Jersey offers fund managers more than just an attractive tax regime. It has to if it wants to stand apart from jurisdictions such as the Cayman Islands.

Jersey’s strategy to entice fund managers to its shores has seen it evolve into a specialist finance centre for alternatives. Indeed, 88% of funds registered on the island are managing illiquid assets. This means it services more than 2,390 funds, which invest in a range of asset classes, including real estate, private equity and hedge funds.

Private equity and venture capital are the primary asset classes, collectively representing 47% of regulated funds registered in Jersey. Real estate funds rank a distant second at 6.6%. But one of its fastest growing asset classes is private debt, where the net asset value (NAV) of such funds has increased by around a fifth (21%) in the past two years. All of this has resulted in the combined NAV of regulated funds registered in Jersey jumping by more than 40% during the past five years.

Why Jersey?

The island’s regulated fund and services industry is worth around £458bn. But this is not its true value. The figure does not include the Jersey Private Fund (JPF), a regime for sophisticated investors.

The Jersey Private Fund, or the JPF as it is popularly known, was launched in 2017 and today more than 700 such funds have been established.

The regime targets spinouts and startups as well as small managers looking to scale up. Such flexibility is why some managers choose to domicile their funds on the island. “It is not solely about the numbers when it comes to: ‘why Jersey?’ Managers look for flexibility of product and the JPF is definitely that,” says Nicola Le Brocq, a London-based director of Jersey Finance, an organisation that promotes the island’s financial services industry.

Stability is another selling point. “The island is a stable jurisdiction, politically and fiscally,” Le Brocq says. “It also offers a minimal change outlook from tax, legal and economic perspectives.”

Another draw is the expertise of the 14,000 people administering and servicing funds. “Then there is a good community of non-executives,” she adds. “They have extensive knowledge of various asset classes.”

A simplified offering

“Jersey has always been innovative,” Le Brocq says, as she looks back at her career, which started at the island’s regulator more than 20 years ago.

“I have seen an incredible amount of innovation and progress during that time,” she adds.

Yet there’s no secret to Jersey’s success. They have just built on the foundations of what managers’ need to achieve a successful fund launch. Being a tax-neutral jurisdiction helps. It makes Jersey less complex than some of its competitors, offering operational flexibility without the need for complicated tax structuring. “That is an evolution that has considered the needs of investors,” Le Brocq says.

But tax-neutrality is not unique. “Onshore jurisdictions offer similar arrangements, yet Jersey is a much more simplified offering,” Le Brocq says.

“There is usually more red tape if you select onshore jurisdictions for that type of thing,” she claims.

Such a “simplified offering” has not been achieved in isolation. “The regulator, industry and government do a good job at futureproofing our fund product and services offerings,” Le Brocq adds.

Jersey’s approach to keeping up with the market’s latest trends and the needs of fund managers has seen it not only welcome managers based in the UK, but also those in the Middle East, Asia and the US. “Cayman is not the default anymore,” Le Brocq says. “Internationally, investors or general partners are looking further afield and not just going with what they know.” With this in mind, Jersey’s Limited Liability Companies (LLC) came into force on 1 September 2022 “to meet the needs of US managers” says Le Brocq.

Democratisation

Developing a deep understanding of the nuances of servicing alternative investments has enabled Jersey to push the boundaries of the market. This makes it well placed to support one of the largest trends in the private funds industry: the democratisation of private markets, which is creating a broader investor base through changing the way such assets are accessed.

“Jersey is at the forefront of this transition in terms of how the digitalisation of assets will transform investments and enhance transparency and increase efficiency,” Le Brocq says. “Despite the challenges in bridging the digital and physical realms, particularly for complex cross-border ownership structures, the trend towards digitalisation is definitely gaining momentum,” she adds.

Tokenisation is of interest to the island as Le Brocq predicts that it will become commonplace along with other forms of digitalisation by the end of the decade. “It is important for financial services jurisdictions to adapt and evolve with this,” Le Brocq says.

Jersey has a good track record in this area having supported virtual assets and tokenisation for some time. Earlier in the year, it published regulatory guidance for virtual assets and intends to provide further clarity around the island’s capabilities in supporting and servicing this need.

Clean money

Money laundering is an issue that puts financial services centres under great scrutiny. Jersey has what Le Brocq describes as a “robust” anti-money laundering framework that pre-dates her time at the regulator.

Indeed, Moneyval, the Council of Europe’s anti-money laundering body, agrees with her assessment.

In July, the island received a favourable review from the organisation on the systems and processes that help prevent financial crime in the jurisdiction. “[The review] is not just about the implementation of the framework, but its effectiveness,” Le Brocq says. “It was a highly positive report,” she adds, one that shows Jersey is “largely compliant” with all but one of the 40 recommendations set by the Financial Action Task Force (FATF), which endorsed Moneyval’s findings. “It solidified our position at the top in terms of the other jurisdictions who have undergone this evaluation,” Le Brocq says.

“All in all, the island is well placed around anti-money laundering.”

Trends and tailwinds

Looking to the future, the investment case for alternatives is bullish. Private equity and venture capital is Jersey’s “bread and butter” in that during the past few years it has won a considerable market share. Indeed, the NAV of private equity and venture capital funds on the island increased by 10% during 2023. There could be further gains on the way. A tailwind for private equity and the support Jersey offers is London being Europe’s centre for managing such assets.

Le Brocq points to the uncertainty around potential tax changes by the UK’s new government as “an elephant in the room” that is contributing to the growing interest amongst private equity investors to relocate to another domicile. “We are seeing a lot of interest from UK managers in establishing a physical presence in Jersey,” she says.

Other markets to watch include private debt and real assets given the trend within private markets for investors to diversify, a result of a greater number of general partners fundraising in the past year. Then there are secondaries, which are “keeping law firms busy”, Le Brocq says. “The huge demand for secondaries is anticipated to continue well into 2025 and beyond.”

Keep on moving

Jersey has always been innovative and agile, which goes with the territory for smaller entities. “It is important for fund services jurisdictions to be nimble enough to move with what’s happening in the market and what investors are looking for,” Le Brocq says.

Futureproofing their offering includes constantly assessing the expertise within their teams and the effectiveness of the technologies they use.

Then there is meeting the growing demands of managers. A big current theme is exploring the virtual asset space and tokenisation of real assets, which is reshaping the capital raising landscape. So it is an exciting time but is not without its challenges.

“We need to establish the right regulatory framework to protect investors while not restricting innovation,” Le Brocq says. “That is the balance all jurisdictions need to strike.”

Remaining relevant

The challenge for fund services jurisdictions like Jersey has always been to remain relevant.

“Those who fail to evolve, will simply regress. Jersey has a pretty good long-standing forward-thinking approach,” Le Brocq says.

As an example, she looked back to when financial centres within the European Union moved into the retail area under the UCITS directive. Yet Jersey shifted towards alternative funds instead, targeting sophisticated investors so as not to compete with UCITS, which is now a huge regime.

This prompted the successful introduction of Jersey’s expert fund regime. “That was in 2004 and has helped position Jersey as a strong alternative investment funds market player and provided a platform on which we built our reputation.”

That has, over time, developed into a wider spectrum of fund solutions. “So from highly regulated, widely offered retail funds to lighter touch options for smaller groups of sophisticated or institutional investors. All of which is backed up by highly experienced fund administration and corporate services firms within the island.”

As a fund jurisdiction, Jersey’s story has been one of innovation and modernisation. It appears that as the needs of fund managers evolve, so will the island’s service offering.

Jersey: The Home of Alternative Capital

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