In April, Jersey Finance CEO, Geoff Cook, spoke with Real Deals magazine about the one year countdown to Brexit.
Brexit is now just a year away. What scenarios are private equity managers looking at, and what contingency plans with regards to fund domicile are typically in place?
GC: We now know that there will be a transition period post-Brexit, which will give managers a bit of breathing space. However, there is still a sense of uncertainty around longer-term solutions, and the clear indications are that Jersey is seen as an attractive proposition to mitigate that by giving private equity managers and investors some welcome stability and future certainty.
We’re Brexit-ready – there is no direct impact on Jersey’s position as a result of Brexit. We will still have strong connections with the UK private equity market, and we will continue to see strong business flows into and out of EU Member States.
In fact, private equity is really driving our alternative funds growth. The total net asset value of regulated funds at the end of 2017 stood at almost £300bn, a 12% rise year-on-year, and that was as a result largely of private equity rising by almost a third for the second year in a row. In fact, some of the largest private equity funds brought to market last year were structured through Jersey. With a year to go until Brexit, that’s a real show of confidence in Jersey as a jurisdiction.
Has the pending Brexit had any impact on private equity manager appetite for private placement regimes?
GC: The sense is that private placement through Jersey is seen as a future-proof strategy. The latest figures from Jersey’s regulator show that the number of alternative fund managers authorised in Jersey to market into Europe through private placement rose 17% at the end of 2017 compared to twelve months previous.
Over the same period, the number of Jersey alternative investment funds being marketed into Europe via private placement also increased significantly to stand at almost 300, representing a 15% year-on-year increase.
These figures clearly highlight that the use of private placement continues to work well as a means of marketing funds into the EU. It’s tried and tested, and we fully expect this positive trajectory to continue in the lead up to March 2019.
The political mood across many countries certainly feels like it has taken on more protectionist leanings. Where does that leave regulatory programmes like the AIFMD’s third-party passporting initiative?
GC: Regulatory moves like the AIFMD – which ‘celebrates’ its fifth anniversary this year – as well as political fragmentation as a result of Brexit and Trump’s bipartisan agenda do suggest that protectionism is alive and well. Capital Economics and the WTO have noted that global trade-restrictive measures have more than tripled since 2010.
Despite that, it is clear that globalisation is still a key defining macro trend of our time, and Jersey is ready to support these global ambitions in the face of a more challenging environment.
Ultimately, investors, whether it’s in private equity or any other asset class, want to see capital put to work effectively, efficiently and securely to generate better returns. Jersey is focused on doing exactly that by offering the right expertise, a tax neutral environment, excellent market access and first-rate standards of oversight.
Cross-border trade can bring real value to the global economy and Jersey intends to continue working with investors and managers to help deliver global economic prosperity in the future.
How important is business from Europe to Jersey? What scope is there to do more business with jurisdictions outside Europe for the Island?
GC: The EU remains an important core market. However, driven by the rise of the wealth creating markets beyond Europe, which now have added significance attached to them as a result of Brexit, Jersey’s ambitions are global. It’s notable now that more than half of Jersey’s new financial service business now comes from beyond European time zones.
In terms of private equity, we feel that Jersey has a vital role to play in giving non-EU managers, including those in the US, Asia and soon the UK, a means of marketing into Europe.
At the same time, we are working with EU managers, helping them to structure through Jersey to tap into the significant UK market – something that will be more difficult for them to do otherwise post-Brexit.
Recent research we commissioned illustrates the increasingly global nature of Jersey’s funds landscape. It showed that the five biggest sources of capital currently committed into Jersey alternative funds are the UK (33.9%), US (18%), Ireland, Luxembourg and Canada. After Brexit, almost three quarters of capital in Jersey alternative funds will come from non-EU sources.
Changing tack, what is your assessment of the impact that technology is having on the fund management and fund administration industries?
GC: As a jurisdiction, Jersey attaches real importance to digital and we’re really excited about the opportunities technology is opening up across our financial services landscape.
The use of AI, for instance, is fast becoming a feature in algorithmic trading and quantitative funds, we’re exploring how digital innovation can support secure data handling in an environment in which there are increasing demands on governance and information exchange, and Jersey introduced legislation in 2016 to regulate virtual currency exchanges for anti-money laundering and combatting the financing of terrorism.
We see digital as a real enabler that can give us a powerful proposition and help set us apart from the competition.
More widely, innovation in general is absolutely key to our future success. Digital is part of that, but so is delivering better products and services. Last year, for instance, we launched the unique Jersey Private Fund as a vehicle geared towards the needs of small groups of sophisticated investors who need quick, flexible and robust solutions. It’s been really successful, with more than 100 JPFs established in less than a year since launch.