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Ahead of the curve – Jersey celebrates its 60th anniversary as a global finance centre

Insight 4 May 2021

Ahead of the curve – Jersey celebrates its 60th anniversary as a global finance centre

As published in Real Deals May 2021

As Jersey celebrates its 60th anniversary as a global finance centre, the island continues to adapt to whatever the world throws at it. This year marks Jersey’s 60th anniversary as an international finance centre. Key to the island’s survival and success has been its ability to anticipate the industry’s every move, innovate in the right areas, and adapt accordingly.

Data collated by Jersey Financial Services Commission (JFSC) shows the value of PE and VC funds domiciled in Jersey increased by 21 per cent year-on-year to £164.6bn in 2020. Despite an increasingly complex regulatory environment and rising competition from newer alternative asset jurisdictions, Jersey continues to appeal to the private equity, venture capital and the alternatives space more broadly, with a number of big-ticket funds coming to market through Jersey in the last twelve months.

Compared to other jurisdictions, Jersey is often seen as the underdog, so the mentality has been to always fight that bit harder.

Jersey’s swift and effective response to the pandemic provided the industry with some much-needed stability in the last twelve months. When the world went into crisis mode, Jersey was business as usual, Joe Moynihan, CEO at Jersey Finance says. “When lockdown happened, we did a lot of work with the Government to ensure that we could continue to support the finance industry as it works from home. Unlike many jurisdictions, our registry stayed open for business right throughout the pandemic.

This was not the case everywhere and is a reflection of Jersey’s resilience. It was quite a refreshing response,” agrees Nigel Strachan, head of private equity, at Apex Group. “From an operational perspective, we were able to service our clients in a very short timeframe and they said that they hadn’t noticed any change in service levels.”

By its very nature, the island has a penchant for providing economic stability. After all, financial services is the bedrock of Jersey’s economy, with 44 per cent of the working population involved in the sector. There is a large ground swell of intellectual capital and depth of experience in Jersey that you don’t necessarily find elsewhere; a particularly compelling proposition to clients in an uncertain investment environment, says Mirek Gruna, CCO for IQEQ’s Jersey office.

“Increasingly, managers and investors want a ‘no surprise policy’ and with the quality of the workforce in Jersey, they have that safety of knowledge that their administrators will work professionally without any problems.” Furthermore, despite the growth in other European fund domiciles such as Luxembourg, Jersey has fared well.

Global managers continue to show a preference for Jersey as evidenced last year by Nordic Capital, which raised €6.1bn for its latest fund and CVC, which closed its $20bn fund based in the jurisdiction.

James Mulholland, a partner in Carey Olsen’s Jersey office says: “From an AIFMD perspective, the island is well-positioned in regards to private placement. It is highly regarded as a third country, so passporting isn’t an issue when funds are marketing into Europe.” Apex Group’s Strachan agrees, pointing out that “jurisdiction choice is still largely driven by investors”, however, in Jersey, “there has been a number of successful fundraisings using private placement or reverse solicitation.” Indeed, the number of managers opting to market their Jersey funds into the EU through private placement grew by 12 per cent from 2019 to 2020.

For JTC’s Baird, however, it’s still about quality over quantity. “Jersey’s continued success is all about building the funds ecosystem on a brick-by brick basis and constantly adapting to the world around it. In recent times, some of the large PE houses who are based in Jersey have managed to exceed their hard caps, remotely – this would have been unthinkable 18 months ago. Among our smaller, boutique clients, there is a desire to raise their second or third fund in Jersey and that’s really reassuring for us. It means the sentiment is ‘Jersey first’ and as the promoters grow in size, so does our island’s fund industry.”

Part of Jersey’s success lies in its size. At just 45 square miles, Jersey is able to stay nimble and adapt quickly to regulation coming down the line. “Jersey continues to play an important role in global private equity, and given its relative size, it is able to adapt quickly as a jurisdiction. The lines of communication between the industry, the Government and the regulator are very strong; this means that Jersey is able to adapt, and remain flexible and robust with regards to private equity fund regulation,” Strachan says.

Post-Brexit, the island has maintained a flexible regulatory position through its implementation of international cooperation and information sharing protocols, committing to Europe’s 5th Anti Money Laundering Directive and introducing substance laws that enable it to grant whitelist status from the EU.

In addition to navigating post-Brexit challenges, last year Jersey’s Government approved a new amendment to the island’s legislation that makes it easier for fund managers to migrate limited partnership fund structures. “While it is unlikely that the legislation will result in a significant uptick in funds relocating to Jersey, there have been a number of enquiries and regardless, it’s important to have that optionality given the increased scrutiny on demonstrating substance, which makes Jersey an attractive proposition,” Ashley Vardon, head of Jersey Private Equity at Sanne Group says.

The success of Jersey’s Private Fund structure is another major draw for fund managers and investors. Established over two years ago, the regime has quickly gained popularity; offering speed to market, with a 48 hour regulatory approval timeframe, at an arguably lower price compared to that of an EU-style AIFM structure.

There is no mandatory requirement for an audit as part of its private funds regime and NPPR continues to be a cost effective alternative for marketing into the EU,” explains Vardon.

Furthermore, the onus of regulation lies firmly with the administrators, allowing investors and managers to focus purely on what they are good at. “We’ve seen other fund jurisdictions catch up in terms of their private funds offering, but Jersey still remains a leader in this respect,” Vardon adds.

Carey Olsen’s Mulholland can testify to its popularity. “Looking back at all the funds we worked on over the course of the last year, most of them were Jersey Private Funds.” The Jersey structure has proven to be particularly successful with first time fund managers, Mulholland added. “This is because, from a regulatory and structural perspective, it’s a great stepping stone and you can bolt on different bits to it.” 100 new Jersey Private Funds were set up over the course of last year. “Given that there was such little human interaction during this time, that’s an incredible statistic,” Baird says.

Jersey has embraced technology with open arms. The island boasts the second fastest broadband structure in the world; a hugely compelling offer at a time when the PE industry is increasingly reliant on technology.”

Ashley Vardon
Head of Private Equity - Jersey

Jersey has embraced technology with open arms. The island boasts the second fastest broadband structure in the world; a hugely compelling offer at a time when the PE industry is increasingly reliant on technology. The island has also emerged as a major fintech hub due to its “quick to market legislation,” and “open-minded regulator,” Vardon says. “Regulators have proactively encouraged innovation to make sure that the island is well-placed within the market to understand and meet the needs of a modern day manager and investor.”

As such, Jersey has attracted a spate of start-ups and technology-focused funds, including Softbank’s $100bn Vision Fund; a clear indicator of the island’s ability to appeal to even the savviest of tech investors.

The island has also been at the forefront of the burgeoning blockchain-based cryptocurrency market, with the world’s first crypto fund structured in Jersey by Global Advisors in 2014. Since then, the island has approved its first crypto-based custodian and launched an exchange traded fund (ETF) product on the Swiss stock exchange.

Jersey has also moved quickly to keep up with ESG trends. In March, Jersey Finance launched a sustainable finance strategy, which makes the case for Jersey’s finance industry to support the transition to a more sustainable future.

“The biggest change we see in the industry is investor demand for sustainability,” Jersey Finance’s Moynihan says. “For us, we’ve always been strong on the “S” and “G” aspect, but are now turning our attention to the “E” - the environmental element. Our vision for 2030 is that Jersey will be viewed by our clients and stakeholders as being the leading sustainable global finance jurisdiction in the market that we serve.”

IQEQ’s Gruna points out that ESG considerations are rapidly becoming a key driver behind domiciliation decisions. “Fund managers and investors are increasingly looking at jurisdictions in terms of what they are doing for ESG regulations and sustainability projects.”

IQEQ’s Gruna points out that ESG considerations are rapidly becoming a key driver behind domiciliation decisions. “Fund managers and investors are increasingly looking at jurisdictions in terms of what they are doing for ESG regulations and sustainability projects.”

Indeed, a recent survey by IFI Global revealed that 100 per cent of investors thought including ESG criteria in the selection of fund jurisdictions and service providers will become more important in the future. Whether it’s technology innovation or sustainability considerations, Jersey is committed to staying ahead of the curve in order to meet the ever-changing needs of the finance world.

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