Jersey: Offshore Business Sectors
Investment Fund Management
Collective Investment Funds are supervised by the Financial Services Commission under the Collective Investment Funds (Jersey) Law 1988, and if 'recognised' are allowed to be marketed in the UK. This has been a stimulus for the growth of a substantial managed funds sector on the island. Other types of fund, both public and private, are also licensed and supervised by the Financial Services Commission, and are usually directed at professional investors since public marketing would not be allowed in most countries, particularly not in the EU. Indeed the ability of Ireland and Luxembourg as EU members to host funds for public distribution in the member states of the EU has created strong competition for Jersey.
Nonetheless, the total value of collective investment funds on the island has grown rapidly. The total value of collective funds administered from Jersey grew by almost GBP150bn over the nine years to 2008. This figure then dropped by GBP77bn in 2009. In 2009, the Net Asset Value of funds in Jersey fell by 32% to GBP163bn and the total number of funds fell by 11% to 1,287. A modest recovery during 2010 saw the value of collective funds administered from Jersey grow to GBP184.703bn by the end of 2010 with the total number of funds standing at 1,324. By the end of 2012 the value of collective funds administered had grown to GBP192.76. The total number of funds was 1,388.
In February, 2004, Jersey introduced 'expert' investor fund legislation. This gives qualifying fund managers freedom to offer funds to licensed investors without previously clearing them with the FSC, provided they stick to the guidelines. A number of Jersey's competitor jurisdictions offer such freedoms, without which it is impracticable to offer attractive products to wealthy investors and their advisors. The new regime has proved popular, and by the end of 2008, more than 400 expert funds had been approved.
In June 2004 the JFSC also launched a Non-Domiciled Fund Guide. The Guide introduced a streamlined authorisation process for persons wishing to become functionaries (for example, an administrator, custodian, distributor) of Non-Domiciled Funds that are: materially equivalent to Jersey Expert Funds; equivalent to Jersey Recognized Funds; or compliant with the latest EU UCITS Directive.
The Guide was the result of a joint effort between the Commission and the Jersey Funds Association and followed on from the successful launch of the Jersey Expert Fund Guide in February 2004.
In October 2006, the JFSC announced plans to extend the Expert Fund regime to closed-ended investment funds listed on European and other leading stock exchanges including the Channel Islands Stock Exchange. The regime would be available to private equity, property and other alternative investment funds such as hedge funds and funds of hedge funds. It would operate in a similar fashion to the existing Expert Fund regime, except that there would be no selling restrictions attached to these investment funds. The JFSC had concluded that the regulatory environment of products listed on recognised exchanges and promoted by established sponsors already provided an appropriate level of investor protection and therefore a lighter level of regulation in relation to authorisation was considered appropriate.
In February 2006, the JFSC published two consultation papers on the regulation of functionaries and funds dealing with the Commission's long-term goal of bringing regulation of all financial services business operating in Jersey within the Financial Services (Jersey) Law 1998 (the “FS(J)L”).
The first paper set out the proposal for the future regulation of funds and functionaries. The Commission proposed that regulation of functionaries to unclassified funds be transferred from the Collective Investment Funds (Jersey) Law 1988 (the “CIF(J)L”) to the FS(J)L. This was achieved by creating a new category of financial service business under the FS(J)L to be called “fund services business”.
The advantage of this new “one licence” regime is the removal of the requirement for functionaries to hold multiple permits under the CIF(J)L. Instead, functionaries are required to be registered under the FS(J)L to carry on fund services business from within Jersey. Every fund services business is supervised under the FS(J)L and the Commission issued Codes of Practice in the form attached to the consultation paper.
In 2008, Jersey introduced an Unregulated Funds Regime designed to provide promoters and other fund introducers with the simplicity, certainty and speed they seek when setting up certain types of specialist fund.
A key feature is that there is no need to seek regulatory approval when establishing the fund. Geoff Cook, Chief Executive of Jersey Finance Limited, commented: “This is a significant step forwards for the Funds Industry in Jersey and is seen as a natural progression in our goal to become the European jurisdiction of choice for the Alternative Funds sector. Fund promoters of high net worth, sophisticated investors and institutions will have greater flexibility when choosing Jersey and will be able to structure their funds to suit both commercial and tax requirements.”
The Unregulated Funds Regime includes an Unregulated Eligible Investor Category (UEIC) and an Unregulated Exchange Traded Category (UETC). Funds in these categories do not need to be approved or authorised by the Island’s financial regulator, the Jersey Financial Services Commission (JFSC). Jersey Finance reported that 122 unregulated funds had been registered by October 2010.
Funds utilise a unit trust structure, or the limited liability company with redeemable share capital; lately the limited partnership has become popular for some types of private fund. See Types of Company.
In September 2009, Jersey’s Economic Development Department asked members of Jersey’s business community for their views on draft legislation which would introduce to the Island limited partnerships with legal personality.
Since the introduction to Jersey of limited partnerships in 1994, they have proved increasingly popular, particularly as investment vehicles.
The Economic Development Department has announced that it is seeking to build on that success with the introduction of two further limited partnership laws, introducing different possible legal statuses for limited partnerships.
Two new limited partnership laws were adopted by the States on May 25, 2010, follwowing a consultation published by Jersey’s Economic Development Department in September 2009.
These provide respectively for the establishment of Separate Limited Partnerships (SLPs) and Incorporated Limited Partnerships (ILPs). Establishment of an SLP was made possible from April 20, 2011 and for an ILP from May 24, 2011.
The SLP has legal personality but without being a body corporate (as is already the case for a Scottish limited partnership), whereas the ILP is a body corporate.
The Department believes that a wider range of uses of Jersey limited partnerships would be made by consumers if they had the option of creating a limited partnership with legal personality.
Limited partnerships are frequently used in fund structures but, the Jersey limited partnership did not have a separate legal personality and must contract through its general partner (usually a body corporate), which has unlimited liability for the debts of the partnership. Each of the two limited partnership vehicles have a separate legal personality, however, as its name suggests, the Incorporated Limited Partnership has the additional feature of being incorporated.
Prior to recent legislative changes, collective Investment Funds with foreign ownership could take advantage of International Business Company status to achieve a very low rate of taxation, while still being allowed to have offices on the island; alternatively a Collective Investment Fund could have exempt (tax-free) status if its administration was conducted on the island by an arm's length manager for a fee. However, the International Business Company vehicle was abolished to new entrants with effect from January 1, 2006. The tax landscape has also changed with the 'zero ten' reforms, introduced in January 2009. See Domestic Corporate Taxation for details.