Jersey's Private Equity Advantage

The Jersey is a longstanding centre of excellence for private equity (PE). While founded over multiple decades and economic cycles, recent years have seen a significant evolution in the globalisation, scale and complexity of the industry.

As a premier international finance centre with a vibrant funds sector, Jersey boasts a proven track-record as a hub for private equity, with its tax neutral regime, political stability and sophisticated legal system attracting a plethora of funds and investors. Originating as the private equity industry was born in the UK and European markets in the 1990s, Jersey evolved a range of fund structures to cater to the diverse needs of private equity investors and fund managers.

Since the Global Financial Crisis, the private equity industry has experienced remarkable growth, driven by an expanded limited partnerships investor base and sponsors leading to market changes. This growth has led to larger, more complex deals and higher asset valuations, with a peak in activity in 2021 due to factors like low-interest rates and post-pandemic investment appetite. Although deal flow has slowed since 2022 amid rising interest rates and geopolitical challenges, sectors like technology and healthcare remain attractive.

Technological advancements have enhanced due diligence and operational improvements in portfolio companies, focussing on digital transformation and ESG initiatives. Private equity firms are adapting to the current climate with innovative deal structures, such as earnouts, secondaries and co-investments, to manage valuation uncertainties and share risks.

In recent years Jersey’s commitment to transactability and compliance with international standards has bolstered its reputation as a premier jurisdiction for global private equity activities. Jersey structures provide a clear and secure legal framework for investment and for deal structuring. Accordingly, the jurisdiction’s fund structures are designed to cater to a global investor base with varying needs, while its corporate structures provide the necessary tools for executing complex PE transactions.

Fiscally, Jersey continues to offer a tax-neutral environment, which is attractive to international investors which ensures that investors are generally only subject to tax in their home jurisdictions. Jersey has been at the forefront of implementing measures to address initiatives around the OECD’s Base Erosion and Profit Shifting (BEPS) developments, including introducing economic substance requirements for certain Jersey tax-resident entities, including fund management companies, ensuring that activities are supported by relevant substance.

In relation to fund structuring, Jersey has continued to refine its Limited Partnerships (LP) law, which has been at the forefront of fund structuring since its original introduction in 1994 and remains a prominent jurisdiction for private equity funds due to its flexibility and tax transparency. Amendments to the LP Law, most recently in 2022, have included provisions allowing for the migration of limited partnerships into and out of Jersey, providing additional flexibility for fund structuring and re-domiciliation.

Jersey’s regulatory environment is overseen by the Jersey Financial Services Commission (JFSC), which ensures that the jurisdiction’s financial services industry operates to international standards. The JFSC’s approach is both robust and pragmatic, providing a secure and well-regulated framework for PE funds including the following:

• Expert Funds: Designed for professional or experienced investors, Expert Funds can be established quickly and with a high degree of flexibility, subject to satisfying certain criteria.
• Jersey Private Fund (JPF): The JPF regime allows for a fast-track establishment process designed for up to 50 professional investors with a 48-hour turnaround, subject to meeting specific criteria. It has become a popular choice for private equity fund promoters due to its ease of setup and operation. Further modifications to the JPF implemented in July 2024 further enhance the proposition.
• In other cases Jersey partnerships may not need to be regulated as fund structures.

Each of these structures is designed to meet specific investor requirements, offering varying degrees of regulatory oversight and operational flexibility, depending on fund size, investor base and investment strategy.

Jersey structures provide a clear and secure legal framework for investment and for deal structuring. Accordingly, the jurisdiction’s fund structures are designed to cater to a global investor base with varying needs, while its corporate structures provide the necessary tools for executing complex private equity transactions.

In recent years Jersey’s commitment to transactability and compliance with international standards has bolstered its reputation as a premier jurisdiction for global private equity activities.

Regarding private equity transactions, Jersey corporate structures have also been tested across multiple economic cycles. The most commonly used vehicles are:

• Jersey Limited Companies: These are flexible, can be incorporated quickly, and are familiar to international investors, with regular enhancements.
• Protected Cell Companies (PCCs) and Incorporated Cell Companies (ICCs): These structures allow for the segregation of assets and liabilities between different cells, which can be useful for managing multiple investment projects.

The JFSC has been working on ensuring that Jersey remains compliant with international Anti-Money Laundering standards. In July 2024, MONEYVAL, the Council of Europe’s permanent monitoring body, published their Mutual Evaluation Report (MER) for Jersey which confirmed that Jersey’s effectiveness in preventing financial crime is among the highest level found in jurisdictions evaluated around the world.

The asset class has diversified into a wider range of closed-ended funds such as venture funds, real estate funds, infrastructure funds, business development companies, private debt funds, Shariah-compliant funds, loan origination funds, hybrid funds and evergreen funds.

Jersey based services will often include input at all stages of the fund life cycle, such as:

• Establishing funds
• Establishing acquisition, holding companies and financing vehicles
• Acquiring, investing in, and disposing of portfolio companies
• Secondary / distressed acquisitions
• Financing
• Group restructurings and reorganisations
• Investor reporting

The facilitation of downstream fund investments has led to even more specialised fiduciary and administration services being provided to closed-ended funds and their managers from key global financial centres.

Within the context of the aforementioned perspectives, it has been encouraging to see an increased number of industry participants with global profiles increase their investment in Jersey. As the global private equity industry continues to develop, we anticipate the sophistication of Jersey’s offering will continue to stay ahead of the curve.

PUBLICATION: TIMES GROUP – First for Finance 16th Edition