With the countdown to ‘Brexit Day’ well and truly on, there are some interesting narratives emerging within the European alternative funds industry. On the one hand, alternatives business is booming. Estimates indicate alternatives’ share of global assets under management could more than double to $21 trillion (€18 trillion) by 2025, according to a recent report by PwC. Meanwhile, figures suggest that while North America continues to present the most favourable investment opportunities across the alternatives spectrum, Europe remains a strong performer.
The region presents the second-most favourable opportunities in private equity, real estate and infrastructure funds, and is now the top region, overtaking North America, for private debt funds.
On the other hand, however, the prospect of a hard Brexit without any guarantee of ongoing passporting rights is casting a shadow. There’s something of a narrative of panic being whipped up in various quarters, accompanied by a strong suggestion that all UK asset managers should just up-sticks to the EU if they want to continue to tap into the EU investor market. EU centres see Brexit as an opportunity to attract alternatives business, and you can’t blame them. The narrative needs challenging, though, because the reality is very different.
Jersey, for instance, is able to provide a very clear, familiar, English-speaking platform that can support UK fund managers robustly and efficiently thanks to its ability to offer seamless access to EU markets through National Private Placement Regimes (NPPRs). All the evidence points to the fact that private placement is working well. There are now more than 160 alternative fund managers going to market through private placement in Jersey, with more than 300 Jersey-registered funds distributed into the EU through these channels, figures that have risen annually by 23% and 11% respectively.
There’s a strong pipeline of activity too. Since the Brexit referendum, Jersey has seen some of the largest funds ever raised – Softbank’s Vision Fund, CVC Fund 7, and Nordic 9 to name just a few – with funds of all types and sizes and with advisers in a diverse range of locations making using of private placement. With Jersey being outside of the EU, this model has some important advantages over full AIFMD compliance, such as no remuneration reporting requirements, no or light depositary requirements, and full flexibility to market to non-EU markets too. In fact, the EU’s own figures suggest that only 3% of EU funds currently market into more than three EU markets, so in the vast majority of cases, targeted private placement is actually a very sensible, efficient and cost-effective solution.
Of course, there are situations where UK managers might need to establish a full EU operation. However, doing so – and thereby having to comply with all AIFMD requirements – is only one option. In many cases, Jersey is actually better positioned to support UK managers wanting to maintain access into the EU alternative investor market.
Over the coming six months, the UK alternatives community will inevitably have to sift through a considerable amount of information as it prepares for Brexit. The vital message is this – managers should think carefully about what is going to work for them and their investors in the long run and not be hoodwinked into thinking there is only one option open to them.
Geoff Cook, chief executive of Jersey Finance
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