Jersey has long enjoyed an excellent reputation as a jurisdiction in which to establish investment funds. For decades Jersey funds have been used to raise money for investment in diverse asset classes, including real estate, venture capital and hedge funds. In 2007 the net asset value of funds under administration in Jersey increased by 37 per cent to £246bn.
Promoters of investment funds can choose between a number of offshore jurisdictions. But what distinguishes Jersey from competitors such as the British Virgin Islands, the Cayman Islands and Guernsey is that, since the introduction of an unregulated funds regime in February, Jersey stands alone in offering a full spectrum of fund regulation. This ranges from the rigorous regulation of publicly offered retail funds through to unregulated regimes with some lightly regulated regimes in between.
This range of fund regulation by the Jersey Financial Services Commission (JFSC) reflects the historic development of Jersey’s funds industry and the JFSC’s willingness to adapt regulation to reflect changing markets. As the industry grew in the 1980s, funds generally targeted retail investors, investing in assets such as equities, currencies and commercial real estate. The regulatory regime that was created involved close JFSC scrutiny of the fund’s promoter, full JFSC review of fund documentation and statutory investment restrictions.
As investors and investment strategies in Jersey funds have become more sophisticated, the JFSC has introduced a number of lighter touch regimes (such as the expert fund regime) and has refocused on regulating local providers of services to Jersey funds rather than the funds themselves.
Recognising that Cayman has enjoyed much success with its own unregulated regime for closed-ended funds, particularly hedge funds, the JFSC has worked with the funds industry to create two new, wholly unregulated regimes in Jersey. One is for unregulated eligible investor funds (UEIFs) and another for unregulated exchange traded funds (UETFs) – those listed on an approved exchange or market.
Key features of UEIFs are that they can only be offered to highly sophisticated eligible investors, including: those who make an initial minimum investment equivalent to $1m (£500,000); people whose ordinary business or professional activity includes acquiring, managing or giving advice on investments; and individuals whose property has a total market value of not less than $10m (£5m).
UEIFs may be open or closed-ended and may take the form of a Jersey company, limited partnership or unit trust. This means they are suitable for hedge, private equity, real estate, mezzanine and other fund types.
UEIFs may be listed, but only on exchanges or markets that permit transfer restrictions to ensure that only eligible investors acquire the securities or interests.
By contrast, UETFs must be closed-ended and listed on an exchange or market approved by the JFSC (including AIM, the London Stock Exchange, the Channel Island Stock Exchange, Euronext etc). In the same way as UEIFs, UETFs may also take the form of a Jersey company, limited partnership or unit trust.
There is no need to appoint any Jersey-based service providers (such as a manager or administrator) in relation to a UEIF or UETF. That said, an unregulated fund structured as a company or limited partnership must have its registered office in Jersey, while a unit trust or a Jersey limited partnership must have a Jersey company as a trustee or general partner respectively.
There is no requirement to appoint Jersey resident directors to an unregulated fund that is a company.
While the minimum investment limit in Cayman of $100,000 (£50,000) is lower than the level for a Jersey UEIFs and it is generally easier to establish local investment managers in Cayman, the advantages in Jersey are that there is no requirement for local audit sign-off, while the governmental charges are lower and there is closer geographical proximity to Europe.
It is recognised that it will take time for the initial trickle of new unregulated funds in Jersey to turn into a flood to rival the huge number of unregulated Cayman funds. The lack of a formal JFSC promoter approval process under these new regimes will, for the first time, allow new fund promoters to establish their first funds and develop a track record in Jersey, a mature and well-serviced jurisdiction in a European timezone.
Jonathan Rigby is managing partner and Ben Robins is head of funds at Mourant du Feu & Jeune