Jersey Finance: Funds Masterclass: 2021 Domiciliation and Brexit Update

Our first Funds Masterclass of 2021, held on Thursday 4 February, covered the AIFMD review and, following the end of the transition period, an important update on Brexit and what lies ahead.

Hear from key industry and Jersey Government representatives, as they provide their expert views and insights on the future of fund domiciliation and structuring in a post-Brexit world.

Event Summary: Stability Key for Alternatives Community Post-Brexit

Against a backdrop of significant Brexit-induced change, a review of the AIFMD and a shifting global corporate tax environment, the stability and certainty Jersey offers the alternative investment fund community will be increasingly important, according to panellists at the first Jersey Finance Funds Masterclass of 2021.

Live streamed last week (4 February), the event, which featured a number of industry and Government of Jersey representatives, explored what lies ahead for the European alternative funds landscape in the wake of Brexit with the transition period having now come to an end.

In a session moderated by Peggy Gielen, Legal and Technical Manager at Jersey Finance, panellists discussed how the current review of the Alternative Investment Fund Managers Directive (AIFMD) was not likely to prompt huge change in European fund marketing regulation.

Commenting on how private placement – the route Jersey offers non-EU managers wishing to access EU investor capital under AIFMD – Prem Mohan, Partner at Kirkland & Ellis International, said:

“Our experience is that private placement is working effectively, and it is broadly benefitting not only promoters and sponsors, but also EU investors, who are getting access to a wider range of investment opportunities.”

This sentiment was echoed by Rob Mellor, UK Asset Management Tax Partner at PwC, who added:

“AIFMD is not broken and the consensus is that it doesn’t need fixing. There is certainly plenty for the industry to be getting on with now – the world needs the alternatives industry to support recovery, so hopefully we won’t see big change. In particular, there is nothing wrong with the private placement or delegation rules as they currently stand, and the industry doesn’t want any further barriers to carry out its important role.”

Highlighting how Jersey’s platform for EU-bound alternative fund distribution was well placed in the post-Brexit environment, Tim Morgan, Chair of the Jersey Funds Association, said:

“The resounding response from bodies like Invest Europe and AIMA is that tinkering with AIFMD now would not be a good idea. In fact, now what we are now seeing is that the regime Jersey put in place some years ago to respond to AIFMD is now seen as the blueprint for third countries which industry is keen to preserve and further develop in their responses to the AIFMD review.

“In fact, on Brexit, Jersey’s advantage is that it has been a third country for some time and nothing changes in the new environment – managers are still able to market into the EU through Jersey today just as they did last year. Jersey offers some welcome certainty and guarantees in terms of fund structuring in the current environment.”

Adding a governmental perspective, Tom Wherry, Head of European Relations for the Government of Jersey, alluded to the certainty Jersey could provide in a post-Brexit environment.

“The context of Brexit has changed everything, but the platform of stability Jersey provides is now really valued and actually has become even more important,” he said.

Meanwhile looking at the wider tax environment this year, Tom Le Feuvre, Director of Global Markets and International Agreements for the Government of Jersey, commented:

“There is now huge political pressure for an agreement on global corporate tax change this summer, through the OECD’s Pillar 1 and Pillar 2 initiatives. In terms of the application of these potential changes the good news is that there are carve outs for funds, and the definitions are wide enough to cover all asset classes from the retail through to the sophisticated end of the spectrum. For countries that rely on tax treaty agreements, the proposed Subject to Tax Rule may bring new challenges, but for Jersey, which achieves tax neutrality through its 0/10 regime, this will not be so much of an issue.”

For those managers looking to adapt to the new environment, Jersey could provide a very viable, safe and sensible solution, argued the panelists:

“In some cases, now is a good time for managers to revisit their arrangements and look at whether private placement is a better and more flexible and more cost-effective option than an onshore arrangement might have been,” suggested Rob. “That is particularly the case given substance rules and the remote working that has emerged over recent times.”

“The proof has been in the pudding,” concluded Tim. “The statistics have certainly borne out that Jersey is in a good position – we now have 400 Jersey Private Funds, a structure that has become the go-to structure for alternatives, a record £365bn+ in fund assets under administration and have seen a sustained rise in the number of funds and managers using Jersey to access the EU. These are all fantastic indications of Jersey’s positive role in this new Brexit environment, and it’s all based on the stable, expert ecosystem we’ve built.”