The Channel Islands' history as a popular domicile for property funds, especially those investing in UK property, stretches back over three decades. In recent years Jersey has built on this experience to build a wider international reputation, as a repository of regulatory, legal and accounting expertise but also in offering a wide range of vehicles suitable for single country, pan-European and international investment structures.
The island's expertise, combined with a broad focus on alternative investment and a strong and flexible regulatory environment overseen by a progressive and proactive regulator, offers reassurance to promoters of property fund structures. For example, the team at State Street has been involved in servicing property funds since the early 1990s.
Property funds pose particular challenges compared with investment in financial securities. The multiplicity of parties involved, both in individual property transactions and in the day-to-day running of funds, requires that the promoter, fund manager, trustee and administrator work closely to co-ordinate and facilitate interaction between the fund and independent valuers, managing agents, solicitors and regulatory bodies.
Property fund structures tend to be complex because of tax considerations and/or particular requirements of the promoter or investors. These factors can lead to multiple layers of ownership structures and complicated profit-sharing arrangements with joint venture parties, requiring tailored administration systems and operating processes.
The various stakeholders also need accurate and timely information for investment decision-making, investor reporting, tax and legal returns, risk management and internal control monitoring, custody, striking an NAV, regulatory returns, industry agencies such as IPD and Inrev and bank covenant compliance.
Few property funds have escaped the challenges arising from the current liquidity problems in global markets. Commercial and residential property values have declined, forcing managers to refocus on asset management and increasing rental returns rather than relying on capital gains, while increased unit-holder redemptions add to pressure on fund liquidity. From an administrative viewpoint, management and co-ordination of investment and redemption processes is critical to ensure compliance with the fund's regulations while maintaining value for remaining unit-holders.
State Street has responded to the increasing complexity and demands of today's property fund industry with an outsourcing model that is scalable and provides access to specialist centres of administrative excellence serving multiple domiciles.
This allows property fund promoters and investors alike to benefit from both the Jersey domicile and the depth of specialist resources offered by a dedicated property fund administration team, in State Street's case based in Ireland. While the Jersey business retains oversight and regulatory responsibility for funds, core administration functions are carried out in Ireland.
State Street's Jersey and Irish operations have significant experience of property fund nuances, currently administering direct property and property-related funds with net assets exceeding EUR5bn. Dedicated administration teams produce NAVs for more than 50 direct property-owning structures and feeder funds, striking prices daily, weekly, monthly, quarterly or half-yearly, depending on their nature.
Clients, who can opt for multiple contact points in Jersey and Ireland or a single contact in Jersey, enjoy the flexibility of outsourcing and the opportunity to launch products in different domiciles while maintaining consistent contact points, servicing arrangements and reporting.
Russell Turner is managing director of State Street Fund Services (Jersey)