On 2 March 2017, we hosted an industry update at the Pomme d'Or hotel. Here's a summary of the topics covered by our speakers.
Jersey Private Funds Update
Dan Birtwistle walked through the key features of the new draft Jersey Private Fund guide. The guide describes the policy and requirements of what we think will be a very attractive, harmonised, private fund product in the 1-50 offer/investor space. The guide has now been published by the Jersey Financial Services Commission, you can read our client briefing about the new regime here . Market overview - Brexit and beyond
Ben Robins gave our perspective on the impact of changes in the market and recent geo-political events.
The UK Prime Minister's speech of 17 January 2017 confirmed the intention to secure a bespoke trade deal with the EU with the greatest possible access to markets, with border control prioritised – so there will be no "Norwegian/EEA"-style arrangement.
The political hints of the UK becoming a "tax haven", akin to Ireland or Singapore, post-BREXIT, don't chime easily with Theresa May's domestic social inclusion agenda but create a potent negotiating tool/threat for the UK in seeking to secure future EU market access.
Groups in the UK are therefore now assessing a future life for the UK as a "third country". The City's "International Regulatory Strategy Group" has published findings in relation to UK financial services access to the EU. Its recent report described "a clear and neutral analysis of the UK's position as a third country seeking cross-border provision of financial services, to and from the EU, after BREXIT". It regarded UK reliance on third country regimes as an unsustainable solution: third country regimes in individual member states are restricted to narrow areas, have limitations and restrictions and the UK's own regime is more liberal than others, so there is a risk of asymmetry. Their report concludes that the UK should try to reach bespoke agreements with the EU in different areas of financial services, allowing wider and mutual access rights, to reflect the unique position of the UK and its interdependent markets with the EU. (It's unlikely but not impossible the Channel Islands could seek to benefit too but this is likely to be politically challenging.) Query what the US, Canada, Singapore, Switzerland etc would make of such preferential treatment for the UK?
The Prime Minister has also wasted no time in shaking hands with Donald Trump to increase the likelihood of an early US/UK trade deal. This should bolster confidence in the UK as an investment destination and also encourages a sense that the UK's greatest certainties may be derived from an Anglo-Saxon and "rest of world" outlook, as the EU bloc seeks to defend its interests.
The Trump hint at de-constructing Dodd Frank and FATCA does suggest that the UK may need to de-regulate to some extent in order to remain globally competitive. If Dodd-Frank is reformed, access to US institutional money may become easier for Jersey structures just as access to UK investors eases but non-UK EU access potentially hardens.
Structuring trends in Jersey
In Private Equity, by and large, GPs are staying where they are – lots of on-going mega-fund activity in the Channel Islands in 2016/17. Although we have seen some moves onshore, Swedish houses are generally gravitating back offshore given domestic tax uncertainties experienced when using domestic "AB" structures.
In Real Estate, PERE activity remains strong: often these involve a small number of investors/joint ventures, but they are often attracting big tickets and buying trophy assets, often with US, Asian and ME money; the underlying property is not restricted to UK assets. UK Real Estate deal activity seems set to be brighter than 2016, but not back to 2015 levels: previously non-core areas such as build-to-rent, student accommodation, healthcare etc are seeing growth. There have been some but fewer calls for JPUTs but Jersey companies are still popular alongside/below UK LPs in UK Real Estate. It is in the debt funds and infrastructure space where we are seeing most incursion from Luxembourg, largely due to DTA structuring
What's moving in our favour?
The UK's renewed focus on Rest-of-World business and potential Dodd-Frank de-regulation chimes with our exploration of easier Anglo-Saxon marketing channels where there is less cultural concern with offshore structuring.
We see greater ease of access to core UK investors in the future;
the ability to promote our continuing symbiotic relationship with the City – helping keep tax neutral business away from EU competitors in Eire and Luxembourg whilst bringing global FDI into the UK through the Brexit process;
EU political uncertainty post-Brexit and during Dutch, French and German election process; signs of dissension in the EU ranks;
the AIFMD brand may be fatally flawed once the UK is outside of EU (not least as 80% of regulated AIFMs are UK based and will effectively be "migrated out");
a group of EU states has argued against the black-listing of zero tax centres such as the Channel Islands and our historic commitment to the transparency agenda (particularly CRS adoption) provides a strong defence;
post-Trump moves towards deregulation and de-globalisation could derail challenging G7/G20 initiatives.
Where do the challenges lie?
Principally in the EU:
the AIFMD passport delay for Jersey will likely continue as Brexit is negotiated;
Brexit negotiations and the "UK tax haven threat" may hasten the blacklisting of "no tax" centres by the EU (but see above);
BEPS uncertainties could be used against us (although some initiatives may work in our favour (eg transfer pricing) as others work against us (eg hybrid mismatches).
Jersey Limited Partnership Law Changes
Felicia de Laat discussed the need for LP Law amendments. A funds industry working group, including Felicia de Laat, is considering whether the Limited Partnerships (Jersey) Law 1994 (the 94 Law) needs updating. Cayman and Luxembourg introduced new features into their limited partnership regimes in 2014 and 2015 respectively and the UK is just about to introduce 'private fund limited partnerships' in April 2017, all of them aiming to attract private equity, venture capital and real estate fund managers. In light of this, Jersey's limited partnership law is being reviewed to make sure that the 94 Law remains, not just competitive but 'best in class' so that we continue to attract private equity and real estate fund managers to the Island as we have always done. What are some of the key potential changes?
Being considered are amendments to (i) widen the 'safe harbours' available to limited partners to expressly capture certain common PE investor activities; (ii) permit the LPA to restrict LP information rights (iii) provide for partnerships to migrate in and out of Jersey and merge; (iv) allow the creation of segregated cell partnerships and (v) make certain clarifications and simplifications to the existing law. A number of interested parties will need to comment on the amendment proposals before they go to formal consultation so they are still in their early stages. If you have any changes to propose or have seen provisions in limited partnerships in other jurisdictions that you think would be useful in Jersey, please let us know.
UK Private Fund Limited Partnerships
We also looked briefly at the upcoming UK 'private fund limited partnership' (
PFLP) which is aimed at non-retail funds such as private equity and venture capital funds. Compared against a standard UK limited partnership, the PFLP will benefit from, amongst other things (i) reduced administrative burdens; (ii) extended 'safe harbours' permitting limited partners to engage in a wider range of activities without jeopardising their limited liability; (iii) increased flexibility by removing the requirement to make capital contributions and, if capital is contributed, to withdraw it without the current exposure to liability and (iv) increased privacy as it is no longer necessary to notify the nature and term of the partnership or the amount of capital contributions.
These changes will certainly make the PFLP more flexible and attractive in comparison with a standard UK limited partnership but it will still have limitations compared to Jersey limited partnerships and will still need to operate in the more complicated (and at this time, more uncertain) UK regulatory environment. It will be interesting to see whether there is take up of PFLPs in the coming months. Despite the increased competition in the alternative funds space, the Jersey limited partnership and Jersey funds generally remain very popular, being inherently flexible and non-intrusive and being supported by an alternative funds industry with deep and longstanding experience of managing these structures.
The Jersey Funds Association has a flyer which sets out the many reasons why Jersey is a good place to domicile your fund. It is well worth a read.
The Limited Liability Partnerships (Jersey) Law 2017 was registered in the Royal Court of Jersey on Friday, 24 February but will not be brought into effect until the orders setting out the transitional provisions and the provisions dealing with insolvency and winding up of LLPs for which there is no published date but is not, at this stage, expected to be before the summer.