Jersey Private Funds
Article first published in Connect in September 2017
On the 18th of April 2017, the long awaited revamp of the private fund regime in Jersey came into force. Very Private Funds, Private Placement Funds and COBO Only Funds were consolidated into a simple easy access private funds regime and the rules and regulations for the new product clearly set out in the Jersey Private Funds Guide (the Guide).
Six months on, and in the thick of the Brexit bounce which my Partner James Gaudin spoke about recently at the Jersey Chamber of Commerce lunch, demand for the new product, which is aimed at sophisticated investors, has been exceptionally strong. Investors from the USA, Asia and Middle East introduced to Jersey following the execution of trades driven by the slide in GBP have found a solid jurisdiction of substance in which to base their investment vehicles.
The Guide, effective as of the 18th of April 2017, provides greater clarity on the authorisation process for a private fund in Jersey, specifically in relation to the eligibility conditions and regulatory approach needed, when a fund is offered to 50 or fewer investors. The Guide introduces a fast track 48 hour approval process for such fund and allows a Jersey Private Fund (JPF) to be closed-ended or open-ended (subject to the 50 or fewer investor test).
Eligible investors include those who invest or commit no less than £250,000 (or currency equivalent); holders of non-participating interests; holders of management/founder interests; and holders of interests giving an entitlement to performance fees for the management team. Direct investment by retail investors is prohibited and all investors must acknowledge in writing the receipt and acceptance of a prescribed investment warning.
The 50 or fewer limit to which the Guide applies does not include persons acquiring interests carrying solely management or control rights; carried interest vehicles established for the sole purpose of sharing in the profits of the JPF (each participant in the carried interest vehicle must be a “professional” or an “eligible” investor); and a general partner of the JPF.
Further detail on the eligibility and criteria that needs to be met for a JPF can be found in the Guide, which is available at www.jerseyfsc.org
Application Process and Designated Service Providers
To establish a JPF, an application needs to be submitted to the JFSC which includes the following information:
- Basic details concerning the JPF including its name, registered address, the ‘relevant consent’ to be applied for, any minimum investment amounts, the investment policy, the details of the Designated Service Provider (including its name, function and any regulatory exemptions upon which it relies), and confirmation as to whether an independent auditor will be appointed.
- Confirmations including that all investors will be Professional Investors or Eligible Investors, that the total number of Professional Investors or Eligible Investors will not exceed 50, and that the Designated Service Provider will complete all client due diligence checks prior to the launch of the fund, and that they will maintain compliance with the relevant AML requirements going forward.
Designated Service Providers need to be based in Jersey and appropriately regulated, and will be responsible for certain requirements, including:
- Making all reasonable enquires to ensure that the JPF meets the eligibility criteria as set out in the Guide both on establishing the JPF and on an ongoing basis;
- Ensuring that all due diligence on the JPF and its promoter is carried out, and that the promoter has put in place suitable measures to ensure all service providers are suitable, and that all records relating to such due diligence enquiries will be readily retrievable in Jersey;
- Ensuring compliance with all Jersey AML/CFT requirements which apply to the JPF;
- Completing the JPF application form, and notifying the JFSC of any material changes to the information supplied by completing a JPF notice of change or event form; and
- Completing an annual compliance return confirming certain matters in respect of the JPF.
Currently, a statutory fee of £1,070 is payable to the JFSC in respect of an application for a COBO consent for a JPF, with an annual fee of £500 also payable which will be pro-rated for the year in which the JPF is established.
A JPF that will be marketed in the EEA will need to provide further information to the JFSC pursuant to the Alternative Investments Funds (Jersey) Regulations 2012, and additional fees payable to the JFSC may be required in such circumstances.
The introduction of modern regulatory powers in the Control of Borrowing (Jersey) Law 1947 means there is a requirement to make changes to the existing principal law, which the Government will progress with. As a result of the introduction of the JPF regime the JFSC no longer accept applications for COBO only Funds, Private Placement Funds (PPFs) or Very Private Funds (VPFs). An existing PPF, VPF or COBO only fund will continue in operation until the end of its natural life or may apply to the JFSC to convert into a JPF or a public fund. In a similar vein, new notifications for Unregulated Exchange Traded Fund will no longer be accepted. Any existing Unregulated Exchange Traded Fund may continue in operation until the end of its natural life or convert to another fund classification.
Future Plans in respect of Jersey funds
In addition, a consultation is expected later this year, which will outline changes to the public fund regulatory environment. This is expected to also include an introduction of manager led products, which will not need to adhere to the Code of Practice for Jersey Certified funds (funds supervised through an Alternative Investment Fund Manager and complying with the relevant sections of the Alternative Investment Fund Managers Directive).
The JFSC and the Government also plan to review the effectiveness of investment fund related exemptions to the existing Financial Services (Jersey) Law 1998 and amend along with other supervisory aspects of this related legislation.
Appleby were proud to advise on the first conversion of an unregulated fund into a regulated fund.