Jersey Finance: Funds Masterclass – Private Equity & Distribution

Our Masterclass on private equity and distribution was this year held as a live-streamed virtual event.

The Masterclass is ideal for anyone associated with the private equity industry, cross-border fund raising or distribution – including managers, fund lawyers and fund tax advisers – to hear from our expert panel as they take a deep dive into the core issues driving the industry, and shine a light on what the future has in store.

Given the current environment – with Brexit, AIFMD and substance, amongst other factors, all making an impact – there is a special focus on distribution, as it pertains to the private equity sector.

Event Summary: Experience and Global Expertise Vital in Modern Alternatives Landscape

In tandem with a focus on digital adoption, the growing alternatives sector is set to be driven by robust governance, specialist expertise and strong relationships, according to panellists at the most recent Jersey Finance Funds Masterclass.

Live streamed last week (19 November), the event, which was focused on private equity and distribution, explored some of the key trends shaping the private equity space against the backdrop of Brexit and the coronavirus pandemic.

In a panel session moderated by Michael Johnson, Group Head of Fund Services at Crestbridge and Vice Chair of the Jersey Funds Association, panellists discussed how investors were focusing like never before on regulatory and compliance capabilities, and  were looking for specialist support from domiciles to help them navigate a period of unprecedented complexity.

Michelle McNaney, Co-Head of Private Equity at Aztec opened up discussions by painting a positive picture of the current state of private equity in what has been a challenging year:

“Despite the pandemic, private equity is still set to reach new heights this year with GPs keen to crack on with fundraising in a remote environment,” she said. “This upward growth reflects the veracity and tenacity of the private equity industry.”

“Alongside that, we’ve certainly seen a spike in both the volume and detail of queries as operational due diligence has come to the fore. In that context, there continues to be sustained interest in Jersey for structuring purposes, due to the stability and certainty it offers as a jurisdiction.”

Peter Rioda, independent non-executive director, added that the maturity of Jersey’s private equity ecosystem was positioning it strongly in this environment.

“Jersey has decades of experience in servicing and managing private equity,” he said. “That level of experience is now really paying off. Jersey is a natural home to private equity and as a result is set to really benefit from the greater appetite in the asset class we are now seeing.”

Virtual Environment

Expanding on the new virtual fundraising environment from a manager’s perspective, Ged Kelly, Head of Fund Operations at Nordic Capital, pointed to a fund launch he had been involved in through Jersey in April, just as lockdown restrictions were coming into play:

“We closed in six months, and the positive experience was that investors were really ready to commit to working with GPs despite the remote conditions. The key was doing a lot of preparatory work in advance of the fund launch.”

Expanding on the Covid experience and how it had impacted approaches to ESG investment, Ged added:

“There’s no doubt that investors now want to see a more central role for ESG and evidence in a GP that there is a clear story and progression in how ESG is integrated into fund launches.”

Ben Robins, International Funds Practice Group Head at Mourant, elaborated on this, suggesting that the experience of the past year was prompting a greater emphasis on the ‘G’ (governance) element of ESG:

“We’re definitely seeing a greater level of focus with GPs looking increasingly, for example, at management diversity and inclusion as a key area. There’s also far more scrutiny at all levels of the private equity supply chain – on the environmental side of ESG, with a desire to avoid any potential for accusations of greenwashing. It’s prompting a drive for greater specific expertise.”

Looking Ahead

Looking ahead to 2021, panellists suggested that distribution would remain high on the agenda as an issue for GPs, particularly in light of Brexit, but that Jersey’s role as a specialist private equity centre in Europe, with strong ties to the UK but outside of the EU, was positioning it strongly.

“We expect pretty much business as usual for Jersey post Brexit,” said Ben. “As a jurisdiction, we have considerable experience of supporting non-EU managers in accessing EU investor capital through private placement – it’s a route that clearly works and, if the EU follows the conclusions of its KPMG commissioned survey and wants continued access for its pension fund investors to leading global GPs, that won’t change.”

Regulatory change would also continue to dominate domiciliation, structuring and distribution decisions, according to the panellists:

“In other jurisdictions there has been a huge amount of change in a relatively short space of time as they have sought to come up to speed with global best practice and standards,” reflected Peter. “That has had something of an unsettling effect on investors. However, that’s not been the case in Jersey, which has been on the right path for some time. It’s first mover and open approach to compliance has meant that has been shown to be ready and able to evolve, but at a pace that LPs and GPs can feel comfortable with.”

Substance was a particular area of regulation panellists suggested would remain sharply in focus in the months ahead.

“It will be interesting to see how substance will play out in a world where travel is restricted and people are used to remote working,” said Michelle. “But Jersey has substance codified in law and is well placed to support an environment that values good governance.”

Overall, panellists agreed that, whilst digital tools would play a growing role in supporting an increasingly global investor base, people, pedigree and specialist expertise would remain key to maintaining strong relationships.

“The importance of long-term relationships has really shone through in the pandemic,” explained Ged. “It’s enabled us to keep investors happy and comfortable and close funds.”

“Jersey has earned its reputation because of its global expertise and outlook,” concluded Michelle. “Around 40% of private equity and venture capital work in Jersey is non-Jersey domiciled structures. Being able to demonstrate that sort of specialist expertise to properly service those global demands will really come to the fore in the year ahead for domiciles.”