Despite these challenges the ever increasing growth of private capital does present opportunity for start-up fund managers. Jersey is a highly competitive market for fund managers and should be considered one of the jurisdictions of choice for startup fund managers.
Jersey has long served as a highly attractive destination for fund managers and has a robust reputation around the world. As a startup fund destination Jersey already offers several key advantages.
Crucially, the market is geographically close and economically well integrated with the United Kingdom and European Union. The Island has a robust and respected court system and case law covering areas relevant to investment professionals.
An experienced sector of lawyers, accountants and other advisors means that first time fund managers looking for advice have some of the leading experts in their fields. Finally, a transparent and understandable tax regime enables Jersey domiciled funds to benefit from a neutral tax position.
Despite the global pandemic, Jersey Private Funds have continued to rise in popularity. As of December 2020, nearly 100 new JPFs have been registered on the Island. The Jersey Private Fund regime was introduced in 2017 and is a simplification of the regime of private funds offered previously. Since being brought to market around 400 funds have been formed and they continue to be a popular choice with startup fund managers. The JPF replaced three previous private fund products namely, ‘COBO Only Funds’, ‘Private Placement Funds’ and ‘Very Private Funds’. The fund is a means of spreading risk by pooling capital – to fall into the auspices of the JPF the fund must involve at least two investors and with a number of underlying investment assets being acquired.
The JPF can be established in Jersey or overseas, meaning it remains an attractive proposition for foreign fund managers. The fund can be structured as a company, a partnership or as a unit trust. If constituted as a company, there is no requirement for Jersey domiciled directors. Similarly, neither the partners nor trustees explicitly need to be based in Jersey. Having said that, there is an expectation from the local regulator (the JFSC) that there should be one or more Jersey based directors serving on a JPF’s governing body.
Jersey’s offering of the Jersey Private Fund is a major draw for first time fund managers. Aimed at funds making no more than 50 offers to the investors, with some additional eligibility requirements, JPFs are a flexible means of accessing EU and UK based investors ranging from institutions to family offices. JPFs represent a competitive and speedy means of entering the market.
One of the biggest barriers to entry for first time fund managers is a lack of track record in alternative investment management. This represents something of a dilemma for new entrants to the market. When a fund manager looks to establish a new fund on their own, they may have the strategy, the ideas and even some investors lined up, whilst lacking the requisite track record. JPFs are a great structure to overcome this need for track record and to move forward.
Speed to market is another significant advantage for first time fund managers. With the delivery of the appropriate documentation to a dedicated online portal, new funds can be registered in as little as 48-hours. In a fast-paced environment where speed is of the essence, being able to reach out to the investors and develop your offering quickly is a major advantage. Combine this with highly competitive fees and it is clear why these funds present such a compelling offering.
Fund managers seeking to establish a JPF must use a designated service provider (DSP). This DSP is responsible for the investor due diligence and ensuring that the investors in the JPF meet the eligibility requirements on an ongoing basis. Finally, the DSP is responsible for updating the JFSC on any changes it should be aware of and to submit an annual return. DSP must be registered pursuant to the Financial Services (Jersey) Law 1998 and in general the DSP is the Jersey-based fund administrator of the JPF.
For many startups it has become increasingly common to employ a platform provider to deliver regulatory hosting. Establishing a new legal entity in the UK obtaining FCA authorisation is outside the reach of most startups, so regulatory hosting platforms represent a cost-effective bridgehead. A London AIFM solution, for example, can give access to integrated fund solutions and ManCo services.
Regulatory platforms work by enabling fund managers to conduct regulated activities by operating as an AR under the host’s licence. The host will have permission to act as Alternative Investment Fund Manager (AIFM) and will be responsible for the activities associated with this role. As an AR fund, managers can market the fund under their own name and branding, with the host being responsible for signing off and approving any financial promotion material that you may produce with appropriate risk warnings and disclaimers.
For startup investment managers looking to set up a JPF, regulatory hosting platforms represent a great opportunity to develop a foothold in the UK or EU. It can offer a costeffective, integrated regulatory infrastructure across different jurisdictions for startup and emerging investment managers without the necessity to relocate or set up new operations. Crucially, these services provide fund managers a vital track record in these jurisdictions. As with JPFs themselves, there is an important time benefit, with platform providers delivering licencing in around two months as opposed to the nearly six months it can take to obtain a licence directly. Regulatory platforms have the added advantage of lending a name and reputation that investors can rely on, crucial when establishing a fund. Like JPFs, regulatory hosting enables managers to keep their focus on attracting investors and building a demonstrable track record.
In private markets where increased barriers to entry have created a narrow field of opportunity for startup fund managers, Jersey is a natural home. A lighter touch regulatory regime, access to excellent advice and administration, plus governance support and the JPF platform, means Jersey ticks many boxes for aspiring fund managers in the alternative space such as private equity, private debt and real estate. By working alongside regulatory hosting providers, fund managers can begin developing strategies and enter the market quickly.
As the past 18-months have demonstrated, private markets have a big part to play in funding technological and medical breakthroughs. The industry can only deliver on these breakthroughs by becoming as wide and diverse a marketplace as possible. The financial services industry in Jersey should lead the way in positioning the Island as being the jurisdiction of choice for startup fund managers.