JERSEY has been rated among the ‘big five’ international fund domiciles, with the Island’s fund management industry looking after 1,244 funds with $737 billion in assets.
The white paper, written by IFI Global chief executive Simon Osborn and supported by Jersey Finance, positions the Island ahead of Guernsey, which has assets of $407 billion, but behind Luxembourg with $6.2 trillion, Cayman with $5 trillion and Ireland with $4.4 trillion. A graph in the report shows how the growth in funds business in the Island overtook Luxembourg in 2020.
The report also considered the different histories of various jurisdictions and the impact on funds domiciles of unpredictable global events, such as the 2008 financial crash – which marked a big shift in the industry; base erosion and profit sharing, which are now having an impact; Brexit, which is still taking place; and the growth in ESG investing, largely as a result of the climate crisis.
These events have also presented the funds industry with opportunities, and history shows that Jersey has been among those able to adapt to a changing environment. As the report says: ‘Fund domiciliation patterns have always been subject to change. There is no reason to believe this will not continue to be the case in future. New investment products will be invented and they will need tax neutrality for international investors.
‘Funds are domiciled in jurisdictions that have adapted their regimes to achieve tax neutrality for international investors, and are compliant with international standards. These international standards have changed quite drastically over the years and if anything the pace of change is likely to speed up.’
Confidentiality sometimes trumped competence, the white paper says, but then private equity and real estate products grew mainly in the US and UK, and Luxembourg and Ireland expanded into the funds sector.
‘For Luxembourg and Ireland to bet that Europeans would take to funds run by Anglo Saxon managers, especially equity funds (they were mainly bond investors at the time), was quite a gamble,’ the report says.
The paper shows that regulation has played a significant role in the fortunes of the industry beginning with UCITS in the 1990s and now the EU’s Alternative Investment Fund Management Directive.
In the 1990s, says the paper, offshore jurisdictions such as Jersey, Ireland and Luxembourg ‘laid the groundwork for the strong growth that they were to experience from the end of that decade and on into the new century… driven by the extraordinary expansion of hedge funds, private equity funds, real estate funds and other alternative investments’. These demanded higher standards than had existed previously, although it did not happen overnight.
Following the 2008 crash, all jurisdictions realised that being a fund director included taking on serious responsibilities with liabilities. ‘Jurisdictions like Jersey, that have a deep pool of experienced independent directors, have benefitted as a result,’ the IFI report says.
Jersey became the first jurisdiction to lodge new legislation to meet EU Code of Conduct substance standards in 2018, and the report says that the local substance rules particularly suited ‘the Island’s strategy to develop skills to support the expanding alternative funds business, and it was effectively a codification of what was done already’.
The report concludes that there is often a first-mover advantage in fund administration trends.
Elliot Refson, head of funds at Jersey Finance, said that the IFI white paper showed how the most successful fund jurisdictions in the future would be those that were stable with strong expertise and infrastructure, and robust but with a flexible regulatory framework.
‘This has really been Jersey’s mantra for the past 20 years, and we’ve seen the fruits of that in the growth of Jersey in recent years as a trusted funds domicile,’ he said.
