Over the course of 2019, figures for the industry, collated by the Jersey Financial Services Commission (JFSC), continued to be extremely positive, with total funds business serviced in Jersey growing 8% to reach £346 billion by the end of the year. This momentum was maintained into 2020, with new record levels of funds business being realised in the first quarter of the year, against a backdrop of emerging pandemic-related restrictions, to peak at more than £360 billion.
The statistics show particularly strong and sustained performances in the alternative asset classes, including real estate, private equity, venture capital and hedge funds, which now represent around 85% of Jersey’s total funds business.
With figures from Preqin (Investor Update H2 2020) finding that 93% of investors expect to maintain or increase allocations to alternatives in the longer term, the future for Jersey’s funds industry looks positive – particularly with investors increasingly looking for alternative fund jurisdictions that can provide longterm stability and certainty, underpinned by a cost-effective, flexible regime, high standards of governance and oversight, expertise and global distribution capabilities.
The indications are that investors continue to see Jersey as a resilient, stable, high-quality centre for managing, structuring and servicing alternative funds and these are qualities that will be highly sought after in the months ahead as managers and investors look for support to navigate what has become an unprecedented environment.
Innovation
There is no doubt that 2020 has been an extraordinary experience for any business involved in fund structuring and for Jersey, the COVID-19 pandemic has thrown up a host of challenges around testing the ability to continue to structure, service and transact across fund related business.
However, what has been positive has been the extent to which the pandemic has reinforced a number of strengths that Jersey’s funds industry has been demonstrating for some years and its ability to balance an innovative, progressive regime with maintaining a stable, no-change, no-surprises environment.
As an industry, we are very clear that maintaining growth requires a commitment to innovation, continuing to source the best talent, engaging with stakeholders and differentiating ourselves through service quality, ease of doing business and stability.
The launch of the Jersey Private Fund (JPF) in 2017 was a case in point. Introduced following collaboration between the regulator, industry and government, the JPF is geared specifically towards the needs of small numbers of professional investors needing a streamlined, quick-to-market option.
Take-up of the JPF has been impressive, with JFSC data showing that there were more than 330 JPFs registered in Jersey at the end of March 2020. Evidence suggests that the structure is finding favour right across the client base, from institutional investors through to family offices coming together to co-invest.
More recently, Jersey introduced amendments to its Limited Partnership legislation that will make it significantly easier for managers to migrate limited partnership fund structures to the jurisdiction. Considered a really important development, the expectation is that it will prove an attractive proposition for managers who are re-evaluating their domicile choices and are exploring how they can better navigate the complex environment they operate in.
Further enhancements to Jersey’s product range are anticipated over the coming year as Jersey remains focused on delivering innovative solutions to support managers across the alternatives landscape, including rolling out a Limited Liability Company (LLC) product that should prove a particularly attractive vehicle for managers in the US – a market where we are seeing real traction.
Digitisation remains a key element in the innovation mix too and in a survey of JFA members last year over 56% of respondents said that they had employed automated technology over the year. That sort of investment is impressive and will be pivotal in meeting the needs of alternative managers in the coming years in areas like cyber security, reporting and data management.
This is whilst also focusing on further enhancements to Jersey’s private placement regime, revisiting third country passporting and being more proactive in meeting the needs of an industry private equity, credit, real estate and hedge.
Governance
On the regulatory front, meanwhile, Jersey continues to lead in terms of transparency and governance and we have seen asset managers continuing to commit to relocating to and establishing a presence in Jersey, a huge positive in light of the economic substance rules introduced last year.
Over the last five years, the community of fund managers operating in Jersey has more than doubled to now include some of the most significant hedge, real estate and private equity fund managers.
Importantly, all these managers are undertaking a full spectrum of fund management, risk and portfolio management functions and are supported by a large pool of skilled staff that are specialists in alternatives, combining to form a platform of real substance.
Getting to this position is no accident. The outcome of Jersey’s work around key issues such as Brexit and the recognition Jersey received from the EU in 2019 following the introduction of substance rules, have been extraordinarily positive.
Global player
Jersey’s ability to offer seamless, efficient access to investor markets around the world is a major part of its increasingly global appeal. It is noteworthy that the top five sources of capital committed to Jersey funds, for instance, are the UK, the US, Ireland, Luxembourg and Canada.
Europe remains an important market, of course and Jersey is extremely well placed to play a pivotal role in supporting non- EU (including, post-Brexit, UK) managers wanting to access EU investor capital.
Significantly, the JFA’s member survey last year found that on Brexit attitudes were positive, with over 80% of respondents saying Brexit would be neutral or increase business for Jersey.
There are good reasons for this. Jersey is already a third country in relation to the EU and has all the infrastructure in place to enable funds to continue to market seamlessly into the EU through its tried-and-tested private placement route. Whilst the onshore AIFMD passport may be suitable for some managers, it is not necessarily the only or best option. In fact, in the vast majority of cases – 97% in fact, according to the EU’s own figures – managers want access to only three EU markets or less. In those circumstances, private placement is a much more efficient, flexible and quicker option.
That is reflected in recent figures, as the number of alternative managers marketing into Europe through private placement in Jersey rose 9% in 2019 to more than 180 and the expectation is that, against the backdrop of Brexit, private placement is likely to become increasingly attractive to UK and other non-EU managers.
At the same time, Jersey is also playing an important role in enabling EU managers to mitigate the impact of Brexit. A huge proportion of investors in alternatives are based in the UK making access to the City a massively important issue for EU managers.
What has really emerged over recent years though, is Jersey’s global platform. Beyond Europe, Jersey is well placed to connect global managers and investors, with a growing number of managers in the US and Asia in particular looking for a European time-zone hub, outside of AIFMD rules, that can offer a stable, straightforward, transparent environment, offer easy UK and EU investor access and superior standards of governance. Jersey is ticking the boxes.
Long-term
Even in these unprecedented market conditions, Jersey’s funds industry remains focused on honing its vision to provide the perfect ecosystem for cross border alternative funds. Now more than ever, our absolute focus is on providing clarity and simplicity in everything we do.
As an industry, we are clear that maintaining growth requires a commitment to innovation, talent, engagement and differentiation through service quality, ease of doing business and stability. Those are qualities that will be vital in the coming months as we look to support economic recovery but that will also provide managers and investors with confidence in the long-term too.