Jersey offers non-EU fund managers a standout solution with its tax neutrality, regulatory simplicity and cost-effectiveness. In a complex landscape of regulatory, tax and investor-related factors, Jersey provides clarity and stability, making fund structuring a smoother process.
Jersey offers a business-friendly environment that can meet diverse fund structuring needs. Non-EU fund managers need to evaluate their marketing needs carefully and consider whether the same objectives can be achieved without added regulatory and cost burdens.
Disclaimer
The information set out in this AIFMD implementation tool (the Website Tool) is only intended to give a summary and general overview of the subject matter. It is not intended to be comprehensive and does not constitute, and should not be taken as constituting, legal or financial advice.
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Jersey Finance Limited makes no representations or warranties of any kind, whether express or implied, in relation to the content of the Website Tool. Although that content has been compiled with considerable care, it may, from time to time, contain technical inaccuracies or be incomplete. All users assume the risk of this being the case and should seek professional advice before placing any reliance on it.
Fund Structuring – Key Considerations
When structuring alternative investment funds, it is essential to address several key factors that ensure the vehicle’s efficiency, compliance and attractiveness to investors.
Management Team: Location Matters
The location of the management team will often play a crucial role in fund structuring. Being situated in a jurisdiction with a well-regarded financial eco-system such as Jersey, can provide access to a skilled workforce, robust infrastructure and proximity to key investor markets such as the EU and the UK. Investors value jurisdictional credibility and regulatory stability.
Tax Efficient Structuring
Tax neutrality is a key focus for managers and funds. Jersey offers tax neutrality. This is a simple and clear solution for funds and their managers compared to jurisdictions which are reliant on double tax treaties and often still encounter VAT (Value Added Tax) complications.
Regulation
The regulation of the chosen jurisdiction must be carefully considered. It is essential to balance the need for investor protection and market integrity with operational flexibility. Jurisdictions offering a well-defined but flexible regulatory framework, such as Jersey, can help fund managers navigate these obligations without undue burden, allowing them to focus on investment strategies and growth.
Marketability
Where are the investors?
Understanding the geographical distribution of the target investor base is critical. A jurisdiction that offers easy access into these markets and aligns the preferences and regulatory expectations of these investors can significantly enhance the appeal.
What do investors want?
Investors typically seek transparency, strong governance, and alignment of interests. Structuring the fund in a way that addresses these priorities will make it more attractive to potential investors.
What is the market standard?
The structure of the fund should meet or exceed the prevailing market standards. This includes adhering to best practices in governance, reporting and risk management, which enhances the funds credentials and competitiveness.
Costs
The fund must be structured in a way that ensures it can generate sufficient revenue to cover fees and expenses. This requires careful financial planning to ensure that the scale of the fund justifies the costs of its structure, including regulatory compliance, administration, and management fees. A cost comparison between jurisdictions is therefore important, ensuring the sustainability of the structure.
Meeting Investors’ and Fund Managers’ Objectives
Jersey Offers Investors:
• Returns
• Limited liability
• Tax neutrality
• Regulatory suitability
• Marketability
• Alignment of interest
• Flexibility
• Familiarity
Jersey Offers Fund Managers:
• Sole right to manage or a discretionary mandate
• Tax efficient management fee
• Tax efficient performance fee/carried interest
• Ease of administration
• Marketability
• Confidentiality through protection of proprietary information
Jurisdictional Choices and Their Implications
Jersey, Cayman, Luxembourg: A Comparative Overview
Each of these fund jurisdictions offers distinct benefits:
- Jersey: Provides cost-effective solutions with strong tax efficiencies offering stability, familiarity and a lower cost environment, making it attractive for those managers not requiring an AIFMD passport and wishing to benefit from the NPPRs.
- Cayman: Offers a flexible legal and regulatory framework, which is easy and cost efficient to many non-EU managers. However, it is worth noting that Cayman has occasionally faced scrutiny, leading to temporary listings that could affect regulatory stability and access to NPPRs.
- Luxembourg: Known for its international reputation and comprehensive fund structuring options, Luxembourg is favoured when an AIFMD passport is considered to access the pan-European market.
Balancing Cost, Regulatory Compliance & Investor Preferences
Cost
Channel Islands structures are less expensive than Luxembourg vehicles, and while Cayman structures used to be the least expensive, this has now changed due to increased regulatory requirements.
Regulatory Compliance
Embrace full AIFMD compliance for the benefits of a European marketing passport or opt for the lighter regulatory touch of NPPR?
Investor Preferences
While Luxembourg is often seen as internationally reputable, fund managers may prefer the familiarity and business-friendliness of Jersey. Cayman offers a business-friendly environment too but may be less appealing due to its recent blacklisting history.
Tax Considerations
Tax efficiency is a significant consideration in fund structuring: VAT Efficiency: Jersey funds offer superior VAT efficiency compared to Luxembourg structures, making them an attractive option.
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EU Distribution – Regulatory Landscape
The European distribution landscape for funds is shaped by key legislation which includes the Alternative Investment Fund Manager Directive (AIFMD) and its revision, AIFMD II, the Markets in Financial Instruments Directive (MiFID II) and finally the Cross Border Distribution rules, particularly the pre-marketing rules which streamline the process for fund managers to engage with potential investors across the EU.
Weighing the Costs and Benefits of Passporting vs. NPPR
When considering fund distribution strategies in Europe under the AIFMD, non-EU fund managers must carefully weigh the costs and benefits of using a marketing passport versus the National Private Placement Regime (NPPR).
Factsheets & Technical Updates
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Find out more about the Jersey regime by reading our factsheet.
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Jersey Financial Services Commission (JFSC) are the regulator for financial services in the Channel Island of Jersey.
The JFSC are responsible for regulating, developing and supervising the Island’s financial services industry. They aim to deliver balanced, progressive, risk-based financial regulation, built on insight, integrity and expertise.
Contact
For more information, please contact Peggy.
Peggy Gielen › Legal and Technical Manager, Jersey Finance
email › / profile ›
Peggy Gielen joined Jersey Finance in September 2005 as Legal and Technical Manager.
Peggy is originally from Belgium, where she obtained a Masters in Economics at Antwerp University before working as a manager in the Foreign Trade and Credit functions of KBC Bank and Royal Bank of Scotland. Prior to joining Jersey Finance, Peggy was working at the Belgian Embassy in London, where she was responsible for developing and supporting inward and outward investment opportunities for Flanders.
Peggy’s role at Jersey Finance is to assist with the development of our technical services for funds, both in terms of supporting the existing consultation process and performing strategic research and development.