(jersey) investment funds - an overview

8/6/2019 (Jersey) Investment Funds - An Overview

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Jersey

Investment FundsAn Overview



Jersey Page 1Investment Funds – An Overview

Introduction

This briefing is intended to provide a general overview of some of the factors to be considered by

promoters and onshore counsel looking at Jersey as an investment fund domicile.

Onshore or offshore?

Promoters and managers have found many advantages, quite apart from the tax-related ones, inchoosing offshore over onshore jurisdictions for domiciling their investment funds offshore, including:

1. the ability to define investment strategies and objectives without restrictions imposed by onshoreregulators in the name of consumer protection, and the consequent absence at the fund level ofexpensive reporting requirements to onshore regulators such as the SEC in the United States and

the FSA in the United Kingdom;

2. in relation to certain types of funds (an example being property unit trusts), an offshore fund can

be more widely marketed to institutional investors and is often listed on an offshore exchange (forexample, the Channel Islands Stock Exchange) to facilitate this;

3. Jersey is home to a concentrated level of real estate and private equity fund expertise, includingexperienced law firms, fund administrators and managers and all of the major accounting firms

and private equity fund specialist audit firms.

Selection of offshore jurisdictions

Once the decision has been made to go offshore, the following key considerations come into play:

Political and economic stability

Jersey is not part of the United Kingdom. It is a self-governing dependency of the British Crown. It has

complete autonomy in all matters of internal government, including taxation. The legal system is derived inpart from the customary laws of Normandy but is strongly influenced by English law in company andcommercial matters.

Jersey's particular constitutional position is recognised by the European Union ("EU") in protocol (No.3)

attached to the United Kingdom's treaty of accession to the EU. In general terms, the protocol providesthat the Treaty of Rome applies to Jersey only to the extent necessary for the free movement of goods.Accordingly, EU directives on fiscal harmonisation, financial services and company law do not have direct

effect in Jersey and, in this respect, the jurisdiction enjoys significant advantages over Luxembourg andIreland.

Integrity and reputation

Jersey is a recognised jurisdiction for the purposes of the Financial Action Task Force ("FATF") for its anti-

money laundering legislation. This provides comfort to investors who may be satisfied that Jersey hasadopted standards that are at least equivalent to, if not higher than, those of their own jurisdiction. Suchconsiderations may be important, in particular, for institutional investors and government organisations.

It can also often be to the fund's advantage that it can demonstrate to the authorities in the jurisdiction

where it seeks to invest that it is properly regulated in an internationally recognised jurisdiction. Paymentsmay also be assisted to and from the target jurisdiction due to Jersey's recognition by the FATF.




Modern legislation and regulations

Jersey has a government that recognises the importance of working closely with the private sector to

provide legislation that meets market needs.

Absence of direct taxes and exchange controls

Investment funds can be established in Jersey without the imposition of direct taxes, and Jersey iscompletely free of exchange controls.

Good communications and access

The communications system in Jersey is first class and the legal and financial services providers operate

information technology systems on a par with those available in any other major financial centre.

Jersey is easily accessible by regular direct flights from London and other United Kingdom airports and is in

the same time zone as the United Kingdom.

Recognised stock exchange

The Channel Islands Stock Exchange ("CISX") has been designated as a "recognised stock exchange" byHer Majesty's Revenue & Customs and as a "designated investment exchange" by the UK FSA.

Regulatory framework

The Borrowing (Control) (Jersey) Law, 1947 ("COBO") and the Collective Investment Funds (Jersey) Law,1988 (the "CIF Law") together with the regulations made thereunder govern the establishment and

regulation of investment funds in Jersey. Although the scope of the two statutes overlaps, in practice aninvestment fund with a limited number of investors which is not to be listed will be governed by COBOwhereas a more widely distributed or listed fund will be regulated under the CIF Law.

In general, if shares, units or limited partnership interests are to be offered to 50 or fewer persons and are

not to be listed it is necessary only to obtain consent of the Jersey Financial Services Commission (" JFSC")under COBO. If, on the other hand, shares, units or limited partnership interests are to be offered to morethan 50 persons or are to be listed, a permit under the CIF Law will also be required. It is important to note

that for these purposes it is the number of offers made which dictates whether a fund is to be regulatedunder COBO or the CIF Law. Accordingly, it is possible for a "red-herring" offering document to bedistributed to more than 50 prospective investors without this giving rise to regulation under the CIF Law,

provided the red-herring document makes it clear that it is not intended to constitute an offer of shares,units or limited partnership interests. Where a permit is granted under the CIF Law, any COBO consents thatare required will be issued automatically.

Jersey has adopted a streamlined approval process for Expert Funds. An Expert Fund will be subject to avery light degree of regulation. In particular, the promoter of an Expert Fund will not be subject to any

regulatory review or approval and an Expert Fund will not be required to adopt any prescribed investmentrestrictions or risk diversification strategy. Self-certification as to compliance with the Expert Fund

requirements means that an Expert Fund can be approved by the JFSC within days.

An Expert Fund must appoint a Jersey resident administrator, manager or (in the case of a closed-end unit

trust) trustee. An open-ended Expert Fund must appoint a Jersey-resident custodian (unless it is a hedgefund, in which case a prime broker with a credit rating of A1/P1 is required). A Jersey open-ended fund(not being an Expert Fund) must appoint a Jersey resident manager and a Jersey resident custodian.

Jersey has also recently adopted a streamlined approval process for closed-ended collective investment

funds listing on a designated exchange. A listed fund will be subject to a very light degree of regulation. In




broad term, a listed fund must satisfy the same criteria as an expert fund, and will need to follow similarguidelines.

For additional details on the Expert Fund or the Listed Fund regimes, see our briefings entitled "Expert Fundsin Jersey" and "Listed Funds".

Fund vehicles

Different structures are available to be used for private equity funds and a combination of structures mayalso be permitted.

Companies

1. The Companies (Jersey) Law 1991 is a modern statute, based upon internationally familiar English

company law principles.

2. There are no minimum authorised or issued share capital requirements imposed.

3. A number of different types of company are available and no par value shares and cell

companies are also available.

Unit trusts

1. In contrast to an investment company, a unit trust is not a separate legal entity as such, but a trustarrangement whereby legal ownership of the fund's assets is vested in a trustee who holds the

assets of the fund on trust for the benefit of the unit-holders.

2. The unit trust will generally be constituted by means of a trust instrument made between a trustee

company and an independent manager. Typically the manager will promote, manage andadminister the scheme. Subscription proceeds will be paid to the trustee which will act ascustodian of the investment assets of the fund. In addition, the trustee will generally supervise

compliance by the manager with its obligations under the trust instrument.

3. The trust instrument will generally contain provisions regulating the issue, redemption and valuationof units, the appointment and removal of the trustee and the manager, their duties andremuneration, borrowing powers, investment restrictions and for the winding-up of the trust.

4. Jersey has a modern statute-based trusts law.

5. For most practical purposes a unit trust scheme will operate and be regulated in the same manneras a corporate investment fund.

Limited partnerships

1. Limited partnerships may be established and operated in each jurisdiction under comprehensive

and modern legislation.

2. A limited partnership may be an appropriate structure for a number of different purposes. Aprincipal use will be to provide an additional form of investment vehicle for mutual funds, inparticular for the venture capital industry. A limited partnership can also be an attractive structure

for various tax planning purposes as the partnership is generally treated as being fiscallytransparent.

3. There is no maximum imposed on the number of limited partners of a limited partnership.




4. The general partner will manage the business of the partnership and have unlimited liability for itsdebts. The liability of investors taking interests as limited partners (and who do not participate in

the management of the business) will be limited generally to the amount of their investment.

Selection of investment structure

The prospective investor at whom the investment product is targeted will be an important consideration indetermining the selection of the appropriate form of investment vehicle. Where, for example, a retail fund

is to be offered to the public in the United Kingdom, or to Japanese investors, a unit trust may be the mostfamiliar structure, whereas if the fund is to be marketed in Europe or in the United States, an open-endedmutual fund company may be the more appropriate form. For complex investment products with high

minimum investment thresholds to be offered to investment institutions, limited partnerships may be theappropriate form.

While regulatory and marketing considerations are important in selecting whether the corporate, unit trustor limited partnership form is used, the fiscal implications for investors will generally be the determining

factor. The promoters of the investment fund will generally wish to ensure that, at the least, the investment

fund achieves tax neutrality, whereby an investor will be in the same tax position whether he makes hisinvestment directly in the underlying assets or through the medium of the investment fund.

This memorandum is intended to provide an outline of the legal regime governing investment funds in

Jersey, and is not intended to be comprehensive in its scope. It is recommended that clients seek legaladvice on any particular matters.




For further information please refer to your usual contact or:

Cayman Islands

Roderick Palmer, PartnerT: +1 345 814 4606

E: [email protected]

Ingrid Pierce, Partner

T: +1 345 814 4667E: [email protected]

British Virgin Islands

Catherine Ross, PartnerT: +1 284 852 2201E: [email protected]

Hong Kong

Denise Wong, PartnerT: +852 2596 3303


Singapore

Ashley Gunning, Partner

T: +65 6595 4672E: [email protected]

London

Deborah Poole, PartnerT: +44 (0)20 7220 4995


Jersey

Jonathan Heaney, Partner

T: +44 (0)1534 700 786E: [email protected]

Dubai

Tim Buckley, PartnerT: +971 4 363 7908


Dublin

Paul Farrell, PartnerT: +353 (0)1 470 6669


The information contained in this memorandum is necessarily brief and general in nature and does not

constitute legal or taxation advice. Appropriate legal or other professional advice should be sought for

any specific matter.

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