The first few months of 2022 have provided some hugely encouraging statistics for Jersey’s funds industry.
Not least amongst them is that more than 500 Jersey Private Funds (JPFs) have now been established in Jersey, representing an increase of almost two-fifths year on year – and this just five years since JPFs were introduced.
It’s pertinent because it’s a fantastic reflection of Jersey’s ability to balance innovation on the one hand, with certainty and stability on the other – to deliver a market leading vehicle in response to demand, backed up by an ever-present focus on high quality oversight.
Over the past five years, the JPF has become a leading vehicle for private capital co-investment and cross-border institutional alternative fund structuring. It’s cost-effective, flexible and swift to market and has undoubtedly played a part in the growth we’ve seen in our funds sector so far this year.
Elsewhere amongst the positive figures this year are that there are now 374 alternative investment funds being marketed using private placement through Jersey into the EU (up 47% over the past five years), and more than 200 managers (up 58%). It’s a sign that Jersey is getting it right when it comes to supporting non-EU managers with their ambitions in the EU investor marketplace.
And industry figures have also revealed that the total value of regulated funds under administration in Jersey grew by 19% over 2021 to now stand at a record £450.2 billion. Private equity and venture capital business alone increased by 27% in 2021.
This sort of success doesn’t happen by accident. In fact, if you were to go back twenty years, Jersey was possibly seen as an over-regulated and expensive domicile for alternative fund business. This was because our Government, regulator and industry strove to adopt the highest standards and to embrace and be early adopters of new legislation.
Fast forward to today and, as the figures we’ve seen this year suggest, Jersey is seen as proportionately regulated, innovative and extremely competitive.
Sometimes we are asked what the secret formula is for our success, or what has changed so markedly.
And the answer really is: everything and nothing.
‘Everything’ in the sense that other jurisdictions have been forced to change to fall in line with regulatory progress and catch up with where Jersey already was – around, for example, BEPS and substance requirements. The last decade has witnessed regulatory change like never before, and that’s been a massive challenge for some jurisdictions.
At the same time geopolitical events have created instability in certain regions, prompting investors and managers to look elsewhere for partner jurisdictions that can offer stability and certainty.
The funds market has also seen a huge swing over the past decade or so towards alternative asset classes, to the extent that they are now mainstream options.
‘Nothing’ has changed, however, in the sense that Jersey has been unwavering in its commitment to maintaining the highest standards. This is reflected, for example, in Jersey’s substance legislation, introduced in 2019 and which in practice was simply the codification of prevailing best practice.
As a result, Jersey’s approach has been – and continues to be – acknowledged by some of the world’s leading bodies such as the OECD, the IMF and the World Bank. It’s a proposition that is characterized by both political and fiscal stability and a minimal change outlook from a regulatory, legal and economic perspective.
At times it is good to look back to determine where you have come from; it can inform your future journey too. There’s no doubt that balancing an ability to provide innovative solutions, like the JPF, with a platform that can guarantee certainty and stability, will be vital in keeping Jersey’s funds industry ahead of the curve.
So What’s Next?
Amendments have just been approved to Jersey’s Limited Partnership Law which, when they come into play later this year, will modernise the jurisdiction’s regulatory framework further to recognise trends and developments in the international funds environment.
We’re also progressing work on Limited Liability Company legislation, to create a platform that should really resonate with US managers.
And, almost a decade after the AIFMD came into force in the wake of the 2008/9 financial crisis, AIFMD II is set to be presented to the European Council and European Parliament for approval. The criteria under AIFMD will recalibrate the requirements for non-EU countries wishing to access EU capital – but reputable jurisdictions with a good track record like Jersey should be well placed in this new environment.
Meanwhile, Jersey continues to support the strategies of mature, big-ticket managers – but a growing number of first-time, emerging and spin-out managers are also looking to Jersey to support them on their journeys too. As a domicile, we want to see first time managers flourish and we’ll be focusing more on that over the coming months.
And finally, driven in large part by an acceleration in thinking around purpose and ESG, we are moving increasingly towards a world where the ‘why’ matters just as much, if not more so, than the ‘what’ or ‘how’. For that reason, we are increasingly focused on the outcomes of what Jersey’s finance industry, including its funds sector, does.
Jersey Finance recently published a ground-breaking report, ‘Jersey’s Contribution to Global Value Chains (‘GVC’)’, which highlights the positive impact the work done in Jersey has around the world.
The report finds, for example, that the capital intermediated by Jersey’s funds sector supports an average of £29.3 billion of global economic output annually – equivalent to 0.05% of world GDP. As an illustration of the scale of this economic activity, the direct GDP contribution of Bahrain in 2020 was approximately £31.1 billion. The redistributed capital through Jersey funds is generating real economic activity, being used to support a wide spectrum of firms from financial services, technology, retail and beyond, and supporting the livelihoods of real people in the process.
There are plenty of challenges coming down the track, but Jersey is focused on staying ahead of the game, reacting to market and regulatory change whilst at the same time retaining its core promise of stability and certainty. Achieving that balance will be critical if Jersey is to maintain its upwards trajectory – and it has a strong track record that suggests it will be able to do so.