Funds and the Evolution of International Finance Centres
Recently our Head of Funds, Elliot Refson contributed to the Funds edition of Business Brief. Hear what he had to say about the evolution of funds:
Reputable International Finance Centres (IFCs) have come a long way over the past 20 years, with jurisdictions of note continuing to evolve their proposition to increase their appeal.
From an investment funds perspective, what has become clear is that it is investors who ultimately determine where a fund is domiciled and who therefore have a significant say in the success, or otherwise, of fund centres – and what investors look for has evolved considerably over time too.
There is logic, therefore, in looking back at how jurisdictions have developed their offering to better predict where future opportunities may lie.
Jersey, for example, was once perceived as over-regulated, inflexible and expensive when it came to the alternative investment funds space. There were laudable reasons for this, with Jersey’s regulator and government embracing new regulation and legislation, to cement the jurisdiction’s reputation as a well-regulated jurisdiction.
While such a funds ecosystem was seen as a barrier back then, in the context of today’s modern international finance sector, Jersey is now viewed in a very different light. Jersey is now viewed as proportionately regulated and innovative.
Two key driving forces prompted this perspective shift.
The first was the tightening of international regulatory standards, especially around BEPS and substance requirements, demanding that fund managers operating in IFCs evidence demonstrable operational presence. For some jurisdictions this was problematic; inadequate infrastructure and a lack of local personnel uncovered sizeable flaws that have left some IFCs playing catch-up, or worse, being negatively listed.
Secondly, major geo-political upheaval has uncovered instability in other jurisdictions resulting in a flight of fund managers and vehicles to IFCs that can provide the requisite quality, stability and certainty.
These two attributes that Jersey put at the heart of its offering 20 years ago, that once seemed over-bearing, are now viewed as reassuring and proportionate.
It is an approach that has been acknowledged by some of the world’s leading bodies, including the OECD, the IMF and the World Bank, while the Island’s substance legislation in 2019 codified pre-existing best practices as opposed to introducing new ones.
Notably, Jersey’s political and fiscal stability combined with its minimal change outlook from a regulatory, legal and economic perspective – all underpinned by world class infrastructure including one of the fastest broadband connections in the world, and by the deep expertise of the 14,000 people who work in the industry – has led to its increasing popularity for the facilitation of alternative investment fund activity.
Today, the Island is seeing record inflows of assets under management, with a sizeable 142% increase in a decade, evidencing a growth rate that has left Jersey’s competitors behind.
So where do we go from here?
An increasingly complex macro environment, from instability in Europe and the rapidly shifting landscape of international regulation to the growing focus on ESG and digitisation, continues to pose questions of global fund managers. The evolution we have seen of Jersey’s IFC over the past two decades, however, has positioned it well as a centre at the heart of Europe with global reach, specialising in alternatives – which today represent some 80% of Jersey’s total book of funds business.
There’s no doubt that Jersey will need to continue to evolve and innovate to maintain this leading position, but it has form, having honed its offering, blending targeted innovation with a stable, reliable platform for more than 20 years. The Jersey LLC, aimed squarely at the US fund manager market, is the most recent example, while Jersey is also forging the way in emerging areas such as sustainable investment and digital assets.
Moreover, with stability and certainty set to drive investor – and manager – choices for the foreseeable, the indications are that Jersey’s ecosystem will continue to prove an attractive proposition.
Read the full Funds edition of Business Brief.