Geoff Cook, Jersey Finance highlights how stable and flexible Jersey's fund regime is and provides an insight into Jersey's approach to the EU's AIFM Directive.
Benchmarked against global financial trends, Jersey’s funds sector continues to show resilience. Despite concerns about fundraising conditions and regulation, the latest figures from the Jersey Financial Services Commission for the second quarter of 2012 paint a picture of relative stability, with the value of assets being administered in Jersey remaining around the £190bn mark.
In particular, Jersey continues to assert itself as a major player in the alternative funds space, with the sector, including hedge, private equity, real estate, venture capital and mezzanine funds accounting for around 70 per cent of the total value of funds under administration in Jersey.
One issue that remains in the spotlight for funds jurisdictions globally is the EU Alternative Investment Fund Managers Directive (AIFMD) and it is not surprising that, given its strength in alternative funds, this is firmly on Jersey’s radar. As Member States prepare to formally implement it, fund professionals will be encouraged to know that, as a non-EU ‘third country’ jurisdiction for the purposes of the AIFMD, Jersey has been working hard to ensure it can continue to offer them a blend of stability and flexibility.
Whilst the Directive is intended principally to regulate managers of alternative investment funds, in fact it will also undoubtedly impact service providers too - including administrators and depositories. Its reach is broad and significant for any funds that are either domiciled in Europe, have an EU manager, or are marketed into the EU.
Jersey has been quick to acknowledge this, working to ensure it maintains a strong long-term position in supporting the hedge fund industry.
In legal terms, Jersey is a ‘third country’ for the purposes of the EU single market, despite the fact that, in practice, its finance industry has a long history of providing financial services in the EU market, particularly with London.
Overall, Jersey intends to continue to provide fund establishment, management and administration services on a ‘business as usual’ basis.
Jersey’s funds industry, government and regulator have been and continue to be intensively engaged on the Directive, and the overwhelming message is that Jersey is committed to continuing to facilitate funds business within the EU when the AIFMD comes into play in July 2013 through national private placement regimes, until at least 2018.
Jersey is also committed to introducing the option of a fully AIFMD-compliant regime and obtaining an EU-wide passport by 2015 - as soon as is possible for non-EU ‘third countries’.
Meanwhile, as a non-EU jurisdiction, Jersey is able to offer a choice by maintaining a separate regime that lies completely outside the scope of the Directive, for managers who don’t want to access EU capital or operate in the EU.
Combined, this range of options means that Jersey funds will benefit from the flexibility to be marketed to investors both inside and outside the EU – either through its existing fund regimes, or through an option that is fully compliant with the Directive.
The steps and timescales involved in the implementation of the Directive are complex.
EU Member States will have to be fully compliant with the Directive from July 2013. However, for non-EU funds being marketed into the EU by non-EU managers, national private placement regimes in individual EU Member States canmain in place from that date. That will be the case until at least 2018.
The continuation of private placement regimes will require, amongst other things, individual agreements between Jersey’s regulator and the regulator of each Member State in which Jersey funds are marketed. ESMA are coordinating guidelines on these agreements and Jersey’s regulator is fully engaged with ESMA and Member State regulators to ensure they will be in place in good time.
Beyond private placement, Jersey is also well on track. EU-wide marketing ‘passports’, to allow managers to market alternative funds to investors across the EU, will become available to non-EU managers, such as those in Jersey, from 2015, provided they satisfy specified criteria.
Jersey intends to have a fully AIFMD-compliant regime ready to go by 2015. Jersey already regulates and authorises alternative fund managers in accordance with IOSCO standards, and has tax information exchange agreements in place with a number of Member States already and is able to comply with all required international reporting and transparency requirements. With this in mind, Jersey is confident that it will be able to satisfy the criteria needed to comply with the Directive ahead of the 2015 deadline.
Between 2015 and 2018, non-EU funds and fund managers will have the option to benefit either from an EU-wide passport or to continue marketing through private placement regimes. ESMA are expected to provide guidance on whether or not to continue the national private placement route in 2018.
It is not Jersey’s expectation at all that the AIFMD will prompt a migration of fund business away from offshore centres. Far from being a burden, the Directive could actually pose some opportunities for Jersey, particularly as a ‘no-change’ solution.
The route adopted by Jersey, for example, actually offers managers the choice of maintaining an offshore option for non-European investors which, in the current climate, might prove attractive – for instance, with fund managers focusing on sophisticated investors in Asia and the Middle East.
In addition, fund managers are still showing an interest in relocating to Jersey - a number of high profile asset managers have moved to Jersey this year. Driven also by high taxation in onshore centres, a prevailing sentiment that they are being unfairly targeted, and a desire for a high quality of living, anecdotal evidence suggests managers consider the flexibility of Jersey’s approach to the AIFMD as another real attraction.
Faced by a significant shift in the international funds regulatory landscape, Jersey has made considerable efforts to ensure it has the flexibility and stability to continue to support fund managers with their domiciliation, management and administration needs. The global landscape might be challenging, but there are good reasons to have confidence in the long-term future of Jersey’s funds industry.
Geoff Cook is an experienced Chair and non-executive director. He has led significant business enterprises for more than three decades and helped major international groups to grow and prosper. As a Chartered Director, Geoff has deep knowledge of corporate governance, global regulation, and risk management. He has authored numerous articles and papers on cross border investment and the role of International Finance Centres (IFCs) in the global financial system. Geoff is a non-executive director to a select number of Family Office, Private Capital, Banking and Advisory boards. He was appointed Chair of Mourant Regulatory Consulting in 2021 and Chair of Quilter Cheviot International in 2019 to lead and develop the firm's international strategy. Geoff is also a Board member of Apex FS (Jersey) Ltd, a leading fiduciary and is presently Chair of the Society of Trustee and Estate Practitioners (STEP) Global Public Policy Committee. He was formerly the CEO of Jersey Finance and Head of Wealth Management HSBC with extensive international cross border experience across various sectors.