With 2021 marking the 60th anniversary of the jurisdiction’s finance industry, it is even more pertinent that Jersey’s funds industry has performed so positively. Few IFCs can boast such sustained, deep experience built up over six decades.
It is thanks to its forward-looking approach and focus on creating an ideal ecosystem for alternative investments that Jersey’s funds proposition remains in 2021 one of the most robust elements within Jersey’s range of financial services.
Over the course of 2020 and into 2021, figures for the industry – collated by the Jersey Financial Services Commission (JFSC) – continued to be extremely positive, with total funds business serviced in Jersey breaking through the £400 billion barrier for the first time to reach a new record high of £410 billion in the first quarter of 2021 – which is up 14% year on year.
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 90% of Jersey’s total funds business – private equity alone represents just shy of half of all funds business done in Jersey.
Meanwhile, at the end of March 2021 there were 434 Jersey Private Funds (JPF) established in Jersey, with almost 100 registered in 2020 alone, reinforcing its appeal as the go-to structure for small groups of sophisticated investors.
Macro trends continue to support Jersey’s future direction too, with the alternatives moving increasingly into the mainstream so that they are no longer ‘alternative’ at all, with investors continuing to point to greater allocations towards those asset classes in the longer-term.
PwC, for instance, estimate that the value of the ‘private markets’ (or alternatives) will increase to reach $14.4 trillion by 2025, around 10% of all assets under management worldwide.
Against that backdrop, jurisdictions that can provide long-term stability and certainty, underpinned by a cost-effective, flexible regime, high standards of governance and oversight, expertise and global distribution capabilities, will be in high demand – and Jersey is in a strong position in that regard.
In fact, in the Jersey Funds Association’s own survey of its members, 69% of respondents said they were confident that their business would grow over the next five years, with both short- and medium-term strategic priorities for Jersey’s funds industry remaining focused on private equity, real estate, venture capital and debt funds.
As the global funds industry emerges from the pandemic, Jersey’s funds industry is keen to remain on the front foot.
Our key strengths remain at our core – our ability to maintain a stable, no-change, no-surprises environment – but, buoyed by an impressive performance in 2020, we are not resting on our laurels. We are very clear that adapting to a new environment and maintaining our growth trajectory requires innovative practice, digital adoption and a commitment to sourcing the best talent.
We are doing this on the regulatory front. In 2020, for instance, Jersey introduced amendments to its Limited Partnership (LP) legislation that made it easier for managers to migrate LP fund structures to the jurisdiction. It was a highly successful change, with managers operating in a number of other locations making use of the new regime to redomicile their structures to Jersey, to position themselves better for the future. In fact, we saw record levels of LPs created in Jersey in 2020 and the number created in December 2020 was double that of 2019.
Further enhancements to Jersey’s product range are anticipated later this year too – the roll out of a Limited Liability Company (LLC) product in particular should prove an attractive vehicle for managers in the US – a market where Jersey is continuing to grow its market share. According to Monterey figures, we saw a record level of inflows from the US in 2020, with Jersey-based fund promoters from the US growing 17.3% over the year (to June 2020) and 41.2% over the past two years.
Digitisation remains key to our drive on innovation too – one of the key findings of our members survey was that digital transformation will continue to be pivotal to the core operation of funds businesses in Jersey, shaping approaches to regulation, tax and governance over the coming years.
In that survey, 92% of respondents said that the pandemic had changed the way their business uses technology to some degree, with 63% saying it had significantly accelerated digital adoption within their business. That sort of investment is impressive but also necessary as we remain focused on meeting the needs of alternative managers in the coming years in areas like cyber security, reporting and data management.
Perhaps one of the most significant trends to emerge over the past 12 months though, has been in the ESG space. Jersey’s funds industry has for some years supported a broad cross section of impact investment but the fallout of the pandemic has undoubtedly sharpened the focus on this area, driven by the notion that economic recovery must go hand in hand with sustainable recovery.
Against this backdrop, the launch of Jersey Finance’s sustainable finance strategy in early 2021 and its vision to be recognised as a leading IFC in sustainable finance in the markets it operates in over the coming years, was good timing. Jersey’s funds industry is ready to play a key part in that.
Indeed, over the past year alone we have seen a number of Jersey funds come to market targeting clean energy, climate change, low carbon and sustainable infrastructure assets and with 69% of institutional investors saying that ESG considerations will play a growing role in decision-making – including domiciliation (IFI Global) – it is an area where Jersey is seeing increasing amounts of activity.
Substance and governance are central to that and areas where Jersey excels. Investors want to see a clear policy and procedures in place from their managers and domiciles, so robust regulation coupled with good underlying governance, including access to diverse NED expertise, is key.
With Jersey’s experience as a jurisdiction and our ability as specialists in putting capital to work in global markets, it is our responsibility to play our part in sustainable global recovery. There is no doubt that, as thinking has become more sophisticated in this space, this will remain a major area of focus for the industry over the coming years.
A dynamic that has really come to the fore for our industry over recent years has been Jersey’s increasingly diverse global market reach. Its ability to offer seamless, efficient access to investor markets around the world is a major part of Jersey’s 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 and with the UK now formally withdrawn from the EU, Jersey continues to be well placed, thanks to its flexible, quick, cost-effective and tried-and-tested private placement regime under AIFMD, to play a role in supporting non-EU (including UK) managers wanting to access EU investor capital.
Figures reflect that appeal, as the number of alternative managers marketing into Europe through private placement in Jersey continued to rise through 2020 and there are now in excess of 200 non-EU managers structuring through Jersey to access the EU.
Beyond Europe, meanwhile, Jersey is increasingly playing a role in connecting managers and investors. Managers in the US, the Middle East, Africa and Asia looking for a European time-zone hub, outside of AIFMD rules, that can offer a stable, straightforward, transparent environment, with superior standards of governance, are frequently choosing Jersey.
Having remained a bastion of resilience and enabled managers to deliver good returns to investors in challenging conditions, Jersey has earned its reputation as a specialist, reliable centre for alternative funds business.
By maintaining its focus on innovation through upskilling, digital adoption and product enhancement – and backed up by a relentless focus on diversifying its global reach and a commitment to sustainability – Jersey’s funds industry has the right tools to play a pivotal role in supporting global economic recovery.
In a landmark anniversary year for Jersey, this is a moment to demonstrate the positive impact we can make not only to managers and investors but to communities around the world.