Limited Partnership Amendment Enables Easier Migration to Jersey

In recent years, domiciles specialising in private equity fund structuring have been faced with a rising tide of regulatory initiatives, from reporting and information sharing to BEPS and substance – the latter in particular is an area where certain jurisdictions have struggled to comply.

Managers, therefore, are increasingly looking at their structuring options. Their preference is for a stable, robust and straightforward platform that offers no fiscal or regulatory surprises. For its part, Jersey has long succeeded in meeting international standards, including embracing international cooperation and information sharing protocols, committing to moving in line with the EU’s 5th Anti Money Laundering Directive and last year introducing innovative substance laws that enabled it to grant ‘whitelist’ status from the EU.

A forward-thinking jurisdiction, Jersey has adapted relatively easily to ever changing international regulatory operating requirements, whilst other jurisdictions are now playing catch up because they have been slow to adapt. Some are of the view that what is on offer in those jurisdictions has become sub-optimal, and promoters are now looking instead at jurisdictions like Jersey that offer stability, expertise and high service quality.

As a result, private equity business in Jersey has rocketed over recent years. The most recent figures, for example, show that in the first quarter of 2020, the net asset value of total funds business in Jersey grew quarter on quarter to stand at an all-time high of £361bn. Private equity in particular grew by 30 per cent year-on-year and by more than 240 per cent over the past five years.

Keen to capitalise on this growth trajectory and conscious that private equity managers are actively looking at their options, last month, after swift collaboration with industry and the regulator, Jersey’s government approved a new amendment to Jersey’s legislation that will make it easier for fund managers to migrate limited partnership fund structures – commonly used for private equity funds – to the jurisdiction.

The changes to the Limited Partnership (Jersey) Law 1994 introduce a new statutory basis for limited partnerships to be migrated from other jurisdictions, providing greater legal certainty for managers and investors. Migrating a limited partnership to Jersey has been technically possible in the past, but the move brings Jersey in line with the laws of other jurisdictions.

Essentially, the new regulations formalise a continuance pathway for non-Jersey limited partnerships wishing to continue into Jersey. In practice, this means that lawyers can provide a clean legal opinion that the foreign limited partnership continued as a limited partnership within Jersey.

There are a number of requirements a foreign limited partnership must fulfil to continue as a Jersey law-governed limited partnership under the new rules, with the issue of a ‘certificate of continuance’ by the Jersey registrar providing conclusive evidence that a foreign limited partnership has complied with those requirements and that it has continued as a limited partnership within Jersey.

Critically, continuance does not create a new legal entity, affect any partnership interest, or affect any act or thing done before the continuance or the rights, powers, authorities, functions or obligations of the limited partnership, any partner or other person before its continuance.

Meanwhile, if the general partner wants to migrate and is an incorporated foreign law company, then Jersey law already contains provisions for incorporated foreign law companies to continue into Jersey, meaning general partners of unincorporated foreign law limited partnerships can already apply for continuance into Jersey.

In addition, if the continuing limited partnership operates as an investment fund, additional regulatory applications will need to be made and authorisations obtained before the continuance has effect.

It is expected that many continuing limited partnerships will seek approval as Jersey Private Funds (JPF) and the application process for a JPF is easy, straightforward and quick. In fact, the JPF has established itself as a ‘go-to’ structure for sophisticated investors, with around 330 having been established since the regime was introduced in 2017.

This amendment is a key development for Jersey, introducing an express mechanism whereby limited partnerships can migrate to Jersey quickly and seamlessly.

From a manager’s perspective, it adds to the range of options open to them and in the current climate, for managers who are exploring how they can better navigate the complex environment, the prospect of a jurisdiction like Jersey that offers stability, a strong track record in governance and substance, proven private equity expertise and a sensible and pragmatic regulatory environment should be an attractive proposition.

Indeed, over recent months, our funds industry has reported a rise in interest from private equity managers wanting to restructure their funds and benefit from Jersey’s ideal alternatives ecosystem. The expectation is for a strong uptick in private equity fund relocations following this amendment.

This article was first published in Real Deals here.