Jersey funds in 2021
There are more than 500 funds serviced in Jersey dealing with i) private equity ii) real estate iii) distressed debt and iv) infrastructure sectors. The value of assets administered and serviced by the Jersey funds sector amounts to £200 billion. An increasingly common trend is the migration of manager teams to Jersey.
- In recent years, the Companies (Jersey) Law 1991 has been modified to accommodate improvements for the funds industry (particularly companies with a fluctuating membership), such as:
- Introducing no par value companies (that is, companies the shares of which do not have a nominal value).
- Allowing companies to hold treasury shares.
- Simplifying the making of income and capital distributions, generally permitting them from any source, subject to the company’s solvency.
- The use of corporate directors.
- The abolition of financial assistance restrictions.
- Permitting the merger of companies and the migration of companies to Jersey from other jurisdictions.
- Investors’ interests can be represented by shares (which can be traded uncertificated) or by depository receipts or certificates.
- Limited partnerships are established under the Limited Partnerships (Jersey) Law 1994 (LP Law);
- The liability of limited partners for the debts of the partnership cannot extend beyond their agreed capital contributions, provided their activity does not constitute management under the LP Law. The LP Law provides a safe harbor for certain activities that would otherwise constitute management and permits the limited partner a greater degree of involvement in the management of a limited partnership than some other jurisdictions;
- Both ILPs and SLPs (introduced in Jersey in 2011 by the Incorporated Limited Partnerships (Jersey) Law 2011 and the Separate Limited Partnerships (Jersey) Law 2011 respectively) have separate legal personalities (allowing each form of limited partnership, for example, to own assets, and sue and be sued in its own name). An ILP is also a body corporate (SLPs do not have this status). These entities provide greater flexibility for fund managers in structuring their fund’s general partner and carried interest vehicle, particularly where the fund is an English limited partnership;
- The applicable trusts legislation in Jersey is the Trusts (Jersey) Law 1984. In addition to preserving confidentiality, and the relative flexibility of trusts, there can be significant tax advantages i.e. funds established as unit trusts are exempt from tax on foreign income and bank interest (either automatically or, where there are Jersey resident individual unit holders, by application);
Closed-ended retail funds
- There are no requirements, other than for companies to file annual audited financial statements under the Companies (Jersey) Law 1991. The requirements for OCIFs apply to CCIFs (by analogy only and with more flexibility).
Private placement funds
These are funds established or managed in Jersey which are offered to fewer than 50 investors. These funds are only available to either a “sophisticated investor” or a “professional investor” (including those investing a minimum of GB£250,000). These funds fall outside the scope of regulation of a collective investment fund and must comply with the Jersey Private Placement Fund Guide published by the Commission (Private Placement Guide).
- For private placement funds, the Jersey Financial Services Commission (Commission) will grant approval on a three day fast-track basis, without applying the Promoter Policy. The Commission will instead rely upon certain written confirmations from the fund’s administrator in relation to the fund’s promoter;
- The governing body of a Jersey domiciled fund must have:
- At least two Jersey resident directors with appropriate experience;
- An appointed administrator to provide general administration and/or registered office services and support the fund’s anti-money laundering obligations. The administrator must be licensed by the Commission.
- A non-Jersey fund must have either:
- At least two Jersey resident directors with appropriate experience on the board of the governing body;
- A Jersey company appointed as the fund’s manager which has at least two Jersey resident directors with appropriate experience;
- If a proposed private placement fund does not satisfy the criteria in the Private Placement Guide, a request for derogations/regulatory consent can be made to the Commission. Applications for derogations will be considered on a case-by-case basis and will not be on a fast-track basis;
- An independent trustee or custodian is often not required;
- Investors must be provided with:
- A copy of its annual accounts;
- An auditor’s report within the time period prescribed in the fund’s private placement memorandum;
- Constitutive documents or otherwise as required by statute or regulation.
- A private placement fund must:
- Have directors produce a private placement memorandum;
- Deliver to the Commission a copy of the accounts of the fund where the auditor’s report on the accounts is qualified. Details of qualification must be brought to the Commission’s attention immediately. The Commission must be notified of any material changes to the information submitted in connection with private placement funds as soon as possible (and within 28 days of the change). If the proposed change does not meet the criteria set out in the Private Placement Guide, the prior written consent of the Commission would be required. Offering documents must comply with the disclosure requirements set out in the Private Placement Guide.
These can only be marketed to “expert investors”. There are ten categories, including i) those investing or committing a minimum of US$100,000 or currency equivalent and ii) other sophisticated and high net-worth categories.
- All investors for this fund must qualify as expert investors and expressly acknowledge an investment warning, which allows a fund to qualify as an “expert fund” under the JFSC Expert Fund Guide. Expert investors include amongst other tests any person investing at least $100,000 or currency equivalent;
- An open-ended expert fund must appoint either a regulated Jersey custodian/trustee or prime broker. A closed-ended expert fund does not require a custodian/trustee, provided it has adequate safe custody arrangements (including, if applicable, prime brokerage arrangements);
- Expert funds must:
- Appoint an administrator or a manager with at least two Jersey resident directors with appropriate experience, together with staff and a physical presence in Jersey;
- Expert funds must have adequate arrangements for the safe custody of their assets (including, if applicable, prime brokerage arrangements) which must be disclosed in their offer document. The EF Guide requires a trustee or custodian to be appointed to hold the expert fund’s assets;
- Be registered under the FSJ Law and is subject to the FSJ Codes of Practice if it is public fund’s trustee or custodian that carries on business in, or is incorporated in, Jersey;
- Although no investment or borrowing restrictions are prescribed for funds under the EF Guide, the fund’s approach to both must be clearly disclosed in its marketing document.
- For opening an expert fund, the Commission does not need to review the structure, documentation or the promoter. Instead the fund administrator certifies to the Commission that the fund complies with the EF Guide. The Commission aims to issue its approval within three working days of the submission of a completed application. The EF Guide is flexible. However, where any unusual derogations are sought from its terms, it is usual to seek these in advance while the documents are being prepared to avoid potential delay in the approval process;
- In relation to expert funds, there is no requirement for the investment manager or adviser to be incorporated or carry on business in Jersey, and the Promoter Policy does not apply. However, the investment manager or adviser should confirm in writing to the Commission whether it satisfies certain “good standing” requirements (including as to its experience and solvency) set out in the EF Guide, which the administrator, manager or trustee (as applicable) must counter-sign having undertaken appropriate due diligence. If an investment manager or adviser does not meet the criteria listed in the EF Guide, it can approach the Commission on a case-by-case basis. The distributor of the expert fund (if different from the investment manager/adviser) must also satisfy these requirements if it is not the investment manager/adviser or one of its associates. A distributor is either:
- The driving force behind the fund (that is, if the distributor were to withdraw from the proposal, the fund would not go ahead);
- The entity responsible (either directly or through its agents) for putting the majority of investors into the fund;
- There are no limits on the restrictions which can be imposed on issues or redemptions for expert funds;
- The OCIF Guide imposes various compulsory:
- Redemption requirements, for example, concerning i) non-cash redemption ii) period until payment iii) compulsory redemption iv) Issue requirements (for example, regarding non-cash consideration) and v) Suspension of dealings can be provided for in exceptional circumstances and having regard to the interests of holders.
These funds are structured to ensure investor protection that is at least equivalent to that afforded to investors in the UK. Recognized funds issued with a recognized fund certificate can apply to the UK Financial Services Authority (FSA) to market directly to the public in the UK (under the United Kingdom Financial Services & Markets Act 2000, taking advantage of Jersey’s designated territory status for the purpose of this legislation)and can also be marketed to the public (subject to any local requirements) in a number of other territories including Australia, Belgium, Hong Kong, The Netherlands and South Africa.
- Unregulated funds are exempted from regulation as collective investment funds by virtue of an exemption order which specifies schemes or arrangements which have been established as either:
- An unregulated exchange-traded fund, being a scheme or arrangement established in Jersey, which is a closed-ended fund and which is listed on a stock exchange or market or which is applying for its shares or units to be granted such a listing; or
- An unregulated eligible investor fund, being a scheme or arrangement established in Jersey and in which only eligible investors may invest, being either an investor who makes a minimum initial investment of US$1 million or the currency equivalent (whether through the initial offering or by subsequent acquisition) or, alternatively, institutional investors or professional investors, as defined in the order.
- Either type of unregulated funds may take any form recognized under the laws of Jersey as being a Jersey company (including a cell structure), a Jersey limited partnership having at least one Jersey corporate general partner or a unit trust having a Jersey corporate trustee or manager. A regulated Jersey administrator must supply the registered office to that company. SPV general partners and trustees are exempt from the requirement to be regulated under the FSJ Law;
- Subject to the structure complying with the order, there is no regulatory review or oversight of the terms or conduct of such an unregulated fund and, therefore, processes for their establishment will depend only on being carried out in accordance with the exemption order;
- The offer and/or listing document of an unregulated fund must contain a prominent statement that the fund is unregulated, together with a prescribed form of investment warning. In order to claim exemption as an unregulated fund, a completed notice needs to be filed with the Jersey registrar of companies;
- There is no audit requirement (unless the fund is a company), no need for Jersey service-providers or Jersey directors and no investment or borrowing restrictions imposed on an Unregulated Fund. Nor is there any limitation on the number of investors such a fund may have. The usual application procedure for incorporating a company or registering a limited partnership will apply, each of which can often be completed on the same working day;
- The key benefits of this regime for fund promoters are that it provides unparalleled flexibility coupled with the certainty of being able to establish the fund at any time simply by filing the required notice and without the need to obtain JFSC approval;
- Unregulated Funds remain subject to Jersey’s anti-money laundering regulations, which meet international standards.
Unregulated Funds: Funds Services Business and special purpose managers
- Jersey service providers to Unregulated Funds must be licensed by the JFSC to conduct “fund services business” under the Financial Services (Jersey) Law 1998 (the “Financial Services Law”): this includes administrators, custodians, distributors, fund managers, investment advisers/managers, general partners and trustees. Established Jersey service providers will already hold these licences;
Eligible Investor Funds
An unregulated eligible investor fund may be open or closed and transfers of interests are only possible to other eligible investors. Stock exchange listings for unregulated eligible investor funds will be possible subject to transfer restrictions, as referred to above, still applying. It is important to obtain a written acknowledgement from each investor confirming their acceptance of the risks involved in the fund (typically dealt with on the application form).
- These can be open or closed-ended and are restricted to sophisticated investors (including those investing US$1 million);
- These funds can be held by an unlimited number of “eligible investors”;
- These funds are restricted to 11 categories of “eligible investor”, which include:
- Those investing at least US$1 million;
- Whose ordinary business or professional activity includes dealing in, managing, underwriting or giving advice on investments (or an employee, director, consultant or shareholder of such a person);
- Who is an individual with a net worth of over US $10,000,000 or equivalent (calculated alone or jointly with their spouse and excluding a principal place of residence);
- Which is a company, limited partnership, trust or other unincorporated association and which either (i) has a market value of US $10,000,000 or equivalent (calculated either alone or together with its associates), or (ii) has only “eligible investors” as members, partners or beneficiaries;
- Which is, or acts for, a public sector body;
- Which is the trustee of a trust which either i) was established by an “eligible investor”, or ii) is established for the benefit of one or more eligible investors; or
- Which is, or is an associate of, a service-provider to the fund (or an employee, director, consultant or shareholder of such a service-provider or associate and who acquires the investment as remuneration or reward).
- These funds are not required to:
- Produce audited accounts unless they are incorporated as a company;
- Have Jersey service-providers or for any Jersey directors on the fund company, the trustee or the general partner;
- There are no investment or borrowing restrictions for the investors;
- These may be listed, provided that the exchange permits transfer restrictions (to ensure that only eligible investors are allowed to invest in the fund); and
- The regime also expressly recognises that a discretionary investment manager may make investments on behalf of investors who do not qualify as “eligible investors”, provided that it is satisfied that the investment is suitable for the underlying investors and they are able to bear the economic consequences of the investment.
Funds and their Jersey service providers must comply with the following legislation, which applies international standards:
- Proceeds of Crime (Jersey) Law 1999, as amended;
- Money Laundering (Jersey) Order 2008, as amended;
- Terrorism (Jersey) Law 2002, as amended;
- Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008;
- Drug Trafficking Offences (Jersey) Law 1988, as amended; and
- Criminal Justice (International Co-operation) (Jersey) Law 2001, as amended.