With the much-hyped transitional phase for implementing the EU Alternative Investment Fund Managers Directive (AIFMD) having finally come to an end this summer, attention is now turning to how the European regulation is bedding down in different jurisdictions.
In Jersey, contrary to speculation earlier this year from some onshore commentators, in the months since the regulation was brought in there has actually been an uptick of alternative funds business being structured through the jurisdiction.
The latest figures show that the total value of funds being administered in Jersey, as at June 2014, have once again broken through the £200 billion ($330 billion; €$250 billion) barrier. The latest quarterly figures also reveal that Jersey continues to assert its strengths in the alternative asset classes, with real estate funds performing particularly well, growing over the quarter by almost 20 percent.
All eyes in recent months have been on the impact of the AIFMD, and understandably so. But what is encouraging from Jersey’s perspective is that, whilst there has been a noticeable rise in alternative funds being structured through Jersey targeting UK and continental European assets, this has been accompanied by a growing number of promoters making use of Jersey for funds targeting assets and investors in non-European growth markets around the world.
Thanks to its approach to regulation and specialist alternative fund expertise, Jersey is not only affirming its position as a leading domicile for European funds business, but is also strengthening its appeal as a European time-zone center for global private equity, real estate, infrastructure and hedge fund structuring and servicing.
As far as Europe is concerned, figures from the Jersey Financial Services Commission (JFSC) indicate a strong take-up in Jersey’s private placement route into Europe. As at the end of July 2014, more than 160 Jersey funds had so far been registered to market into the EU under the AIFMD through Jersey’s private placement regime. The latest quarterly figures show that in the second quarter of the year alone, consent was granted to 27 such funds, with a reported total net value approaching £600m.
At the same time, according to the JFSC, 57 alternative investment fund managers have confirmed their authorization under Jersey’s AIFMD private placement regime.
This is a considerable initial success for Jersey, proving that its regime and approach to European regulation is continuing to prove competitive. Managers are clearly showing that they like the benefit Jersey offers in providing market access into Europe but with minimal additional AIFMD disclosure and reporting requirements, subject to the applicable requirements of the relevant EU/EEA Member State.
Additional data from the JFSC also shows that the UK remains a key market for Jersey managers. As at 30 June 2014, in indicating which EEA Member States they intended to market into, most managers licensed to carry on fund services business in Jersey said they intended to market their funds into the UK. The next most important intended markets were Sweden, Belgium, the Netherlands, Ireland, Denmark, France, Germany and Luxembourg.
The fact that the UK remains such a key market is not surprising, given its strong links with Jersey. With the UK Treasury confirming its national private placement regime will be in place until 2018, Jersey will continue to benefit from certainty of access to the hugely important UK investor market.
Meanwhile, Jersey has seen a number of landmark European-focused funds being structured through the jurisdiction recently. The Jersey offices of Carey Olsen and Crestbridge, for instance, have worked on the largest real estate fund to be listed on the London Stock Exchange since the downturn, the Kennedy Wilson Europe Real Estate fund, which raised around £1 billion and will target investments in European real estate linked assets.
As we now look forward in a new era of funds regulation in Europe, beyond AIFMD, what will be interesting is how offshore structures work alongside onshore European structures. Rather than competing against each other, the expectation – and the evidence so far – is that offshore and onshore structures can work in parallel, offering managers a range of options that can satisfy differing investor requirements.
With this in mind, a number of managers are expected to relocate to Jersey in the coming months to give them an offshores presence of substance, adding to the major fund houses that have either moved or expanded their presence in Jersey recently, such as Brevan Howard and Apex Fund Services (Jersey) Limited.
In addition, from an administration point of view, there is also expected to be significant opportunity for Jersey service providers to support their onshore counterparts. In the face of increasingly complex reporting requirements under the AIFMD, onshore managers are likely to want to outsource their administration and governance requirements to dedicated specialists and, as a center that has a genuinely sophisticated network of highly experienced administrators, Jersey fits the bill.
At the same time, however, there is still significant potential in non-European markets and Jersey remains globally focused.
Growth markets are continuing to offer opportunities from both an asset and investor point of view. India and China will soon resume their places as the largest economies in the world, whilst seven of the ten fastest growing economies of the last few years have been African. A recent PwC asset management survey indicated that the global asset management industry will grow from $65 trillion to in excess of $100 trillion by 2020, and that alternative investments will grow from $6.5 trillion to over $13 trillion.
This was reinforced at the Jersey Finance Annual London Funds Conference earlier this year, where the audience of fund professionals indicated that most opportunities would come from outside of Europe, with 37 percent suggesting Asia was the most likely growth market, followed by Africa and Latin America (with 26 percent each).
For this reason, Jersey’s ability to offer a regime that is fully outside the scope of the AIFMD has been crucial, positioning it strongly to cater for a rise in the number of funds targeting growth markets across Russia, Africa and Asia.
Sophisticated investors in the Middle and Far East, for example, are increasingly looking at major infrastructure and property investment opportunities and there has been a noticeable increase in the volume of non-UK and non-European fund activity being channeled through Jersey recently.
Mourant Ozannes, for instance, recently provided Jersey advice to CVC Capital Partners on the launch of its latest Asia Pacific Fund.
In addition, Appleby’s Jersey office recently advised on two landmark UK property transactions with a combined value of £2.5 billion, both involving Asian investors: Blackstone’s sale of its interest in the Broadgate Estate to Singaporean sovereign wealth fund, GIC, one of the largest real estate transactions in UK history; and the sale of Blackstone’s beneficial interest in the Chiswick Park Estate to the China Investment Corporation (CIC).
As cross border finance grows, so too will the demand for tax neutral capital raising and pooling centers. With its flexible regulatory regime, structuring expertise, respect for the rule of law, use of a common business language, time zone convenience and protection of property rights, Jersey is extremely well placed to meet this demand.
It’s important that Jersey keeps an eye on the long-term, however, and there are a number of regulatory, legislative and product innovations in train to further support growth across its funds industry.
Of particular interest in Europe will be the route for third countries in obtaining an AIFMD ‘passport’, which are expected to be made available to third countries in 2015.
As the first third country to offer managers a fully compliant AIFMD option, Jersey is ahead of the game. It has an anticipated ‘opt-in regime’ for managers wishing to comply fully with AIFMD requirements when marketing to European investors, meaning that satisfying the criteria for obtaining an AIFMD passport is not expected to be a problem. Nevertheless, the wider picture and how private placement evolves in Europe will be interesting to monitor.
Meanwhile, from a legislative point of view, Jersey is always keen to make sure its funds regimes are as competitive and attractive as possible. Reviewing its products and regimes to ensure this manifests itself in the market will continue to be a priority.
Recent activity provides evidence that, with its ability to offer attractive solutions both in and outside of Europe, Jersey remains extremely attractive and well placed to maintain its position as a leading alternative fund domicile with a truly global dynamic.
Geoff Cook is the chief executive officer of Jersey Finance, the promotional agency for the island’s finance industry.