23 November 2020
The Jersey fund products that offer a lighter touch regulation
Over the past few years, we have seen a shake-up of the funds industry both offshore and onshore in Asia – with some onshore jurisdictions offering up new and exciting fund products, such as Singapore's variable capital company (VCC) and Hong Kong SAR's open-ended fund company (OFC) as well as the limited partnership fund regime – to both rival and complement more traditional, established fund vehicles.
Meanwhile, certain jurisdictions in the offshore world continue to upgrade their regulations to remain aligned with 'gold standard' international practices, including most recently with the Cayman Islands and the British Virgin Islands (BVI) bringing, for the first time ever, closed-ended funds into regulation.
There has been much discussion in Asia around the changing landscape for funds and an increase in competition between onshore and offshore fund products, and whilst we do not expect that the Cayman Islands will disappear from the world stage as the 'go-to' funds jurisdiction of choice, what has become clear is that fund managers, investors and advisers have more choice and options than ever before when it comes to both setting up their fund vehicle and selecting their jurisdiction of choice.
Amongst the options available, there is one jurisdiction that has been quietly growing in the fund space and that is worth paying attention to – and that is Jersey, in the Channel Islands. Jersey is home to the world's largest private equity fund and some of Europe's largest private equity, infrastructure, venture capital and private debt funds. With a long history in Asia for private wealth structuring for ultra-high net worth individuals and high net worth families, Jersey has been steadily gaining traction in the US and Asian markets. As at the end of June 2019, the fund assets serviced in Jersey rose to US$481.2 billion, up 17.1% from 2018, with private equity/venture capital and infrastructure funds remaining the most popular fund types.
In 2017, Jersey overhauled its funds regime into a simplified framework offering various fund options and products on a sliding scale of regulation largely depending on the investor profile and where the fund is being marketed to. The options range from 'notification only' funds through to more regulated forms of fund structures. Jersey now stands as a serious contender in the funds space and contrary to some popular misconceptions, it offers products that have lighter regulation, lower costs and faster 'speed to market' than some of its offshore and onshore counterparts. All Jersey funds (other than 'notification only' funds) are also eligible to be marketed into the European Union and European Economic Area (EU/EEA) in accordance with the Alternative Investment Fund Managers Directive (AIFMD) through national private placement regimes and (once available) through the passporting regime.
Jersey offers a wide range of corporate or fund vehicles that are familiar, including companies, limited partnerships (including those with their own separate legal personality and LLPs), unit trusts, cell companies similar to the Cayman SPC and Singapore VCC and, soon to come, LLCs. Of the various fund products available, on the lightest end of the regulatory scale are (1) the Jersey Private Fund (one of the most popular fund vehicles) and (2) a 'notification only' fund (also known as an 'Eligible Investor Fund'). A summary of the key features of these funds is below.
Jersey Private Fund: Key Features
- Maximum of 50 investors at any time and a maximum of 50 initial offers.
- Must not be listed on a stock exchange. May be open or closed for redemptions by investors.
- Investors must qualify as ‘professional’ investors and/or subscribe for interests with a value of at least £250,000.
- No limit on fund size, no investment or borrowing restriction.
- A simple consent is required from the regulator, the Jersey Financial Services Commission (JFSC), under local legislation, which takes around 48 hours.
- A non-Jersey administrator can be appointed.
- No need to prepare a formal offering memorandum, but investors must sign a simple investment warning (usually included in the subscription document).
- No audit requirement.
- The fund is not regulated by the JFSC on an ongoing basis.
Some additional requirements apply if the fund is actively 'marketed' into the EU/EEA (as defined in the AIFMD), but it is possible to 'upgrade' a Jersey Private Fund so that it may be marketed into the EU/EEA at a later stage and that process is relatively straight forward and a well-trodden path.
Costs: As at the time of writing, the initial application fee charged by the JFSC for a Jersey private fund (without EU/EEA marketing) is £1,340 and the annual fee payable to the JFSC is £1,070.
'Notification Only' or 'Eligible Investor' Fund: Key Features
- Cannot be marketed in EU/EEA countries (but suitable for all other investors).
- Investors must be "Eligible Investors" only (any one of 11 categories, one of which is an investor of $1,000,000 or more).
- May be listed, provided that the exchange permits transfer restrictions (to ensure that only Eligible Investors are allowed to invest in the fund).
- May be open or closed for redemptions by investors.
- No limit on the number of investors, no investment or borrowing restrictions.
- No authorisation process (simply file a notice).
- A non-Jersey administrator can be appointed.
- No need to prepare a formal offering memorandum, but must obtain a written acknowledgement from each investor confirming their acceptance of the risks involved in the fund (typically dealt with in the application form).
- No audit requirement for limited partnerships and unit trusts.
- No ongoing regulation.
Costs: As at the time of writing, there is no notification or annual fee charged by the JFSC.
Other unregulated investment vehicles
Outside of the funds regime, an investment vehicle may not be required to be regulated at all in Jersey (which means lower costs and requirements). Investment vehicles that are not funds vehicles which hold a single asset or which carry on a business (such as property development) generally fall outside Jersey’s funds regulations. An investment vehicle will not be regulated as a fund in Jersey unless it is a scheme or arrangement for the investment of capital which (a) has as its object or one of its objects the collective investment of capital; and (b) operates on the principle of risk spreading, or units are to be bought back or redeemed continuously or in blocks at short intervals upon the request of the holder and out of the assets of the fund, or units will be issued continuously or in blocks at short intervals.
If you would like to find out more about any of the fund products available in Jersey, we would be happy to assist from our Singapore, Jersey or UK offices. Carey Olsen is recognised as the leading legal adviser to funds across the Channel Islands and is the largest law firm in Jersey with the busiest funds practice. Our full service Singapore and Hong Kong offices supply Asia-based clients with Mandarin, Cantonese and Bahasa language capability and on-the-ground legal advice on the laws of Bermuda, the BVI, the Cayman Islands and Jersey.
 25th annual Monterey Jersey Fund Report, 2020
An original version of this article was published by Asia Business Law Journal, November 2020.
© Carey Olsen 2020.