Comment: Jersey benefiting from EU regulation

Geoff Cook, Jersey Finance
21 December 2015

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With a favourable tax environment and an abundance of substance, it's little wonder Jersey is experiencing consistent private equity fund management growth, writes Jersey Finance chief executive Geoff Cook

While recent years have seen international finance centres having to contend with a growing raft of regulation, macro trends continue to suggest those that can demonstrate a mature response to regulatory change have the opportunity to play an important role in global private equity structuring.

Estimates indicate the global asset management industry will exceed $100tn within the next five years (Asset Management 2020, PwC), driving the demand for sophisticated international investment support.

A shifting business environment is also prompting private equity managers to consider where to domicile themselves and, as a jurisdiction of substance, that is likely to be beneficial to Jersey.

Indeed, Jersey's funds industry has continued to perform strongly. Figures from June 2015 show the NAV of funds being administered in Jersey grew 9% year-on-year to £218.7bn. Alternative assets continued to do particularly well, growing annually by 15%.

Access
There are a number of reasons for this success, not least the unrivalled market access Jersey offers.

Within Europe under AIFMD, 205 Jersey funds were marketed into Europe through national private placement regimes as of June 2015. With ESMA recommending that Jersey should in due course be granted the EU-wide passport option, the jurisdiction is proving attractive to managers.

An ability to offer a "rest of the world" regime outside the scope of the AIFMD has also positioned Jersey strongly. Asia, for example, had an outstanding Q3 this year when 26 Asia-focused PE funds secured a total of $15bn (Preqin, October 2015).

Relocation
A number of further developments, meanwhile, are putting the issue of "substance" at the heart of decisions being made by managers.

The 15 points set out by the OECD as part of its Base Erosion and Profit Shifting (BEPS) project, are likely to place a greater emphasis on fund managers being able to demonstrate substance in the jurisdictions in which they operate.

With substance being central to the success of Jersey's finance industry, private equity managers are likely to benefit from relocating to Jersey as they factor BEPS into the other benefits of the jurisdiction.

Recent months have also seen changes in the UK taxation of alternative fund managers, including whether fund management and performance fees should be treated as capital gains or income. Additionally, for non-domiciled individuals taxed in the UK on the remittance basis, in order to establish the amount of carried interest liable, they will need to consider where the services were performed that gave rise to the carried interest instead of looking at the situs of the assets. Combined, these changes mean effective tax rates may well rise and taxation of funds and their managers is more complex.

Jersey's clear and attractive tax environment expects a rise in GPs relocating to the jurisdiction in the coming months. Indeed, Jersey is now home to around 125 fund promoters, up from 70 five years ago, while 61 GPs have been registered in Jersey so far in 2015, compared to seven in 2014 and four in 2013.

In a complex landscape where substance is key, Jersey is well positioned as a private equity fund servicing centre in Europe and increasingly an ideal location for fund management.

This article was sponsored by Jersey Finance