US capital is being deployed across Europe via Jersey-domiciled funds. We spoke to two leading figures in Jersey’s funds industry to find out more.
BEN ROBINS, PARTNER AT MOURANT OZANNES
The 2017 Monterey Insight Jersey Fund Report confirmed a significant number of US asset managers are promoting funds domiciled in Jersey, including global giants such as BlackRock, Blackstone, Kennedy Wilson, LaSalle, Morgan Stanley and PGIM. US-promoted funds represent $28.5 billion (€23.2 billion) of the assets under administration in Jersey, or 13% of the total. The US represents Jersey’s second-largest fund promoter market behind the UK.
Much of the US-promoted capital raised by Jersey structures is deployed in UK and EU real estate, infrastructure, private equity and venture capital investment. Post-crisis, US managers were particularly drawn to EU distressed real estate opportunities and, more recently, a weakened pound, short-term Brexit uncertainty and longer-term opportunity has created a compelling backdrop to US investment in UK real estate and infrastructure.
Aside from market dynamics, Jersey’s popularity with US promoters and investors hinges on four elements:
- Jersey’s award-winning expertise in administering UK and EU investments for US managers looking to outsource the administration of those assets;
- Familiar levels of Anglo-Saxon service and speed to market;
- Cost-effective, pragmatic regulatory models, closer to the Delaware and Cayman Islands models US investors are familiar with, than those offered in the Alternative Investment Fund Managers Directive (AIFMD)-bound EU; and
- Legal structures (particularly limited partnerships and companies) familiar to US investors – this element will only get stronger later this year when Jersey introduces limited liability companies (LLCs) for the first time. The Delaware and Cayman LLC variants are already well-known to US investors, so Jersey LLCs will provide significantly enhanced investment structuring opportunities for Jersey in the US market.
The LLC opportunity
The Limited Liability Companies (Jersey) Law is expected to be enacted in the third quarter of 2018. Jersey LLCs will sit alongside Jersey companies (including protected cell companies and incorporated cell companies), limited partnerships (including separate and incorporated limited partnerships) and limited liability partnerships (LLPs) in the Jersey structural toolbox.
A Jersey LLC will offer:
- A separate legal personality like a Jersey limited company (LTD) but, like an LLP, will not be a body corporate – it can hold assets and enter into contracts in its own name (like LTDs and LLPs);
- An unusually high level of tax flexibility: it will be treated as tax-transparent in Jersey, but can elect to be taxed as a company;
- Flexibility with regards to contributions of members – there is no obligation to contribute but a contribution can be in cash, property or services; and
- An ability to create ‘series’ within the LLC, for ring-fencing of ‘classes’ of assets and liabilities for particular members.
As regards impact on Jersey’s fund industry, if permitted to conduct regulated financial services business, it is likely Jersey LLCs can expect similar treatment to Jersey LLPs, with an equivalent special Jersey Financial Services Commission licensing policy. LLCs will not be permitted to be authorised as Jersey fund vehicles but in Cayman (with 600-plus Cayman LLCs introduced since July 2016), there has been very limited use of LLCs as fund vehicles. The uses of Cayman LLCs have so far included:
- General partners of Cayman and US limited partnerships;
- Management companies;
- Carried interest vehicles; and
- Investment holding and joint venture vehicles.
No doubt equivalent uses will be found for Jersey LLCs, but their cellular optionality will provide a unique opportunity for Jersey in the US market.
ELLIOT REFSON, DIRECTOR, MANAGEMENT COMPANY SERVICES AT CRESTBRIDGE
If a US-based manager is looking to distribute on a pan-European basis or retail basis, then he is best using an onshore Europe location. However, it’s worth bearing in mind that figures from data company Preqin shows that 55% of European investors in alternative real estate and 62% in private equity are based in the UK, Switzerland or the Netherlands. From 2019, only one of those three will be in the EU – therefore the ongoing onerous regulation and expense in order to access only one or two EU member states will be disproportionate when a simpler alternative is available. Here Jersey can provide a more cost-effective solution and a far quicker time to market.
Jersey–based fund managers are located in a ‘third country’ from an EU perspective and therefore the full scope of AIFMD need not apply. This means that they may not be required to comply with certain more onerous elements, 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.
Access to Europe through the National Private Placement Regimes (NPPR) using a Jersey manager is a well-established model offering distinct advantages. NPPR is a recognised path and a model that has worked – and continues to work – extremely well. At the end of December 2017, there were around 150 Jersey-based managers marketing over 300 funds into the EU alone using the NPPR route. These include US managers such as Blackrock, Kennedy Wilson, Citigroup and
Blackstone, according to fund industry research company Monterey Insight. In the case of the UK and the Netherlands, there is a tried and tested friendly regime towards Jersey. In the case of the Netherlands the required attestation is accepted based on listing on the regulator’s website.
For decades Jersey has been a reputable, centrally located jurisdiction for fund investors from key markets and offers the following benefits:
- Speed to market: The management company (ManCo) process, including regulatory applications and approvals takes weeks not months, with the regulator committing to approve this type of fund launch in six weeks.
- Cost-effectiveness offers better returns: Jersey’s streamlined regulatory regime and the benefits afforded by the Crestbridge ManCo can result in lower running costs and higher investor returns in a VAT-free jurisdiction.
- Regulatory certainty and innovation: The Jersey Financial Services Commission (JFSC) is an approachable, globally respected and co-operative regulator, supervising pragmatic regulation that meets international standards.
- Tax simplicity: Jersey offers a tax-neutral environment with no VAT or capital gains tax, and is not reliant upon a complex system of tax rulings, exemptions and deductions, hybrid financing or double tax treaty networks.
- Political and economic stability: A politically and fiscally autonomous and stable British Crown dependency with a secure, special relationship with the UK, but outside of the UK and EU. Jersey is perfectly positioned with regards to Brexit developments
- Remuneration: To obtain a full AIFMD passport in Europe, the manager is required to disclose remuneration details of key employees including partners. If a US manager does not need to market on a pan-European basis there is no great benefit to an AIFMD passport and a lighter approach is permissible under the NPPR.
©2018 funds europe