Last month, speaking at the UK Finance Annual Dinner at Mansion House, UK Chancellor Philip Hammond moved to calm Brexit-related fears amongst UK finance heads by outlining plans to create a “bespoke deal” for the UK financial services sector.
The move came after persistent pressure by industry bodies for reassurance amidst uncertainty about what a post-Brexit trade deal for financial services might look like. Back then, noise coming from the City of London Corporation in particular suggested that firms in the City were beginning to look seriously at contingency plans should a favourable trade deal not materialise, in terms of how they might structure and where they might locate their business.
Fast-forward a few weeks, and a new survey by the CFA Society UK (18 October) suggested there was a real risk from Brexit of an exodus from the UK within the asset management industry – just 42% of EU nationals polled said they intended to stay working in the UK following the UK’s departure from the EU.
Some of this is, of course, political lobbying, and the picture continues to change on a weekly if not daily basis. Nevertheless, the indications are that some really quite fundamental questions about the operational structures of financial services companies are coming to the fore.
From Jersey’s perspective, UK based firms’ decisions as to whether to stick with the UK or twist and relocate to within the EU need not necessarily be an ‘either or’ situation. Firms here want to see a persistently strong London, and equally a vibrant EU. We would contend that Jersey has the potential to play a valuable role in helping UK finance firms to bridge the Brexit gap, a role that would ultimately benefit both the EU and UK by minimising disruption to important investment flows.
This is particularly the case within the alternative investment funds industry. Jersey’s funds regime offers an attractive option for alternative fund managers in the UK – and elsewhere – to structure their investment vehicles and continue to access EU investor capital without the burden of having to ‘up sticks’ completely to the EU.
Firms here have a good deal of experience in linking managers with EU investors – around a third of Jersey’s funds activity touches the EU. Jersey is already a third-country in relation to the EU (something the UK will become post-Brexit) and has all the infrastructure in place to enable investment flows to continue seamlessly through its tried-and-tested private placement route into the EU.
Right across the core private equity, hedge and real estate asset classes, we’ve seen a growing number of managers recognise this opportunity and establish investment vehicles in Jersey to make use of our private placement option. Mid-year figures show that the number of alternative fund managers marketing into Europe in this way has grown 14% annually and there are now more than 270 funds being marketed into the EU via private placement, a year-on-year increase of 10%.
So whilst managers might be looking at onshore EU and the AIFMD passport as the only solution to the Brexit conundrum, private placement through Jersey is actually a very viable option – it’s stable, cost-effective and it works. Against a complex geopolitical backdrop in Europe, that’s really attractive for fund managers.
By the same token, Jersey’s funds platform also gives globally-focused managers the ability to focus on non-EU strategies too, without the burden of full AIFMD compliance that a manager would have to bear if they were based in an EU Member State. In this way, managers can consolidate their EU and non-EU funds in one jurisdiction.
We think that’s an appealing proposition, particularly with global strategies set to become even more important – the latest Preqin Q3 2017 Updates show that the proportion of private equity investors targeting vehicles with a global mandate has increased from 35% to 41% in the past year and that the greatest proportion (42%) of hedge funds launched in Q3 2017 focus on global opportunities.
Jersey’s experience in the alternative funds sector should also give managers reason for confidence – the latest figures collated by the Jersey Financial Services Commission show that total funds business in Jersey is up 18% year on year to stand at more than £263.bn – with strong performances in particular in private equity (up 30% annually) and hedge (up 24%).
So whilst there may be some concern amongst the UK alternative fund management community about what a trade deal might look like for them in a post-Brexit world, Jersey can actually offer a robust option, and it’s available right now.
This means managers can focus on doing what they do best – putting capital to work and generating returns for investors, without having to worry about fundamental structuring or operational changes. In reality, disruption and upheaval are the last things financial services firms want, and Jersey can provide a solution to the UK investment industry that can benefit the UK and the EU alike.