Against the backdrop of fast-moving developments within the fund industry, there are many factors that investors, managers and advisors need to consider when deciding where to domicile their funds.
Senior Director, Marie Fitzpatrick recently shared her views on fund domiciliation from an administrator’s perspective when she took to the “stage” at the Jersey Finance sponsored roundtable session at this years’ Greenwich Economic Forum.
CHALLENGES PRESENTED BY 2020 / PANDEMIC
The pace of change within the fund industry has accelerated since the beginning of the pandemic. Temporary and volatile changes have been a huge challenge for the industry varying from one day to the next makes them difficult to keep up with. Clients are now looking to their administrator to adapt quickly to provide reliability and stability to provide business continuity. Additional processes and heightened business continuity plans have been implemented overnight to enable remote working globally, allowing business operations to remain at the highest possible standard.
Technology has had a significant role to play in overcoming the challenges presented by COVID 19. Video conferencing has allowed virtual Board meetings to take place effortlessly and those looking to launch a new fund have been able to host the necessary Board meetings virtually to ensure the appropriate actions are met.
At the start of the pandemic fund managers who were looking to close their funds pushed for capital, as they were worried about whether the capital may or may not disappear. Meetings with new investors were put on hold and a considerable amount of time was spent on existing portfolios to ensure that liquidity solutions were identified and in place. The latter half of this year has seen an increase in new funds looking to launch as many fund managers are now coming to terms with the virtual world we are living in providing the industry is robust enough to overcome the challenges faced as a result of the pandemic.
CHANGES FROM THE INVESTOR’S PERSPECTIVE
For professional investors, Operational Due Diligence (ODD) is a crucial element to their procedures when looking to allocate capital to third party fund managers, with the onsite visit being a key part of this. Given the current circumstances, investors wishing to deploy capital are having to take a different approach. With the travel restrictions in place they are having to explore new ways to conduct their onsite visits to assess the ODD.
Some of the changes taking place are as follows:
- Investors may be choosing to outsource assurance engagement to conduct the due diligence questionnaires
- There has been an increase in virtual tours / road shows, although this does not come close to the face-to-face meetings, it does however, help to establish a relationship between the investor and the fund manager
- Investors have also been engaging with existing investors within the fund to find out how and what ODD they have been conducting on the fund manager
In contrast to the beginning of the pandemic, where investors put a pause on most of their activity, they have now found new ways to adapt to the ever-changing environment. This is seen as a positive and has resulted in increased engagement between investors.
REGULATORY CHANGES AND THE IMPACT ON FUND DOMICILIATION IN JERSEY
The vast amount of regulatory change is on the rise and it is of great importance that jurisdictions such as Jersey, have the appropriate human resources in place to ensure changes can be addressed, absorbed and adapted within a timely manner.
Firstly, it is key to establish who is driving the change and what the objectives are within the fast moving environment. Those who are looking to domicile their fund in Jersey will be checking to ensure that the Island has robust human infrastructure in place to support any probable regulatory changes. Good communication between the Government, regulators and the industry will be a huge influence regarding the choices made by the investor and/ or fund manager. Jersey as an Island is quick to adapt and implement any new regulatory changes, regarded through their efforts in complying with the Financial Action Task Force recommendations.
US FUND MANAGERS LOOKING TO MOVE TO JERSEY
More and more investors are now conducting comparative evaluations between jurisdictions prior to deciding where to domicile their fund. In the past, investors would stick with what they know best, however they are now demanding a plan ‘B’! Investors are keen to understand what different jurisdictions have to offer and the benefits to using them, taking into consideration the expertise available, the infrastructure and how well connected they are.
Most recently, Jersey has seen an increase in US lawyers who are advising their fund managers on the implications of where they domicile their upcoming funds. This has resulted in many inbound enquiries from US firms, to select Jersey as their jurisdiction of choice. European and global investors see Jersey as safe haven, with a stable environment and well-reputable history within the funds industry.
In the light of the pandemic, the regulator has been fast to adapt to the crisis which ultimately showcases first class business continuity to fund managers and investors. This goes hand in hand with the reputation that Jersey has built for itself along with the longevity and well-established infrastructure on offer.
POLITICAL STABILITY WITHIN JERSEY
Stability, reliability and resilience are crucial factors, especially when fund managers are choosing where to domicile their fund.
Over the past few years, it has become increasingly difficult to find a jurisdiction which can provide an environment that is politically and financially stable. Jersey has the ability to offer this, making it an attractive option for fund managers to consider. The Government is focused on introducing safe and high quality business to the Island, this is supported by the Islands first-class infrastructure of laws and regulations.
There has also been a huge shift in behaviours, individuals are now looking for a long-term solution for the domiciliation of their funds. Investors are diversifying their portfolio and are now looking to become multi-asset managers. Many are looking for an environment that can provide strong expertise, with the ability to service various asset classes, such as private equity, infrastructure and debt. This combined with the laws and regulations boosts confidence within investors and fund managers who are looking to use Jersey for the domiciliation of their future funds.
- Private Equity may find it difficult to raise capital as a consequence of 2020, resulting in closings being delayed from 2021 to 2022
- In addition, there has been a huge push for ESG solutions. Investor reporting and impact investing will continue to be a priority for 2021
- 2021 will be an attractive year for opportunity. Whilst fundraising may be tough, valuations of the underlying portfolios are known which will present new opportunities and hopefully increase investment activity
We know that 2020 has taught everyone that regardless the amount of prior planning, we are sometimes unable to control the unexpected. Furthermore, it is vitally important to be able to adapt quickly, efficiently, and cooperatively to demonstrate to clients that support can be provided at the same standard even in challenging times. We pride ourselves on our ability to adapt and emerge “stronger together” in the future.