The right ingredients for long-term success
By Elliot Refson, Director of Funds, Jersey Finance – As global markets continue to grapple with extreme uncertainty, with the ongoing fallout of Covid-19 and the impact of Brexit becoming a reality, Jersey’s funds industry finds itself in a strong position – well prepared to support investors and guide them through unchartered waters in the short-term and with the right ingredients to help them achieve their long-term ambitions too.
Jersey finished 2019 in bullish mood, with total fund assets rising to a new record high last year of more than GBP345 billion, with private equity in particular performing strongly, rising by almost a fifth.
That momentum was carried into 2020, despite the major global challenges prompted by the pandemic, with the value of funds serviced in Jersey rising further to stand, midway through the year (30 June 2020), at GBP361.7 billion – a 6 per cent year on year rise – with alternatives, including private equity, venture capital, real estate, infrastructure and hedge driving that growth. With approaching 90 per cent of total funds business in Jersey now in alternatives, Jersey has successfully positioned itself as a major specialist alternatives centre at the hub of Europe.
Further, according to the latest Monterey report, private equity and venture capital now represents 56.5 per cent of all fund Assets Under Management in Jersey, a figure which has grown 144 per cent over the past five years. Importantly, this is not just a few large funds – the number of funds has grown by 71 per cent over that time and one in three Jersey funds is now either private equity or venture capital. We are also seeing an increasing number of very significant private equity managers physically relocating to Jersey.
With the outlook for alternatives looking positive – Preqin figures indicate that 93 per cent of investors expect to maintain or increase their allocations to alternatives in the longer term (Investor Update H2 2020) – the future for Jersey’s funds industry looks bright.
Of course, we are in an unprecedented environment. The pandemic has changed the landscape and the scenario we all find ourselves in today is starkly different to where we were at the beginning of the year.
What has been positive, though, has been the resilience Jersey’s funds sector has shown. In many ways, the current challenging environment has served to highlight the inherent strengths of Jersey’s funds proposition – the stability and certainty our regulatory and legislative regime offers, the high standards of governance we adhere to, our focus on service quality, and the hugely impressive level of expertise our 14,000 strong financial services workforce has in administering, structuring, managing, advising and servicing investment funds.
One of our greatest strengths, which has really come to the fore in recent months, is the ability of our Government, regulator and industry to come together to address issues and innovate quickly and collaboratively. This almost unique approach has led to, amongst other things, our response to economic substance requirements – which was lauded by the OECD – our resilient response to Covid-19, changes to Limited Partnership (LP) laws to make it easier to migrate LPs from other jurisdictions to Jersey and, shortly, new Limited Liability Company (LLC) laws.
As we look ahead to 2021, more than ever alternative managers will be relying on centres that offer sensible regimes, a no-nonsense approach to getting funds to market, and some much-needed certainty to manage, structure, and service their funds in a hugely challenging environment – and Jersey is ready to meet those demands.
Research supported by Jersey Finance into the future of fund domiciliation, undertaken just prior to the pandemic, underpins this outlook. It found that regulatory certainty and investor familiarity will be key factors when it comes to fund domiciliation. Above all else, investors – and it is investors who primarily determine domiciliation selection – want jurisdictions that can offer expertise and political and fiscal stability with a no change outlook from a regulatory, legal or economic perspective.
This is a long-term factor that won’t change because of Covid-19. If anything, it will make those qualities even more important. In fact, since the release of that report and in response to the pandemic, we have seen managers placing a new emphasis on contingency planning, looking at their physical infrastructure, and the robustness and resilience of their fund domiciles, looking to Jersey for a solution.
Jersey’s long-standing assumption towards substance, for example, is providing managers and investors with certainty – heightened by Jersey being an early adopter on introducing economic substance legislation last year.
This is manifesting itself in greater workflows and in the number of asset managers continuing to commit to relocating to and establishing a presence in Jersey – over the last five years, the community of fund managers operating in Jersey has more than doubled to now include some of the most significant hedge, real estate and private equity fund managers.
Jersey’s ability to offer seamless, efficient access to investor markets around the world is also a major part of its global appeal. It’s noteworthy that the top five sources of capital committed to Jersey funds, for instance, are the UK, the US, Ireland, Luxembourg and Canada.
Within Europe, Jersey is extremely well placed thanks to its ‘opt-in/opt-out’ approach to the AIFMD to play a pivotal role in supporting non-EU (including post-Brexit UK) managers wanting to access EU investor capital. Jersey is already a third-country in relation to the EU and has all the infrastructure in place to enable funds to continue to market seamlessly into the EU through its tried-and-tested private placement route – a route that will not be impacted by Brexit and that in the majority of cases is a much more efficient, flexible and quicker option than the onshore AIFMD passport.
Recent figures show, for example, that the number of alternative managers marketing into Europe through private placement in Jersey has risen 76 per cent since 2015 to more than 180. This growth is underpinned by the strong support for National Private Placement Regimes in KPMG’s recent pre-AIFMD2 report.
The expectation is that, against the backdrop of Brexit, private placement is likely to become increasingly attractive to UK and other non-EU managers. Jersey bridges the gap between the EU and the UK in both a pre and post-Brexit environment and takes off the table the uncertainty of what will happen in the UK after the end of the transition period on 31 December 2020.
Innovation remains a critical element of Jersey’s proposition as a fund centre too – particularly from a fund servicing perspective, providers are investing heavily in digital solutions and this will be pivotal in meeting the needs of managers in the coming years in areas like cyber security, reporting and data management.
A recent lawtech report published by Jersey Finance also serves to highlight the greater efficiencies that can be delivered to the funds industry by Jersey’s already mature and sophisticated legal sector through automation, smarter data processing and slicker client relationships.
Jersey also remains committed to product development – the launch of the Jersey Private Fund (JPF) in 2017 was a case in point. Introduced specifically to meet the needs of small numbers of professional investors needing a streamlined, quick-to-market option, today the JPF has become a go-to product for alternatives with more than 350 JPFs having been established.
Jersey is also adding greater sophistication to its sustainable finance platform, with the Jersey Financial Services Commission having undertaken a consultation on sustainable investing this year and Jersey Finance committing to a long-term vision and strategy that can help position Jersey as a centre of excellence for sustainable finance.
The landscape is clearly a complicated one but as a forward-looking jurisdiction, Jersey has been successful in developing a stable and certain ecosystem for alternative funds. We have done that by providing a stable jurisdiction with a minimal-change outlook, by offering future-proofing around Brexit and a marketing bridge to UK and other global investors, by acting as a complementary location to other European funds jurisdictions by providing parallel structures for a global investor base, and by delivering a collaborative triumvirate of industry, government and regulator that leads to an ability to adapt quickly and pragmatically.
Now more than ever, our absolute focus is on providing clarity and simplicity in everything we do, to play a role in enabling high quality alternative investment through a turbulent time to support economic recovery, whilst giving managers and investors confidence for the long-term too. By doing this, we will continue to grow our global footprint and assert our position as the alternatives jurisdiction of choice.