Collective Investment Funds (Jersey) Law 1988 (CIF Law) must be submitted to the Commission. The requisite consents to the establishment of the fund will be issued within days.
The Alternative Investment Fund Managers Directive (the AIFMD)
Since July 2013, Jersey alternative investment fund managers (AIFMs) marketing Jersey or other funds that are not domiciled in the European Union or European Economic Area (EEA) to investors in the EEA have been required to comply with additional disclosure, transparency and reporting requirements pursuant to the AIFMD.
Since Expert Funds are already required to be regulated under the CIF Law and their service providers are required to be regulated under the FSJ Law, the only additional regulatory requirements pursuant to the AIFMD are compliance with applicable sections of the Commission's AIF Codes of Practice (the AIF Codes) (being in relation to disclosure, reporting and asset stripping together with notification to the Commission in advance of marketing). These additional requirements apply only when there is to be active marketing of such funds in the EEA.
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.