Emerging markets are growing fast - but where should your funds focus be?

Published 14 May 2014

By Stuart Pinnington

Stuart Pinnington, Group Head of Institutional Client Services at JTC, looks into the importance of getting the balance right on how to nurture your current markets as well as exploring and entering emerging markets.

Jersey is well established as a strong offshore funds centre and continues to be the domicile of choice for many leading fund promoters.  Its neutral tax regime, 50 years of funds experience and industry valued at £200 billion make it an extremely appealing fund location for established fund players and new entrants alike.

The financial crisis undoubtedly deterred new investment in recent years however with confidence returning the international investment community is increasingly focused on new investment opportunities.  Private Equity and Real Estate continue to dominate the fund asset classes closely followed by alternative assets, with interest in the Channel Islands funds jurisdictions from investors looking to participate in the British, European and US recoveries remaining high.

Jersey, and Guernsey, are particularly favoured offshore domiciles due to their safe and supportive political and economic environments. Similarly, the UK and Luxembourg are recognised as popular onshore domiciles and these four jurisdictions have always been our core fund services platforms. Our biggest clients’ funds are administered out of Jersey and Guernsey, however, we are increasingly experiencing a demand for multi domicile structures and fund businesses need to be able to offer a joined-up and consistently high standard of service to these structures. Clients and investors want to be able to invest in both offshore and onshore locations.  Further to this changing market trends are now influencing clients and investors to consider domiciling funds in emerging markets as well as developed markets.
We have been able to accommodate our clients with our offshore and onshore services in established multi domiciles and are now looking at investing in emerging market jurisdictions to meet all requirements.

Global market trends show that new emerging markets are increasing their global power and according to the International Monetary Fund, (IMF), by 2014 emerging markets will have overtaken developed economies in terms of global GDP.

Global trends also show that the top three emerging markets over the next 12 months look to be Sub-Saharan Africa, Asia and Latin America.

So will fund businesses stretch out across the globe?

Most definitely, it’s an opportunity not to be missed. These alternative and diverse markets can offer new sources of return away from developed markets.  Emerging markets provide new investment opportunities, such as elevated economic growth rates, higher expected returns and diversification benefits.

With its wide range of flexible fund products and an established framework of best practice in respect of the governance of investment vehicles Jersey is well placed to support fund clients seeking to exploit the growing number of inward and outward investment opportunities in all asset classes arising from the continued development of the emerging market economies.

Investors and clients also require their fund services provider to be closer to the jurisdiction of investment. So taking the top emerging market, Africa, research shows that China is keen to invest heavily into the African real estate and renewable energy markets.  We have both real estate and renewable energy clients and so it seems a natural step to move into this market and offer our fund services in Africa. Latin America is also high on the list of emerging markets and a reason we have operations close by in the British Virgin Islands (BVI) and Cayman to meet these demands.

Entering into emerging markets does however present some risks that need to be carefully explored. Regulations are different and of course there will be a level of political risk in these countries that can make potential foreign investors hesitant to set up business in an emerging economy.

Looking at both sides, investing in emerging markets can produce attractive returns and diversification to clients and investors.  However, when contemplating any new market or sector it’s particularly important that you can evaluate, understand and manage the risks involved prior to investment.

Jersey’s position as one of the best regulated international finance centres adhering to the highest standards of anti-money laundering practice offers investors a level of regulatory comfort and corporate governance experience which may be used for the benefit of all stakeholders seeking to mitigate the risks associated with doing business in less developed economies.

Similarly, experienced fund service providers can add value by ensuring that the structures through which stakeholders set and pursue their objectives adhere to best practice mechanisms for monitoring the actions, policies and decisions of the funds’ governing bodies.

Jersey continues to work hard to ensure that it remains well placed to offer high quality cross-border financial services to new markets, as demonstrated by the recent entry into a Memorandum of Understanding between the Jersey Financial Services Commission and the China Securities Regulatory Commission. The MoU establishes a framework for mutual assistance and the exchange of regulatory information and, as reported by Jersey Finance, paves the way for Jersey domiciled funds to participate in the Qualified Foreign Institutional Investor and Qualified Domestic Institutional Investor programmes adding to Jersey’s appeal as a jurisdiction that can act as a gateway for investing into and out of China.

JTC started in Jersey over 27 years ago and our early clients have since become our long term clients.  The needs of these clients come first and we very much focus on meeting their expectations by delivering the services they require in the domiciles they choose. This partnership approach has allowed us to grow strongly, developing valuable and highly relevant experience as a result.

JTC has a global reach to 18 jurisdictions through our main service centres, alliance and sales offices and will continue to invest in this network to provide our clients and investors the full fund package.

We specialise in private equity, real estate, renewable energy, infrastructure and media, as well as alternative assets, and these are all expected growth asset classes in both developed and emerging markets.