Growing transatlantic prospects
By A Paris – Jersey is capitalising on its future position outside of the EU to attract US fund managers to its shores. This is despite the potential uncertainty driven by the looming end of the Brexit transition period and the global pandemic.
“As the largest law firm in Jersey with the busiest investment funds practice, we have experienced a sharp increase in US managers seeking access to European Union or European Economic Area capital through the use of Jersey vehicles.
“This trend is also evidenced by assets under management for funds incorporated in Jersey with US managers or promoters having increased 198 per cent from 2014-2019, as reported by the Monterey Jersey Fund Report 2019,” writes Jordan Zubeidi, Associate, Carey Olsen, in a briefing note.
Simon Hopwood, group partner, Maples, agrees: “Having advised our US manager clients who focus on Europe, we continue to see a growing interest in this area. Jersey has worked hard to raise its profile in the US. This is supported by the industry and Jersey Finance who, having opened their New York office last year, are proactively promoting the jurisdiction.”
The Monterey Jersey Fund Report 2019 shows the US as the third biggest source of assets by promoter origin.
Managers looking to expand their distribution network can benefit from various advantages Jersey has to offer – as long as they are not seeking a full European fund passport. For example, from a European Union (EU) perspective, Jersey–based fund managers are classified as being located in a ‘third country’ and therefore the full scope of The Alternative Investment Fund Managers Directive (AIFMD) does not apply to them.
“This means they may not be required to comply with some of the more onerous elements of the regulation, such as reporting and disclosure of remuneration. Importantly, the benefits of a Jersey manager can apply wherever the funds themselves are domiciled, be it in Jersey or elsewhere.
“Put simply, access to Europe through the National Private Placement Regimes (NPPR) using a Jersey manager is a well-established model offering clear advantages,” outlines Elliot Refson, Director of Funds at Jersey Finance, in a factsheet specifically drawn up to evidence the benefits of Jersey to US fund managers.
Hopwood outlines: “As most funds only target a select number of EU/EEA markets, through the NPPR, Jersey provides sufficient access on a lighter-touch regulatory basis. As ESMA approved, Jersey is also ready if the third country EU passporting is ‘switched on’ in the future… With the end of the Brexit transition period fast approaching on 31 December 2020, if no agreement is reached before that date, the UK will become a third country and lose its EU passporting right. UK funds and managers will only be able to market in the EU through the NPPR. As the EU still wants non-EU funds and manager to have access to the EU, it is unlikely to close the NPPR.”
Jonathan Heaney, Christopher Reed, Leanne Wallser, Matt Sanders and Kate Storey at Walkers also witnessed the increased demand emanating from American firms. They say: “In recent months an interesting but growing trend is beginning to emerge which further demonstrates the attractiveness of Jersey to wider markets.”
The law firm has observed the growing use by US based managers/promoters of the Jersey private funds (JPF) structures as a feeder structure established specifically and solely for such managers’ and promoters’ established European investor base.
“Where no formal fund-raise or promotion is required, JPFs offer an extremely effective and efficient solution. In the current politically driven regulatory climate, managers/promoters in the major US fund centres are increasingly looking for alternative ways to structure investment vehicles suitable for and acceptable to their European domiciled investor base,” the lawyers note.
The island already offers a variety of vehicles, including companies, cell companies limited partnerships, limited liability partnerships, unit trusts. However, in further testament of its efforts to attract US fund managers, Jersey is due to introduce a new Limited Liability Companies (LLC) Law.
These vehicles are broadly used in the US, for holding companies and fund structures, which will be their most likely use in Jersey. Industry players expect that by the end of 2020, the first LLCs can be registered in Jersey.
“Jersey’s new LLC law strengthens the island’s offering to US managers. With a significant amount of US assets already administered in Jersey, and with the Island’s appeal to US investors boosted by the uncertainty created by Brexit, the new law is well timed,” notes Ogier partner Matthew Shaxson.
Law firm Cadwalader Wichersham & Taft outlines that the introduction of the limited liability company (LLC) under Jersey law is designed with the US market in mind and is seen as a means to enable Jersey to continue to grow the amount of in-bound business from North America. “A Jersey LLC should be treated in the same way as any other non-US LLC, and we expect the Jersey LLC to become an increasingly prevalent part of the fund (and therefore fund finance) landscape,” the firm comments.
The familiarity of the LLC model across the US market will be vital in support of Jersey’s appeal in this regard. Amendments to the LLC law are currently being made to ensure this alignment.
Mike Williams, Matt Gilley and Micheal Evans, at Collas Crill, highlight: “This groundwork will help ensure that the LLC legislative framework is consistent and robust. It will guarantee that the management, operation and administration of the Jersey LLC will be familiar both to US investors and others who use similar vehicles in the structuring of investments and transactions, while bringing continued benefits offered by Jersey as an international finance centre.”
Jersey Finance cemented its commitment to attracting business from across the Atlantic by opening a New York office in October 2019. Just over a year on from that, the organisation says: “No one of course would be wise to predict the future direction of global markets in these uniquely unpredictable times, but some things will surely never change. As the markets recover from the initial disruptions of 2020, there will always be institutional investors with capital to invest. Jersey, with its stability and robust regulation, yet being nimble and innovative, and close to European and UK markets, can play a part in that recovery as a gateway to channel investment to where it is needed.”
Hopwood notes: “The ability for non-domiciled funds to be managed in Jersey, combined with the introduction of the procedure for the migration of limited partnerships into Jersey this year and the US-style LLCs next year, Jersey should appeal to US managers.”
A stable platform
This focus on US fund managers is just one cog in the broader Jersey machine. The jurisdiction has prided itself on its stability as a primary pillar of its value proposition.
Team Asset Management describes the firm’s motivation for choosing Jersey: “As one of the world’s oldest major international financial centres, Jersey offers reliability, political and economic stability together with a sophisticated and comprehensive legal system.
It’s flexible, independently endorsed regulatory framework, overseen and supervised by the authorities and regulator, the Jersey Financial Services Commission (JFSC) encourages high quality business to the Island. This together with a sophisticated and comprehensive infrastructure of laws and regulations, promotes investor and business confidence and value.”
And although the pandemic has affected the industry, like all its peers across the globe, Jersey has proven resilient.
At the most recent annual general meeting of the Jersey Funds Association, chairman Tim Morgan commented: “The pandemic is already proving to affect asset classes and sectors in very different ways, but for Jersey the essential positive message remains that we offer a platform of stability in a rapidly changing market which is borne out through very high levels of activity through the recent period covering the pandemic.”
Joe Moynihan, chief executive officer of Jersey Finance underscores how the pandemic has accelerated the need for global solutions and Jersey, as an industry, hopes to facilitate their delivery. He says: “Jersey has been working with and supporting global investors for nearly six decades. And it has been able to do that because, as a forward-thinking IFC, Jersey’s finance industry in collaboration with its government and financial services regulator, took the strategic decision more than a decade ago to implement a vision that would establish Jersey as a global player.” He adds that Jersey Finance research has shown 50 per cent of new business comes into Jersey from markets outside of Europe, which underlines the importance and significance of Jersey’s global network.