The changing regulatory landscape in European markets brings with it new opportunities for corporate and institutional investors in China and the Asian region.
One of the most high-profile changes revolves around the introduction of the Alternative Investment Fund Managers Directive (AIFMD) by the EU, scheduled for July 2013. It has implications for the international funds community and the corporate sector generally wishing to invest in Europe through fund vehicles.
The AIFMD is expected to provide a number of benefits and opportunities and, as EU member states prepare to formally introduce the directive, fund managers in Asia will be encouraged to know that there are options open to them, and that Jersey can be the most appropriate gateway.
Providing an alternative option has in fact been at the heart of Jersey’s response to the AIFMD. As a “third country” non-EU jurisdiction, but at the same time at the centre of European funds business, Jersey is in an attractive position – offering international fund managers a welcome blend of stability and flexibility within the framework AIFMD presents.
Jersey has adopted a “dual route” approach to the AIFMD. On the one hand, Jersey is 100% committed to continuing to facilitate funds business within the EU. It will do this through private placement arrangements with EU member states until at least 2018, and introduce the option of a fully AIFMD-compliant regime by 2015 – as soon as is possible for non-EU third countries.
On the other hand, as a non-EU jurisdiction, Jersey is able to offer a choice by maintaining a separate regime that lies outside the scope of the AIFMD, for managers who don’t want to access EU capital or operate in the EU.
Combined, these routes mean that fund managers using Jersey have a choice. Jersey can continue to operate its full range of existing fund regimes, offer an option that is fully compliant with the AIFMD, and provide managers with the flexibility to market to investors both inside and outside the EU, all from one location.
Of course, some managers may decide that they need to have an onshore option too, but it is anticipated that many managers will want to maintain or establish a parallel offshore structure for non-European investors.
We know that in the current climate fund managers are not only focusing on Europe, they are adopting global strategies to raise capital and they are turning increasingly to sophisticated Asian investors. In such cases, using an offshore European time zone jurisdiction that can also cater for non-European alternative fund business, such as Jersey, will remain attractive.
Jersey’s proximity to Europe, as well as its commitment to fully complying with the AIFMD, means that while Jersey will still be able to facilitate all European and non-European alternative fund business, such parallel arrangements with onshore structures will also work seamlessly.
The AIFMD is designed to give the alternative fund sector an added element of stability, for the benefit of both investors and fund professionals. In the current climate, this added stability and the subsequent confidence that it should instil is to be welcomed, and not be overlooked as a major benefit. Jersey’s commitment to embracing the AIFMD with that objective in mind is reflected in the various measures the jurisdiction is taking in the lead-up to AIFMD implementation, so that it, too, will offer all the comfort and stability the AIFMD promises.
First, continuing to market funds into the EU through national private placement arrangements will require certain agreements, which have now been clarified through the recently published Level II measures. Jersey’s regulator is currently fully engaged with the European Securities and Markets Authority and member-state regulators to ensure these agreements are in place in good time.
Beyond private placement, Jersey intends to obtain an EU-wide marketing “passport” and is confident it will be able to satisfy all the criteria needed to have a fully AIFMD-compliant regime ready to go by 2015. Jersey already regulates and authorises alternative fund managers in accordance with International Organisation of Securities Commissions standards, and has tax information exchange agreements in place with 15 EU member states. In addition, Jersey complies with all international reporting and transparency requirements, and is more compliant with the intergovernmental Financial Action Task Force recommendations than many onshore asset management jurisdictions.
So while the AIFMD may at first appear an onerous piece of regulation, if approached correctly it can actually present real opportunities in terms of instilling confidence and stability in the international fund sector and, particularly pertinent from a third-country perspective like Jersey, provide alternative fund managers with a welcome degree of flexibility.
Widening Jersey’s appeal
Recent developments have accelerated the use of Jersey for banking and investment purposes by leading corporate clients in China and the wider region.
The move by Hong Kong’s stock exchange to approve Jersey as a jurisdiction of incorporation for admission to the exchange, the increasing use of Jersey company vehicles by Asian investors in support of IPO activity in London markets, and the growing scale of banking deposits from Asia lodged in Jersey are all positive factors in the growth of business between Jersey and the region. Now in the funds environment, the dual option regime that Jersey is developing to coincide with the introduction of the AIFMD within the EU will only widen the appeal of Jersey to institutional investors.
Li Zhaoan is the head of Greater China Business Development at Jersey Finance. She can be contacted on +852 2159 9652 or by email at email@example.com