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Regulatory uncertainty …the certain solution

By Heather MacCallum (pictured) and Robert Kirkby – Over the last couple of years, there have been dramatic changes to the landscape we all operate within and the forthcoming years look like just as changeable. With such uncertainty on the horizon, how is it possible to determine operational strategy and deal with those thorny issues: Where should I domicile the fund? What are the new opportunities?

The European Union is on the brink of introducing the revolutionary Alternative Investment Fund Managers Directive (‘AIFMD’). The US Securities and Exchange Commission and the International Organisation of Securities Commissions are continuing to amend and introduce rules aswell.

On top of these changes we are also seeing individual territories introducing restrictions to specific activities. How can you best position your business to manage this uncertain landscape?
 
The common thread running through these changes is the mission to enhance the protection afforded to investors. The starting point of any new proposition is to consider the needs and desires of the investor. Even in this uncertain world the investor is a critical element. It is clear that EU and non-EU investors will soon begin to split into two groups: those seeking AIFMD compliant structures with their associated reporting, leverage and custodian requirements, and those seeking alternate approaches.
 
One pragmatic option available is to address their needs with an environment that provides appropriate regulation at an international level, and Jersey in the Channel Islands provides that. The ability to add substance to the structure and utilise a highly skilled workforce of 13,000 is an attractive proposition particularly when added to the proximity of London and excellent quality of life.
 
The proposition of establishing the fund with suitable ‘parachute clauses’ and a legal framework that allows outbound migration, can help provide comfort over the coming years. The consideration of ‘NewCITs’ for institutional clients is certainly one option. However, the limitations imposed by the UCITs regime and the additional costs incurred, plus the issue of low leverage restrictions, positions the ‘offshore’ vehicle as a strong alternative approach.
 
Over time there is also likely to be a distinction made with US investors with the possibility of three types of investment vehicle in addition to the commonly used feeder vehicles.
 
Agile jurisdictions such as Jersey are not encumbered by a supra-national oversight regime. This allows them to provide adaptable legal strategies, with the support of strong regulation and tax neutrality offering comfort to investors, managers and promoters alike.
 
Jersey has worked hard over the years to achieve a leading position with its international ‘good citizen’ reputation. At the same time, it has developed a robust legal, regulatory and employment framework for new businesses and structures. With significant representation by the Island in key international regulatory forums and a willingness by Industry and the Government to embrace change, the future is positive.
 
Whether you wish to establish a structure in the Island serviced by Island businesses, or whether you wish to establish your own local business with key principals, the options are there. Keeping them open is one of the best ways in the current climate to manage uncertainty.
 
Click here to download the Private Equity Wire Jersey Private Equity Services 2010 special report

 

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