Jersey Light House

Trend Analysis - 03 November 2020

Jersey Private Fund: why it’s the simpler, faster, cheaper option

Figures recently released by the Jersey Funds Association show that more than 350 Jersey Private Funds (JPF) have been established since the launch of the regime in 2017 [1]. In this briefing Simon Page, Hawksford’s Global Head of Fund Services, explains why the JPF has been a success, and how this can be attributed to three factors: simplicity, speed and cost-effectiveness.

Author of article:

Simon Page

Global Head of Fund Services

Hawksford has launched a range of alternative fund structures under the JPF regime including first time and successor funds in private equity (PE), venture capital (VC) and real estate (RE). The JPF is now a tried and tested option for promoters going to market internationally.  

What is the JPF?

As one of the leading international finance centres, Jersey has a thriving funds industry. The JPF is lightly regulated, cost effective, has no requirement for an audit or prospectus and provides a quick to market regulatory authorisation process for those structures meeting the eligibility criteria. Through the National Private Placement Regimes (NNPRs), a JPF can be marketed into the European Union for those promoters targeting a European investor base.[2]  

Its success…

Stems from the fact that it caters specifically for those managers who are not targeting a broad investor base, focusing only on professional investors, and thereby allowing a lighter touch regulatory environment.

The removal of some of the usual regulatory burden results in a streamlined product that can be quick to set up whilst still having the Jersey hallmark of quality.

The resultant cost efficiencies are obvious, even more so when coupled with the fact that non-EU managers raising funds in Europe can utilise NPPR’s thereby minimising the regulatory impact of AIFMD.

The numbers back this up: There are now over 350 JPFs, and they have contributed significantly to the Jersey fund industry’s record high of fund assets under administration - £346bn in 2019. This included a 19% year on year increase in PE alone1.

What have we seen?

The JPF lends itself to capitalise on the increased allocation of institutional money to alternatives – specifically, PE. But we have also seen particular interest from new to market managers, VC managers and family offices.

These smaller and newer fund managers often tend to find it easier to work with a regulatory incubator as an Appointed Representative rather than become FCA authorised in their own right. The FCA application process can take time, money and effort and it subsequently imposes a significant ongoing cost and compliance burden.

For these managers then, the JPF and its key selling points marry up perfectly.

Covid impact…

By and large, the sector has been proven to be well equipped to deal with systemic shocks. The investments made over the last 10 years, by managers, regulators, and third-party providers, specifically in technology, have allowed the industry to function seamlessly.

We have seen that larger fund managers have been able to weather the storm well. Going into 2020, the levels of dry powder (funds available globally for deployment into VC and PE) were estimated to exceed USD1trillion. Whilst a proportion of this may have moved to the “risk-off” bucket, depressed valuations have also driven an increase in transactional and onboarding activity, after the initial “tremor” as the pandemic began. 

Whilst some smaller managers have struggled in these challenging times, both from an investor sentiment perspective and the management of their existing portfolios, we have also seen managers looking at new opportunities in sectors or geographies that have performed well or recovered quickly / managed the crisis. More frequently, in the VC sector specifically, we have seen that the asymmetric information available to the manager in respect of their existing portfolios, has led to follow on investments or new vehicles structured for further investments. We have seen that quality businesses have not been impacted in their ability to secure additional funding and VC managers and their investors have been quick to spot and capitalise on these opportunities.

Investment strategies evolve with the economic landscape, particularly in the closed ended funds space. What is seen as a challenge for one sector can present opportunities for others. Liquidity requirements and shifting risk appetite may result in differences in the way in which funds are allocated and invested. Distressed assets may become a buying opportunity. In the current environment, speed can be a determinant factor for such buying opportunities and the JPF can be a facilitator.

Versatility and flexibility

Alternatives are often viewed as a safe haven for investors seeking yield in volatile markets and stability of income. Jersey has already, and rightfully, made its name for expert administration for alternatives.  In uncertain times, and particularly the current environment, flexibility is key – as is the ability to be nimble and quick to market. Thankfully, these attributes are central to the JPF which have proven to be successful in recent years.

[1] Jersey Funds Association (https://www.jerseyfunds.org/news/jersey-funds-association-chair-delivers-virtual-update)

[2] Offer document is required where the JPF is an AIF

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