Jersey is well placed as the demand for alternative funds continues, but some of our industry panellists have questions about the implications of the UK’s departure from the EU.
Simon Burgess (head of alternative investments, Ocorian)
James Coughlan (head of funds, TMF Group)
Emily Haithwaite (investment funds partner, Ogier)
Malcolm Macleod (head of funds and institutional, IQ-EQ)
Elliot Refson (head of funds, Jersey Finance)
Funds Europe – How is Jersey developing in the face of growing demand for alternative investments?
Simon Burgess, Ocorian – In the ten years since the previous crisis, institutional investors, particularly pension funds, have found liability-matching returns in private markets – private equity, real estate and also infrastructure and debt. Boston Consulting Group has forecast that half of all global asset management revenues will come from alternatives by 2024 – but alternatives only account for 17% of assets under management (AuM) by value.
In Jersey, we’re seeing a shift in the types of funds launched. We’re witnessing AuM per fund increasing in alternatives, but there is management fee compression. As a result, fund managers and fund administrators are looking to create economies of scale. This drives larger funds but fewer of them.
You need a different operating model for larger funds. Fund managers are targeting service providers with the highest level of technical specialism, in terms of assets but also tax, finance and fund operations.
Increased investor scrutiny is driving that – and the digital agenda is accelerating focus on data mining and performance analytics. We’ll see more fund manager consolidation, so they can accommodate these larger funds. Fund managers will look to work with transformational partners.
Elliot Refson, Jersey Finance – A report we commissioned earlier this year highlighted there is increasing regulatory uncertainty, reporting requirements and costs in international financial centres./p>
The number-one takeaway from that report was that investors – and it is predominantly investors who determine fund domiciliation – want political and fiscal stability with a no-change outlook from a regulatory, legal or economic perspective. We have worked hard to achieve those requirements – the necessary respectability, stability, ease of doing business, and local expertise. Because of this, we are exceptionally well placed to benefit from the future growth of the alternatives industry.
Emily Haithwaite, Ogier – I want to focus on venture capital (VC) and fundraising by VC funds as a private equity financing mechanism. The pandemic has encouraged us to adapt our living and working patterns. Reliance on technology has led to a startling rise in innovations, particularly in health and education. VC has and will continue to serve an important function in funding progress in those industries.
Early-stage businesses and start-ups that can demonstrate fast growth rates or potential are attractive opportunities for VC investors. It’s speculative, so risky. But for institutional investors wishing to diversify, the risk is balanced by potentially high returns. We anticipate continuing appetite for VC funds, particularly in healthcare and educational tech.
Malcolm Macleod, IQ-EQ – Real estate is a more challenging environment, particularly in specific sectors like retail. Other sectors have thrived, such as logistics, which play into the challenges. So, I think that although the type of real estate asset within a fund’s portfolio might change, Jersey’s status as a jurisdiction of choice for real estate funds will not.
Jersey has a track record of being quick to react to challenges, for example the proactive response to the capital gains tax consultation, which ultimately resulted in some very positive changes to the proposed legislation, meaning that vehicles like JPUTS [Jersey Property Unit Trust] continue to remain attractive structuring tools.
James Coughlan, TMF Group – I read an article recently which confirmed that the AuM for European-based alternatives had recently exceeded €2 trillion for the first time in history, which highlights the growing commitment to alternatives. In Jersey, recent changes to legislation to allow us to redomicile are interesting from an AuM perspective, particularly given the current headwinds in Cayman and other offshore jurisdictions. I believe that the long-established and well-tested Jersey alternatives regulatory and legislative frameworks have established Jersey’s position as a safe and well-established alternatives jurisdiction of choice.