Regulatory, economic and geopolitical change are now staples of the environment we operate in but the good news is that Jersey’s funds industry has been able to adapt to such a fast-evolving environment.
Jersey’s forward-looking approach, commitment to first class service and focus on creating an ideal ecosystem for alternative investments have enabled its funds sector to thrive over recent years – but increasingly it is the jurisdiction’s ability to be agile and to innovate in the face of change that is shaping our future course.
The past year has been another successful and buoyant one for our funds industry.
Figures in early 2023 indicate that the total net asset value of funds under administration in Jersey stood at a record high of more than half a trillion pounds (£523bn), with Jersey Private Funds continuing to increase year-on-year.
In addition, we are seeing an ever-increasing community of managers fully resident in the Island across private equity, hedge fund, venture capital, debt and real estate. These managers provide depth and diversity to Jersey’s industry, at a time when substance remains high on the agenda.
Jersey’s expanding and enhanced product range is being warmly received by global managers and investors too.
The Jersey Private Fund (JPF) regime continues to assert its appeal as a fast, cost-effective fund vehicle which is ideally suited to a small number of sophisticated institutional investors. More than 600 JPFs have now been established in total – meaning that their number has now overtaken Collective Investment Funds (CIFs) in Jersey for the first time.
Amendments to Jersey’s Limited Partnership Law and the long awaited introduction of the Limited Liability Company (LLC) structure in early 2023 have also bolstered Jersey’s options for overseas managers, particularly those in the US.
Jersey’s platform as a gateway to EU investor capital through private placement remains strong too.
With this year marking 10 years since the Alternative Investment Fund Managers Directive (AIFMD) was implemented across Europe, more than 400 funds and 200 non-EU managers are using the tried and tested National Private Placement Regime (NPPR) through Jersey to access Europe – a figure that has grown by around 60% in five years.
It is clear that global managers continue to respond positively to Jersey’s private placement option, which holds particular appeal for those who do not require a full onshore EU presence – which is around 97% of managers, according to the EU’s own figures.
As investors continue to navigate a challenging landscape, Jersey’s funds sector is, overall, in a good place, with global trends supporting the future outlook of our industry. Investors maintain their focus on the opportunities presented through alternatives – private equity, venture capital and real assets – areas where Jersey has particular expertise and experience.
It is, however, prudent that Jersey remains on the front foot, alert to changes in the landscape and ready to respond with agility to market shifts.
At a macro level, for instance, Jersey’s weighting towards alternatives could turn out to be our greatest challenge should the industry adopt a cautious outlook as we cross the rubicon to a higher interest rate environment.
In early 2023, for instance, two-year UK Gilts stood at 5.5% and are expected to surpass 6% in the next year. That is the benchmark for the risk-free rate – the key hurdle for allocators when determining allocations to portfolios.
Not only that, allocators are also contending with the denominator effect, further impeding their sentiment and ability to continue to allocate so freely to closed-ended alternatives. We cannot ignore some significant sectors that are likely to be impacted – real estate, a key area for Jersey, being one.
In this new era, embracing innovation, being agile and looking at our product range to see how we can introduce a wider choice of products and services will be vital. It is why this year the Jersey Funds Association (JFA) has established an innovation sub-committee to look at a range of ideas – such as developing the foundations for holding assets using digital ledgers.
The tokenisation of real assets looks set to have a transformational impact on the cross-border funds industry in the coming years. We are already well engaged on that topic but it is vital that we maintain momentum in an area that is witnessing real acceleration. We are also well positioned in the rapidly growing arena of ESG investing. Jersey has a clear sustainable finance vision and is making good headway in implementing on that strategy – but as international regulation evolves, it is crucial that we keep up with the pace of change.
The MONEYVAL assessment in 2023, meanwhile, has also underlined the importance of asserting our industry’s strength in combatting financial crime and working collectively as an industry and with the Government to ensure our national approach is fully aligned with our industry approach.
Jersey’s reputational advantage has long been at the heart of our success and as an industry we continue to be alive to the importance of being able to demonstrate the highest standards of anti-money laundering, compliance and governance.
In addition, if we are to maintain our growth trajectory, we need to be able to draw on a sustainable workforce. Experience and expertise have long been Jersey’s hallmarks and a commitment to sourcing the best talent to boost productivity – in tandem with digital adoption – will be critical in the years ahead.
With that in mind, the JFA remains proactive in attracting both young and diverse talent to the industry and giving ‘career switchers’ an opportunity to enter the sector.
As we look forward, the ability of our industry to be agile and embrace innovation, balanced against a commitment to remaining a stable and certain domicile, will continue to be at the core of Jersey’s proposition. If we can achieve that balance, then our funds industry can approach the future with confidence.