The last 12 months have continued to provide a challenging fundraising environment across the asset classes in the alternatives spectrum, with inflationary pressures distorting asset valuations and high interest rates negatively impacting deal flow.
If there is an upside to this, however, it is that it has given jurisdictions an opportunity to demonstrate their genuine commitment to innovation and agility, in order to continue to support investors and managers – and in so doing differentiate themselves in a highly competitive market.
As the industry looks to brighter skies on the horizon, as interest rates subside to a ‘new normal’, it will nevertheless be critical that Jersey continues to flex its agility in what will undoubtedly be a fast paced and increasingly complex cross border funds landscape, buffeted by geopolitics, technology, regulation and shifting investor attitudes.
Thankfully, Jersey has long benefitted from such an agile approach – it is something that has proven crucial to its robust performance, even against the backdrop of the past year, during which Jersey has succeeded in maintaining stable deal flows and fund launches.
The latest figures for net assets under administration have remained steady at the £520 billion mark, while 718 Jersey Private Funds (JPF) have been formed since the product was launched – a 100 plus increase since last year – cementing its reputation as the go-to product for sophisticated investors.
Seven years on from its introduction and following an extensive consultation between the regulator and industry, the Jersey Private Fund Guide (JPF Guide) has recently been updated, widening the categories for eligible investors and adding to the structure’s appeal. It is a further and recent example of the approach Jersey’s funds industry takes to targeted and incremental regulatory innovation, by listening carefully and responding to investor demands.
Meanwhile, private placement has continued to prove a popular access route to EU capital through Jersey, with 391 funds now being marketed by 213 fund managers. These numbers continue to grow as managers become increasingly alive to the flexibility, speed and cost-effectiveness of the model, as opposed to full AIFMD onshore compliance.
Meanwhile, we are seeing our industry become more geographically diverse too, with the industry now supporting managers from Asia, Africa and the US, as well as the core UK and European markets, highlighting the jurisdiction’s global capabilities and appeal.
It is a robust and resilient picture in the face of significant headwinds but momentum is key and what Jersey’s funds sector does next – from a regulatory, ESG and technology perspective – will be vital if the Island is to continue to nurture a world-leading ecosystem for alternative funds.
Tokenisation
Emerging trends in the digitalisation of fund operations and the opportunities presented by a burgeoning tokenisation and virtual assets industry are presenting distinct challenges for jurisdictions wishing to grasp the zeitgeist.
While the benefits to be reaped are substantial − increased liquidity, transparency and efficiency to name but a few − such advantages will only be open to jurisdictions that have kept pace with the evolution of the sector and Jersey has certainly already shown its mettle in this regard.
The jurisdiction is already home to a number of credible virtual assets businesses, has a world-class digital infrastructure, offers a broad range of corporate vehicles and benefits from a progressive and appropriate regulatory framework. Notably, it is this supportive infrastructure that led to the launch of the world’s first regulated bitcoin investment fund a decade ago and more recently the launch of the Island’s first tokenisation platform.
Meanwhile, the increased accessibility of private funds to high-net worth retail investors and pensions platforms – traditionally the reserve of institutional players – has opened a significant trend towards democratisation, dubbed ‘retailisation’, reshaping the capital-raising landscape and creating exciting opportunities in the virtual assets space.
The change of pace across the digital sphere, however, is relentless and Jersey is focused on keeping momentum while building flexibility into its framework, so that it is prepared for a variety of future permutations in a rapidly evolving space.
While jurisdictions will vary in their perspectives on risk when it comes to virtual assets, the Jersey Financial Services Commission (JFSC) has recognised a middle ground in supporting token-generating events with meaningful substance, backed by a credible promoter.
Regulation
Regulatory innovation continues to be integral in this space. Jersey became the first jurisdiction globally to apply an AML control framework for virtual currency exchanges in 2016 and to formulate ICO guidance in 2018.
Six years on and the JFSC’s Innovation Hub is now leading the simplification and updating of this guidance in two tranches, published in the second half of 2024, with the first focussed on digital assets capital raising. The second relates to the tokenisation of real-world assets and provides a high-level framework of the regulator’s approach to applications where an existing asset has been tokenised, including stablecoins. It is a pragmatic and astute approach, of the sort Jersey has long adopted as part of its regulatory framework and structure optionality.
Away from virtual assets, it is fitting that 2024 marks the 20th anniversary since the Island launched its Expert Fund Regime, a regime that so firmly positioned Jersey on the map for servicing the alternative funds market.
That foresight to introduce a regime that would provide a much-needed solution for the market has meant that today, alternatives – private equity, real estate, venture capital and infrastructure in particular – now account for 90% of Jersey’s total funds activity.
Today, two decades on from that launch, the Island offers a full spectrum of fund solutions – from highly regulated, widely-offered retail funds, to lighter touch options for smaller groups of sophisticated or institutional investors – all backed up by highly experienced fund administration capabilities.
Recent years have also seen the introduction of the Jersey Limited Liability Company (LLC), offering familiarity to US funds professionals and creating greater opportunities to facilitate connections across the Atlantic, a market where there are significant growth prospects for Jersey.
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