Activity in the funds space over the past few months has been busy, to say the least; we’ve hosted a number of virtual events for contacts across the London, US, and African markets, highlighting Jersey’s pedigree in supporting cross-border alternative funds, IFI Global published new research we supported on the future of fund domiciliation, and we’ve seen a number of Jersey-registered big ticket fund launches.
That level of activity builds on a successful past twelve months, despite global challenges, which is reflected in recent figures.
Monterey and JFSC data, for instance, shows strong sustained growth in terms of both fund values and volume. According to the most recent Monterey report, Jersey AuM broke through the $500bn mark for the first time in 2020, a feat that represents growth of 66% over five years and 125% over ten. This increase was driven by sustained growth in the private equity and venture capital asset classes, which recorded growth of 153% by value over the past five years, with the number of individual PE and VC funds doubling over the same period.
The report also shows that over 120 new Jersey schemes were launched during the year, totaling US$14.5bn. Of these, over 65 funds and sub-funds totaling US$11.1 billion were PE or VC.
JFSC figures also show that the number of registered Jersey Private Funds grew by almost 100 over 2020, to reach a total of 403, with the structure asserting its appeal for professional investors and co-investment purposes.
But headline figures on their own don’t tell the full story.
If our shared experiences of the past year or so have taught us anything, it’s that, no matter how successful we are, we always need to have an eye on the future, a clear idea of the direction we are going, and an ability to adapt.
Strong figures are one thing, but we need to dig deeper than that and focus on our overall direction and trajectory to make sure that we can maintain our good momentum and remain on track to meet the evolving demands of investors in the long run.
As was raised at one of our recent Funds Masterclass events, the past year has actually given us an opportunity to expand our horizons, take a step back, look at complementary opportunities and adopt an outwardly looking perspective of what’s going on in the world… and we’ve got a good grounding as a jurisdiction to do that in Jersey.
Of particular note in the Monterey figures, for example, is the international diversification of our funds business. According to Monterey, Jersey’s growth from our core UK market has been robust in 2020 – up 5.7% over the past year and 20.6% over the past two years.
In 2020, we also saw record level of inflows from the US, with Jersey-based fund promoters from the US growing 17.3% over the year (to June 2020) and 41.2% over the past two years. In terms of the number of funds from US promoters, this is 36.7% growth year on year and 50% over two years.
Anecdotally, we are also seeing a steady rise in the number of South African managers looking to Jersey to support their cross-border fund structuring requirements.
Further, in the wake of amending Jersey legislation last year to make Limited Partnership (LP) migration easier from other domiciles, we saw record levels of LP’s created in Jersey in 2020 – in particular in the fourth quarter – while the number created in December 2020 was double that of 2019.
As well as reflecting the organic growth we are seeing in PE fund structuring, this also points to an increasingly diverse international migration of PE structures towards Jersey, with investors finding appeal in Jersey’s stability, regulatory regime, access to expertise, and global distribution capabilities.
It is not just greater diversity in terms of geographic markets either. As the IFI Global research suggests, ESG progress, Brexit and substance are all also impacting domiciles.
From an investment strategy perspective, the pandemic has accelerated the notion that economic recovery must go hand in hand with a sustainable recovery. This matters hugely to investors, particularly the next generation of asset managers, and we need to be ready to answer that call as a funds industry and domicile – 69% of respondents in the IFI study said that ESG considerations will play a growing role in decision-making, including domiciliation.
This is one of the reasons why we launched our sustainable finance strategy earlier this year, which aims to position Jersey as the market leader on SF in the markets it serves, and why we launched our flagship Jersey Fund for a Wilder World initiative.
We are also seeing greater emphasis on substance and governance in the broadest sense – and these are areas where we believe Jersey can excel. In particular with respect to ESG, investors want to see clear policy and procedures in place from their managers and domiciles. Robust regulation, coupled with good underlying governance, including access to diverse NED expertise, is key to that.
Substance is still a big consideration too for investors, and Jersey is well placed to meet those requirements, with the economic substance rules introduced in 2019 codifying what was essentially already best practice.
This is all backed up by a digital-first approach, including one of the fastest fibre broadband platforms in the world, and a commitment to upskilling to ensure our workforce is ahead of the game.
Overall, the private equity markets are sitting on a significant amount of ‘dry powder’ – the big question now is where and how to deploy that capital. While 81% of investors indicate they will allocate more to alternatives over the coming five years (Preqin), there’s no doubt they are more thoughtful and considered about how to go about meeting their targets – in terms of sectors and geographies.
Domiciles need to be ready to provide investors with reassurance that their capital is not only going to generate returns, but will do so in a robust, efficient way that can satisfy an unrelenting thirst for transparency and impact.
It’s a challenge, but never before have domiciles had the opportunity to demonstrate their credentials – and if we can maintain the momentum we’ve achieved to date, Jersey can support the significant potential of private equity to help translate big numbers into big impact.