Tue, 20/12/2011 - 18:31
By Simon Gray – For nearly a decade Jersey has been focusing its strategy for developing the financial services industry on fund domiciliation and servicing for alternative investments including property funds, private equity structures and hedge fund platforms. However, the island’s concentration of fund expertise, structuring capability and robust but flexible regulation is also increasingly attracting managers interested in relocating all or part of their business, and often themselves.
Jersey has targeted hedge fund managers in particular (although this approach has also had a successful take-up with real estate and private equity managers) because their particularly light footprint in terms of on-the-ground in-house manpower requirements fits well with the constraints of Jersey as an island covering barely 118 square kilometres and with a population of less than 100,000, according to Tim Morgan, a partner at international law firm Ogier.
The success of managed futures specialist Altis Partners since moving to Jersey in 2005 has highlighted the benefits, both professional and personal, of relocating to the island, and managers who have done the move are among its most enthusiastic cheerleaders at conferences and roadshows in London and elsewhere.
“That is the best advertisement we can get, because those people have actually been there, done that and stood in the shoes of the people who are currently thinking about moving,” says Robert Milner, a partner in the corporate group at pan-Channel Islands law firm Carey Olsen. “They have made a decision to come to Jersey, and they haven’t regretted it.”
The law firms active in the island play a key role in providing information to firms considering relocation “(“We don’t send people bills for ‘in principle’ conversations,” Milner points out), as does Jersey Finance, the promotional body for the industry backed by the private sector and the Jersey government, which offers a one-stop shop providing information and assistance for potential incomers.
Once a firm or its principals have taken the decision to relocate, obtaining the required regulatory licences and government authorisation can take as little as four weeks, according to Jersey Finance’s inward investment manager Giles Adu (pictured). “We take a very joined-up, integrated approach that involves one stop and facilitates obtaining the other permissions that you need,” he says.
He adds that there is not one standard model for firms relocating. “One or two managers have brought themselves over lock, stock and barrel, with probably around eight to 10 people in total. Some larger firms are interested in placing certain activities in Jersey, such as risk management, cash management and portfolio construction, and sometimes portfolio management. These businesses, which might have hundreds of people globally, can nevertheless demonstrate substance on the island as part of their governance arrangements.”
Adu says interest is particularly strong from two distinct groups. “One is hedge fund managers that have been trading for some years, who are nimble and dynamic and not necessarily huge, with somewhere between USD50m and USD1bn in assets under management. We are also seeing interest from systematic CTA managers, perhaps because they can pick up their black boxes very easily and put them down anywhere. They don’t need to be in a particular location. We have several high-profile CTAs already, and there is a word-of-mouth effect.”
Why choose Jersey?
Ultimately the main drivers for relocation stem from the business environment in Jersey and how it stacks up against existing and would-be alternative fund management hubs. The island benefits from a long financial services tradition coupled with the more flexible and graduated regulatory approach characteristic of the offshore world. “Our long-standing experience with banks and large financial institutions has adapted itself enthusiastically toward alternative fund managers over the past six or seven years,” Morgan says.
“Regulation has become much more focused and tailored toward service providers rather than simply to the fund product, as it used to be, which facilitates the application of appropriate regulation for each structure. Offshore regulation is very real, but it tends to be more straightforward than onshore regulation.”
This is important as managers have recognised the importance of greater sophistication in the way they structure themselves, Morgan says. “In the past a management business might have consisted of two or three people and a few spreadsheets in Mayfair, but now there is a real need for a more structured corporate governance and regulatory function,” he says.
“That ties into the way regulation works in Jersey – it is more proactive, practical and predictable than it would be in the UK, but it is also proportionate. The Jersey Financial Services Commission will take into account your client base, who the investors will be and how many of them there are. Overall there is a very pro-business environment that is particularly supportive for alternative asset managers that want to come in.”
Jersey offers a zero rate of corporate income tax for investment businesses. “There is a very straightforward, clear and favourable tax regime that is lower than in many other jurisdictions,” Adu says. “If you set up your investment management company here, your net returns are going to be higher. Because managers here can reinvest more in their businesses, they can grow a lot quicker than they would if they were onshore.”
He points out that the island’s immigration and tax regime does not favour solely high net worth individuals. “People with a targeted skill set can come in whether they are setting up a business or being employed,” he says. “They receive a licence either for an indefinite period or for an initial period, which can be very easily rolled over.”
The standard rate of income tax is 20 per cent, although high net worth individuals can negotiate private arrangements. “In some other jurisdictions the heads of large firms can do private tax deals, but employees who don’t get the same chance may face quite high tax rates,” Adu says. “But in Jersey employees who are not HNWIs can come in as a standard-rate taxpayer, which makes it flexible for building a business.”
Milner notes that Jersey does not promote itself as a cut-price option or one offering regulatory short cuts. “We are by no means at the budget end of the offshore spectrum, and people can move to other jurisdictions for lower tax bills and less onerous regulatory obligations,” he says. “But Jersey is a blue-chip offshore centre, and many people are prepared to pay some extra tax and put up with regulation that is not minimal because they and their families will enjoy living here.”
Jersey’s vibrant culture reflects in part its background as a holiday island, he says. “It has outstanding natural attributes and climate, and plenty of green space – not to mention a remarkable number of good restaurants. Quality of life is an important part of the argument. Here you can send your children to a very good school, enjoy yourself on the beach or the fantastic sailing in local waters, but also benefit from a well-connected airport that put you within easy reach of onshore jurisdictions.”
Shorter commutes – especially for someone coming from London – also mean more time for family and leisure activities. Adds Milner: “A decision on moving to Jersey often hinges on whether people see the island as a place they can see themselves bringing up their families. One of the most important aspects when a fund manager is weighing up the pros and cons is whether their husband or wife likes it here. We benefit very much from the fact that Jersey is fundamentally a nice place to live.”
The relocation process
Adu says that before they make a final decision, managers will often have come with their partners and/or children for a day, visiting various schools and potential properties in a very easy, stress-free and time-efficient way. “By the time they come here, people may have already looked at one or two other places and are reasonably serious about wanting to make a move,” he says.
Once a manager has taken a decision in principle, Carey Olsen can look at the business they plan to run and the number of people who will be moving to Jersey, and provide an analysis of how they would be regulated and what consents they would need. Says Milner: “At that point we would start putting together a preliminary application and holding discussions with agencies such as the Jersey Financial Services Commission, which would be the regulator of the fund management business, and the Population Office, which decides whether people can come to Jersey and buy property.
“We would discuss with the Controller of Income Tax the tax position of the principals when they move over here, which gives them certainty about their tax treatment and insulates them against nasty surprises. They can then start searching for a home and business premises and working out their employee requirements. We can liaise with estate agents and specialised agencies to assist them with those needs. Clients are often pleasantly surprised at what they pay to set up an office in Jersey. One said they were virtually paying more in rates in their London City office than on their lease in Jersey.”
By the time the business licence application has been processed by the Jersey Financial Services Commission, the housing permits should be in place and the manager ready to launch the business. “Typically the entire process, from decision to the start of operations, takes between four and six months, but it can be longer or shorter,” Milner says. “The start date may be determined by a key tax deadline such as January 1 or April 6.”
Adu says the regulatory authorisation procedure typically takes around four weeks, perhaps six at the outside. “The various processes can run simultaneously,” he says. “You can schedule all your key meetings with lawyers, service providers, government if necessary and Jersey Enterprise, which also co-ordinates and facilitates the permissioning process, over one or two days.”
Please click here to download a copy of the Global Fund Media Special Report: Guide to Relocation 2011
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