A year after the introduction of the expert fund regime, Graeme McArthur looks at the positive side of this development for Jersey's fund industry
Jersey is experiencing significant inflows into its alternative investment funds industry, one year on from the introduction of the streamlined expert fund regime. The latest figures from the Jersey Financial Services Commission show that specialist funds such as private equity, property and hedge funds now comprise £46.8bn of Jersey's £104bn fund industry.
This represents a near doubling in value of the specialist funds sector over 12 months which now represents 45% of all fund types administered in Jersey.
The positive report card is an endorsement of the industry's decision to actively re-shape its fund environment to create an attractive centre to both base and service the broad range of asset classes in the alternative investment fund universe. The new regime has sent a strong message to the international fund community that Jersey welcomes this type of business at a time of intense jurisdiction competition.
The Jersey expert fund regime was introduced by the Jersey Financial Services Commission early in 2004 to provide a streamlined authorisation process and flexible regulatory environment for funds aimed at institutional and knowledgeable investors. Expert funds are particularly suitable for alternative investment funds, including private equity, property, hedge and other innovative products aimed at sophisticated investors. The regime is based on an understanding that the investors in these funds are professional and recognise the risks associated with investing in expert funds.
CENTRE OF EXCELLENCE
The regulatory developments are complemented by the industry's track record of administration integrity and experience for both retail and specialist funds. With a fund servicing business dating back to the 1960s, the island's reputation was pioneered through its retail funds sector which continues to remain an important part of the industry. In recent years there has been a growing emphasis on delivering services to funds aimed at institutional, specialist and expert investors. These funds require a knowledge-led servicing approach and supporting professional infrastructure which Jersey is well-placed to deliver.
As these structures become more complex to administer - often involving a number of entities - there is a growing need for the local industry to continue to build on its capability. A sophisticated technology platform with the ability to handle the specific needs of the alternative asset classes is required to ensure funds are administered in a timely, well controlled and professional manner. Robust and flexible systems are also needed to meet growing demand for detailed, bespoke reporting.
Increasing focus on the quality and commitment of the so-called 'back-office' administration team is also prompting fund managers to select their third-party administrator as carefully as they would assess a deal opportunity. There is a growing emphasis on meeting all key staff in the administration team, and assessing the completeness of systems and process and the access to support services including banking and foreign exchange facilities.
Jersey's administration capability is supported by a network of lawyers, accountants and bankers based on the island who have a strong knowledge of the international fund industry.
Jersey also offers the advantage of providing a tax neutral base for alternative investment fund investors. This is important as many of these funds have a global investment reach and a global investor base.
Confidence in the island's alternative fund environment has been confirmed in a recent survey of 50 specialist funds advisers at the UK's top law firms and in-house funds teams, featured in Legal Week. Respondents were asked to identify those jurisdictions where they would recommend the establishment and/or administration of funds in the private equity, property and hedge sectors. Jersey came out top for private equity and property and second in the world only to Cayman for hedge funds. A mature legal system, political stability and the quality of professional services were all key influences for the respondents choice of jurisdiction.
NON-DOMICILED FUND RULES
Jersey has also made it easier for fund promoters wishing to capitalise on Jersey's fund servicing excellence, even if they are basing their fund in another centre. The Non-Domiciled Fund Guide provides a streamlined authorisation process and flexible fund administration environment for funds domiciled or incorporated in other jurisdictions.
However, Jersey's proximity to the UK and Europe is proving an important consideration for European fund managers who have traditionally based funds in the Caribbean and North American centres. Much of this business is facing increased corporate governance demands from UK and European-based regulators. In this environment the logistics of operating a Caribbean structure from Europe can prove difficult. Jersey provides an accessible and highly regarded regulatory environment which is supported by an established professional infrastructure.
ATTRACTING ALTERNATIVE FUND MANAGERS
As the international marketplace for Jersey-administered and domiciled funds grows, the industry is also turning its attention to attracting a select group of fund managers and wealth management professionals. The Jersey Funds Association and the island's promotional arm Jersey Finance Limited are actively highlighting the advantages of setting up an office presence in Jersey during international visits and through a newly published brochure.
The move is in support of the States of Jersey's agreed Strategic Plan to stimulate the economy by 2% per annum in order to generate additional tax revenue for the island.
The brochure is designed to assist firms willing to consider setting up a fund management or family office operation in the island. It sets out some of the key considerations for such firms including current financial and business regulations, an outline of immigration and housing laws and a summary of the fiscal rules that apply in Jersey.
The brochure also emphasises that Jersey will appeal particularly to those leading finance professionals that meet a number of defined criteria. These include a proven track record in a specialist field and the ability to make a significant contribution to the local economy while relocating a small number of principals and their families to Jersey.
Since its launch, several fund managers are considering relocation to Jersey and one hedge fund manager in London has already announced his intention to do so. The hedge sector is considered a particular sector of growth, for European-based hedge fund manager's due to its ease of location in comparison to the popular Western hemisphere jurisdictions such as the Cayman Islands.
The positive fund trends for Jersey, particularly in the specialist fund sector, are clear. However, as the alternative investment fund industry continues to expand, Jersey will face increasing competition to retain and increase its specialist funds business. More so than ever, Jersey will need to combine its recognised knowledge of the alternative asset classes with high levels of client service. By doing this I believe Jersey will continue its success in 2005 and beyond.
Jersey's specialist fund sector has nearly doubled over the last 12 months.
The island is an attractive fund environment to both base and service the broad range of asset classes in the alternative fund universe.
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