Appetite grows for unregulated funds

Appetite grows for unregulated funds

Just months after the launch of Jersey's Unregulated Funds regime, there is already evidence that an appetite is starting to develop for this new category of funds, particularly from large pension fund managers in the UK looking to set up structures under the new regime. From RBC's perspective, these are the seedlings of what could become a significant area of growth for the unregulated fund regime among institutional investors.

Up to now, from a Jersey perspective the appetite from institutions has been primarily focused on property funds. However, in the most recent case a pension fund has launched a Jersey limited partnership under the Unregulated Funds regime, primarily for investment in hedge funds. It suggests that Jersey's new fund regime may already be in the process of developing some useful market niches.

The Unregulated Funds regime was put in place primarily in response to the needs of alternative fund sponsors. For many years the Cayman Islands have been an attractive domicile for alternative funds because they can be set up relatively quickly and inexpensively, but in the past few years Jersey has been focusing on winning a slice of the cake.

These efforts were launched with the introduction in 2004 of Expert Funds, catering to the needs of institutional and sophisticated investors that need less protection through fund regulation. Unregulated Funds are a further evolution, designed for investors such as pension funds or very high net worth individuals that do not require any regulatory oversight because they have the required expertise themselves or employ investment managers or advisers.

Unregulated Funds do not need to use Jersey-based service providers, which dovetails with an existing trend among service providers toward greater outsourcing, whether internally or using third-party services. Groups that have internal access to operational hubs elsewhere can offer administration services without having to set up a third-party outsourcing arrangement.

For instance, RBC uses its affiliate company, RBC Dexia Investor Services, which has operational centres in Toronto and Luxembourg with greater capacity for fund administration and custody services, to provide various functions for funds domiciled in Jersey, Guernsey and Cayman. Over the past few years the group has set up operational centres of excellence and sought to avoid, for instance, offering duplicated fund administration services in both Channel Islands.

Such outsourcing solutions are likely to grow as more funds are established under the Unregulated Funds regime. However, this does certainly not spell the end of the provision of fund administration services in Jersey, because even where functions are outsourced, mind and management still have to be maintained on the island. The Jersey operation focuses on ensuring that funds are being administered in accordance with local regulations and client service level expectations.

With back-office functions largely carried out elsewhere, RBC has a volume-insensitive business model and is no longer constrained by the ability to find and employ expertise in fund administration and custody services.

Additionally, the business can now draw upon RBC Dexia's technological investment and global footprint whose IT resources and service capabilities abroad allow the Channel Islands' operations to concentrate on servicing clients and developing the business, which is the best of both worlds.

Alan Brint is, a sSenior mManager at, Royal Bank of Canada (Channel Islands) Limited  and head of RBC Wealth Management's corporate and institutional business in the British Isles

 

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