The Jersey Financial Services Commission recently issued a new policy to ensure that funds aimed at expert investors can be established quickly and cost-effectively in Jersey, and to provide certainty and guidance to those wishing to establish such funds. The policy follows detailed consultation with industry in Jersey and the UK and a benchmarking exercise against other relevant jurisdictions. Its aim is to position Jersey as the jurisdiction of choice for offshore funds, particularly expert funds and private equity structures.
Funds qualifying as expert funds will be established on certification by a licensed Jersey service provider (typically, the fund administrator) that the fund complies with the expert fund criteria set out in the policy. The commission will issue the relevant permits on receipt of the certification. An expert fund, then, will be established within a matter of days. The commission does not need to review the fund structure, documentation or the promoter.
An expert fund should meet the following criteria:
- The definition of an ‘expert investor’ is crucial and must be: in the business of buying or selling investments; a person with a net worth of more than $1m (£557,500), excluding principal place of residence; an entity with at least $1m available for distribution; connected with the fund or a functionary of the fund (there is a flexible approach to carried-interest arrangements); an investor making a minimum investment of $100,000 (£55,700).
- All investors must sign a prescribed form of investment warning before being registered as subscribers in an expert fund.
- The investment manager must be previously approved by the commission or be without convictions or disciplinary sanctions; solvent; regulated in an Organisation for Economic Cooperation and Development (OECD) member or associate member state; experienced in using similar investment strategies to the fund’s; able to demonstrate an adequate span of control over the business. If an investment manager does not meet these requirements, it may approach the commission on a case-by-case basis. If permission is granted then, in the absence of any material change, it will not need specific approval to establish further expert funds.
- Jersey-based functionaries will need to comply with codes of practice, which are currently being finalised with industry.
- A small number of key structural requirements are imposed on such funds: the offer document must set out all material information in respect of the fund; a licensed Jersey administrator or manager must be appointed and must satisfy itself that the investment manager is acting in accordance with its mandate; either a Jersey custodian or, in the case of hedge funds, an international prime broker must be appointed for open-ended funds; two Jersey resident directors with appropriate experience must be appointed to the board of the fund company/general partner/ trustee, as appropriate.
There are no investment or borrowing restrictions im-posed on the fund, which may be structured as a corporate entity, a limited partnership or a unit trust. Nor is there any limitation on the number of investors such a fund may have.
The policy aims to provide a ‘safe harbour’, available to the majority of non-retail funds. However, as well as bringing certainty to the process of establishing funds that fall within this safe harbour, the policy will free up commission time so that derogations from the policy may also be considered on an expedited case-by-case basis.
It is important to note that a fund that fails to satisfy any of the policy’s criteria will only need to satisfy the Jersey commission on the points it fails to meet. For example, if the fund is not regulated in an OECD member state but fulfils the other criteria, the commission’s approval of investment experience will be required, but a full application will not be required.