By Michael Johnson, chair of the Jersey Funds Association
AGAINST the backdrop of a destabilised Europe and a persistent high-inflation environment, challenges have persisted for Jersey’s funds industry in 2023 – but this is an industry that is used to operating in a fast-evolving environment, driven by regulatory, economic and geopolitical change.
In fact, overall, this has been another successful and buoyant year for our funds industry.
Figures in early 2023 indicate that the total net asset value of funds under administration in Jersey stood at a record high of more than half a trillion pounds (£523bn), with fund pools continuing to increase year on year too.
In addition, we are seeing an ever-increasing community of managers fully resident in the Island across private equity, hedge fund, venture capital, debt and real estate. These managers are bringing a real depth and diversity to our industry at a time when substance remains high on the agenda.
We have a great product range too. The Jersey Private Fund structure continues to assert its appeal as a quick, relatively inexpensive vehicle suited to small numbers of sophisticated institutional investors. More than 600 JPFs have now been established in total, meaning that their number has now overtaken collective investment funds in Jersey for the first time.
Amendments to Jersey’s Limited Partnership law and the long-awaited introduction of the Limited Liability Company structure, meanwhile, have also bolstered our options for overseas managers, particularly those in the US.
Jersey’s platform as a gateway to EU investor capital through private placement remains strong too. With this year marking ten years since AIFMD was implemented across Europe, today more than 200 non-EU managers are using private placement route through Jersey to access Europe – a figure that has grown by around 60% in five years – without the hassle and expense of full onshore AIFMD compliance.
It is clear that global managers continue to respond positively to Jersey’s private placement option, which holds particular appeal for those who do not require a full onshore EU presence – which is around 97% of managers, according to the EU’s own figures. As Jersey forges further links with the US and Asian fund management community, there is significant potential for us here.
Opportunities through alternatives
In a challenging landscape, Jersey’s funds sector is, overall, in a good place, with global trends supporting the future outlook of our industry as investors continue to focus on the opportunities presented through alternatives – private equity, venture capital and real assets – areas where Jersey has particular expertise and experience.
However, it is prudent that we remain on the front foot and respond with agility to market shifts.
At a macro level, for instance, Jersey’s weighting towards alternatives could turn out to be our greatest challenge should the industry adopt a cautious outlook as we cross the rubicon to a higher interest-rate environment.
Earlier in 2023, for instance, two-year UK gilts stood at 5.5% and are expected to surpass 6% in the next year. That’s the benchmark for the risk-free rate – the key hurdle for allocators when determining allocations to portfolios.
Not only that but allocators are also contending with the denominator effect, further impeding their sentiment and ability to continue to allocate so freely to closed-ended alternatives. We cannot ignore the fact that some significant sectors are likely to be impacted – real estate, a key area for Jersey, being one.
In this new era, embracing innovation, being agile and looking at our product range to see how we can introduce a wider choice of products and services will be vital. This is why this year the JFA has established an innovation sub-committee to look at a range of ideas.
The tokenisation of real assets looks set to have a transformational impact on the cross-border funds industry in the coming years. We are already well engaged on that topic, but it is vital we maintain momentum in an area that is witnessing real acceleration.
We are also well positioned in the rapidly growing arena of ESG investing. Jersey has a clear sustainable finance vision and is making good headway in implementing that strategy but, as international regulation evolves, it is vital that we keep up with the pace of change.
Responding in this way will be vital as we gather critical momentum in affirming Jersey’s reputation as a forward-thinking, innovative funds domicile.
It’s important, too, that we continue to assert our industry’s strength in combatting financial crime and work collectively as an industry and with the government to ensure that our national approach is fully aligned with that of our sector.
Jersey’s reputational advantage has long been at the heart of our success and, as an industry, we continue to be alive to the importance of being able to demonstrate the highest standards of anti-money laundering, compliance and governance.
In addition, if we are to maintain our growth trajectory, we need to be able to draw on a sustainable workforce. Experience and expertise have long been Jersey’s hallmarks, and a commitment to sourcing the best talent to boost productivity – in tandem with digital adoption – will be critical in the years ahead. With that in mind, the Jersey Funds Association remains proactive in attracting both young and diverse talent to the industry and enabling ‘career switchers’ an opportunity to enter the sector.
Looking forward, the ability of our industry to be agile and embrace innovation, balanced against a commitment to remaining a stable and certain domicile, will continue to be at the core of Jersey’s funds proposition.
If we can achieve that balance, then our industry will approach the future with confidence.