Jersey’s fund administrators discuss the obstacles they faced in 2016 and how they were overcome.
Last year was defined by political surprises, with both the UK’s Brexit referendum and the US presidential election confounding the predictions of most pollsters.
Fund administrators felt the effects indirectly. As their fund manager clients paused or delayed product launches, a decline in business volumes was reported by a number of Jersey-based firms.
Regulation, too, was a challenge. As higher reporting standards are applied in jurisdictions around the world, administrators must react to ensure their clients are compliant, while continuing to keep assets secure from risks such as cyber crime.
Despite the difficult environment, the fund administrators we spoke to were optimistic that 2017 will bring more product launches and more business for the island. Jersey’s new fund regime, expected to be implemented this year, was highlighted as a positive move for the industry.
KENNY RAE, SENIOR DIRECTOR, JTC FUND SERVICES
What is the toughest challenge you faced in 2016?
Last year was very challenging, particularly the latter part. An uncertain macroeconomic environment and the backdrop of Brexit and the US elections, coupled with increasing regulatory and reporting requirements and a growing interest in tax transparency and cross-border tax matters, created concern and hesitancy. Fund managers had more to think about than ever before and turned to their fund administrators to guide them. Existing private equity and real estate clients showed some reluctance to proceed with deals or fund launches. This was reflected in investor behaviour too.
Which fund types are seeing growth and where is the demand coming from in terms of investor type and geographical location?
While the ultimate impact of the 2016 ‘political unrest’ remains to be seen, it seems that fund managers and investors alike have some pent-up desire to transact. We are seeing increased deal flow as well as future pipeline opportunities with a number of significant transactions and fund launches having come to fruition in the early part of 2017. The dry powder is being ignited in a number of areas, but for us it has been most evident in Eastern European private equity, real estate and unusual asset classes such as cryptocurrencies and fine art.
What are the top developments you hope to see in Jersey’s financial industry in the next 12 months?
In July 2016, the European Securities and Markets Authority (Esma) recommended that Jersey be granted an AIFMD [Alternative Investment Fund Managers Directive] passport into Europe. The ultimate decision on this has yet to be made by the European Parliament.
Following Brexit, there is a real threat that Jersey will be caught up in the political posturing that makes securing the passport uncertain. That said, private placement appears to be working well. The imminent introduction of the proposed Jersey Reserved Alternative Investment Fund (Raif) strengthens Jersey’s fund offering.
JONATHON BUESNEL, DIRECTOR, IPES JERSEY
What is the toughest challenge you faced in 2016?
There was a notable slowdown in fundraising and transactions in 2016 leading up to and following the Brexit vote. UK fund managers held off launching new funds due to uncertainty caused by the Brexit vote and the election of Donald Trump in the US. There was also uncertainty in the EU post-Brexit and its regulation. However, the larger proven managers continue to successfully launch successor funds, while first-time fund managers have struggled to raise.
Which fund types are seeing growth and where is the demand coming from in terms of investor type and geographical location?
Investor confidence in private equity remains strong due to high returns in comparison to other investments, such as hedge funds, and the low interest rate environment. There is high demand for proven fund managers from institutional investors. Technology and venture funds lead the way.
What are the top developments you hope to see in Jersey’s financial industry in the next 12 months?
We expect continued growth in Jersey following more confidence, as discussions on issues such as Brexit and BEPS [based erosion and profit shifting] become clearer and fund managers’ confidence grows in structures that provide access to European and worldwide investors. Globally, the appeal of private equity as an asset class will prevail in 2017 due to the high returns. A record number of private equity funds are currently in market: 1,829 funds are seeking an aggregate $620 billion. This will bring challenges, particularly for first-time and emerging markets managers, in competing for investor capital as well as in meeting the demands of an increasingly sophisticated investor community.
ALEX DI SANTO, DIRECTOR, INTERTRUST
What is the toughest challenge you faced in 2016?
Value creation is no longer the sole focus of limited partners. They want to invest in managers demonstrating operational efficiency, particularly around reporting, and compliance with global regulation. The challenge for us is to meet general and limited partners’ demands for improved investor reporting, data management and automation, all within a robust control environment.
Which fund types are seeing growth and where is the demand coming from in terms of investor type and geographical location?
For private equity in Jersey, we continue to see a blend of buyout, real estate, venture and growth funds being raised by well-established fund managers but also first-time fund managers. In terms of investors, there is a continued dominance of pension funds and foundations but an increasing presence of family office investors resulting from an increase in high-net-worth individuals globally. North American and European investors continue to dominate but we may see an increase in investors from Asia and elsewhere taking note of the high returns and performance of private equity.
What are the top developments you hope to see in Jersey’s financial industry in the next 12 months?
To increase its attractiveness as an offshore funds centres, Jersey launched an initiative last year to simplify and rationalise the investment funds regime. The anticipated changes seek to phase out outdated products and improve the private and public fund regimes. The changes will result in a more flexible and innovative funds regime. We will see initial changes to private and unregulated fund products in the first half of this year followed by the introduction of a manager-led product, the Jersey Raif, later in the year.
©2017 funds europe
