November 2007 Jersey Hedge Fund Services 2007

Unregulated funds Soaring fund Finance industry aim to maintain business attracts boom puts housing future advantage the professionals into overdrive CONTENTS In this issue…

03 Unregulated Funds give Jersey a vision for the future By Simon Gray

05 The inflow of fund industry expertise By David Pirouet, PriceWaterhouseCoopers

08 Jersey is responsive to the market’s changing needs By Gary Clark, Mourant

11 Jersey’s fund regime comes to maturity By Mark Chambers, Ozannes Advocates

13 Exciting additions to funds capability By Beverley Le Cuirot, Jersey Finance

15 Administrators under paper pressure By Heather MacCallum, KPMG

16 Jersey’s rising tide lifts service providers’ business By Simon Gray

17 Meeting the needs of Jersey’s new breed By James de la Cloche, Edge Properties

Publisher

Special Reports Editor: Simon Gray, [email protected] Sales Manager: Simon Broch, [email protected] Publisher/Editor-in-Chief: Sunil Gopalan, [email protected] Marketing Director: Oliver Bradley, [email protected] Graphic Design (Special Reports): Siobhan Brownlow at RSB Design Photographs: Courtesy of Jersey Tourism Published by: Hedgemedia Limited, 18 Hanover Square, London W1S 1HX Tel: +44 (0) 20 3159 4000 Website: www.hedgeweek.com

© Copyright 2007 Hedgemedia Limited. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher.

JERSEY Hedgeweek Special Report Nov 2007 www.hedgeweek.com | 2 OVERVIEW

Unregulated Funds give Jersey a vision for the future By Simon Gray

Building on the success of the Expert Funds Luxembourg and Ireland, compete to offer regime launched three years ago, which ever more lightly regulated regimes for almost overnight reinvented Jersey as a alternative funds. Jersey is seeking to set domicile and servicing centre for alternative itself apart from the crowd with a fund funds, the island is planning to complement vehicle that not only does not require initial its existing range of fund vehicles by offering approval or ongoing supervision but carries unregulated funds for sophisticated and no obligation to use service providers on the institutional investors that entail no further island such as administrators, nor any audit oversight once their establishment has been requirement. notified to the industry regulator, the Jersey According to Geoff Cook, chief executive Financial Services Commission. of the island’s financial industry promotional The move to launch completely body Jersey Finance, the regime was drawn unregulated funds at the beginning of next up on the basis of feedback from fund year comes as other jurisdictions across sponsors that “simplicity, certainty and Europe, including Guernsey, the Isle of Man, speed” were paramount in establishing ➧ p6

JERSEY Hedgeweek Special Report Nov 2007 www.hedgeweek.com | 3 Packed with potential.*

At PricewaterhouseCoopers our people, our clients and our To find out more about what a industry contacts – both locally and around the world – make relationship with us could do for for a formidable business network. But that’s not the only your business, call: reason why our clients choose us. David Pirouet It’s how well we realise this potential that really sets us apart. +44 1534 838302 The way that we listen and question, challenge, collaborate Karl Hairon and support. Developing deep and long-lasting relationships +44 1534 838522 that build trust and enhance value. In the Channel Islands, PricewaterhouseCoopers supports or visit www.pwc.com/jg businesses like yours by turning challenges into opportunities, in key areas including audit, best practice, advice, compliance, financial risk management, structuring and tax.

*connectedthinking

©2007 PricewaterhouseCoopers CI LLP. All rights reserved. ‘PricewaterhouseCoopers’ refers to the Channel Island firm of PricewaterhouseCoopers CI LLP or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity. PricewaterhouseCoopers CI LLP, a limited liability partnership registered in England with registered number OC309347, provides assurance, advisory, tax and administration services and is regulated by both the Jersey and Guernsey Financial Services Commissions as a provider of trust company business services. The registered office is 1 Embankment Place, London WC2N 6RH and its principal place of business is Twenty Two Colomberie, St. Helier, Jersey JE1 4XA. PRICEWATERHOUSECOOPERS The inflow of fund industry expertise By David Pirouet

Jersey’s fund industry is in blooming good process. This influx is increasing the choice health, as the statistics make clear. The of service providers for fund managers and growth in fund assets under administration to their advisers to choose from. GBP210bn by the middle of this year Equally heartening is the steady growth in represents a rise of almost 50 per cent over the number of hedge fund managers the previous 12 months, with just under half establishing all or part of their operations in the total represented by private equity, Jersey. Many are relatively small businesses, property and hedge funds. but one larger manager to dip a toe into the The island’s premier vehicle for alternative water a couple of years ago was Brevan investments, Expert Funds, also increased by Howard, which established a small around 50 per cent to reach a total of 319 in administration and compliance base. Today David Pirouet is a partner with the year to June, and there’s been no sign of the firm is gradually increasing its operations PricewaterhouseCoopers in the pace slackening since then, with enquiries Jersey and some of its investment managers have coming in from new promoters and new become resident in the island. funds continuing to launch notwithstanding The authorities seek a balance between the recent market turbulence. encouraging economic growth and taking The flow of new business appears to be care not to overstrain the resources of a split between promoters that have used small island through high immigration. In this Jersey in the past and new fund managers environment, the focus is on attracting that are targeting sophisticated and businesses that add considerable value institutional investors. But just as without requiring large employee numbers. encouraging for the island is an increase in One of the additional attractions of Jersey number of skilled professionals who are for fund managers is its established expertise boosting the jurisdiction’s reputation for not only in fund services but in professional industry expertise. corporate administration. This is becoming The past year has seen steady growth in more important as fund promoters increasingly the range of local services providers to the need to demonstrate that proper management alternative fund industry, such as control is being exercised in the jurisdiction in Complyport, the leading London-based which the fund is managed – especially when regulatory and compliance consultancy investment advice to the fund is being headed by Ron Weekes, which established provided by a fund manager in London. an office in St Helier at the end of last year. Pressure has been steadily put on hedge Also, a well-established fund promotion fund and private equity managers by HM agency, Brook Street has moved to the Revenue & Customs over the past few years, island recently. and the recent debate about changes to the The development of the industry is UK’s investment management exemption prompting growth in the fund administration rules has added to the need for managers to sector. In recent months LaSalle Global Fund ensure their offshore structures can stand up Services has launched operations, to robust scrutiny from the tax authorities. Rathbones, which already had a substantial Not only does Jersey have the local presence in Jersey, has opened a fund professionals to provide expertise in management and administration office, and administration of fund management vehicles, two or three more administrators are but it ties in with the trend for managers to currently going through the authorisation establish substantial activities in the island. ■

JERSEY Hedgeweek Special Report Nov 2007 www.hedgeweek.com | 5 OVERVIEW

Fund Encyclopaedia reported – admittedly using figures affected by the fluctuations in the dollar exchange rate – that the island’s fund servicing industry had grown to USD225.9bn (GBP112.5bn) in 1,367 funds and sub-funds at the end of June, an increase of nearly 150 per cent from USD91bn (GBP59.7 billion) in mid-2002. Among funds domiciled on the island, Lipper found, the largest alternative asset class was real estate funds with total net assets of USD69.4bn, representing 41 per cent of total domiciled fund assets, followed by private equity and venture capital funds with USD33bn. Whatever the exact numbers, industry practitioners are confident that the island p3 ➧ alternative funds aimed at the most enjoys a solid base on which to add a new sophisticated investors. string to its bow. The ultimate goal is for “This is a significant step forwards for the Jersey to challenge the Cayman Islands, funds industry in Jersey and a natural home to at least half of the world’s hedge progression in our goal to become the funds, for some of its domicile business, European jurisdiction of choice for the especially from European managers and alternative funds sector,” he says. “Promoters promoters. of funds for high net worth individuals, The Unregulated Funds regime, Jersey sophisticated investors and institutions will practitioners note, will give Jersey at least have greater flexibility when choosing Jersey one area of advantage over Cayman, which and will be able to structure their funds to requires a local audit sign-off for its suit both commercial and tax requirements.” Registered Funds. “We can offer an In just over three years from the launch of alternative to Cayman that offers the same the Expert Funds regime in February 2004 to ease of establishment but that is more the middle of this year, 319 Expert Funds convenient for European fund promoters,” with total assets of GBP38.3bn were Cook says. established in Jersey including private equity, The Unregulated Funds regime will real estate and hedge funds as well as comprise two categories, Unregulated vehicles with more exotic investment Eligible Investor Funds, which will carry a strategies. Over the past couple of years the minimum initial investment of USD1m (this island has added the Listed Funds regime requirement may be waived in certain cases), for funds listing on a stock exchange, and Unregulated Exchange Traded Funds, particularly Euronext Amsterdam and the which is designed for funds that are London Stock Exchange, and the Non- regulated through listing on a stock Domiciled Funds Guide to ease the exchange and for which additional regulations on servicing in Jersey of funds supervision in Jersey is therefore deemed established elsewhere. superfluous. Investment warnings will be At the end of June Jersey serviced fund prominent to indicate that these funds are assets totalling GBP210.4bn, just under half unregulated, and existing funds will not be of which was in traditional long-only vehicles, able to transfer to the new regime. according to the regulator. It also had 234 Both closed-ended and open-ended funds private equity and venture capital funds with are eligible for the regime, and they can be assets of GBP16bn, 134 property funds with structured using companies, unit trusts or GBP31.5bn, 378 hedge and absolute funds limited partnerships. Open-ended with GBP50.9bn in assets, and 98 other Unregulated Eligible Investor Funds are specialist funds including securitisation and permitted to seek a listing, but only on stock derivatives vehicles with GBP11.5bn. exchanges that allow transfer restrictions, Earlier this month Lipper’s latest Jersey while Unregulated Exchange Traded Funds ➧ p9

JERSEY Hedgeweek Special Report Nov 2007 www.hedgeweek.com | 6 A hedge fund administration solution, that is as unique as your business.

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Please contact: Gary Clark T +44 (0)1534 609917 [email protected]

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In Jersey, Mourant International Finance Administration operates through Mourant & Co. Limited and its affiliated companies which are regulated by the Jersey Financial Services Commission in the conduct of trust company business under the Financial Services (Jersey) Law 1998. Registered office: PO Box 87, 22 Grenville Street, St Helier, Jersey, JE4 8PX, Channel Islands. In Guernsey it operates through Mourant Guernsey Limited and its affiliated companies which are regulated by the Guernsey Financial Services Commission in the conduct of investment business and in the conduct of trust and company business. Registered office: First Floor, Dorey Court, Admiral Park, St Peter Port, Guernsey GY1 6HJ. In the UK, it operates through Mourant Fund Services (UK) Limited Firm Number 448301, which is authorised and regulated by the Financial Services Authority. Registered office: 8th Floor, 68 King William Street, London EC4N 7DZ. In Luxembourg, it operates through Mourant Luxembourg S.A. which is regulated by the CSSF to provide Domiciliation, Registration and Transfer Agency Services Registered office: 6 rue Philippe II, L-2340 Luxembourg. R.C. Luxembourg B No 88409. In the Cayman Islands, it operates through Mourant Cayman Limited which is regulated by the Cayman Islands Monetary Authority in the conduct of trust company business. Registered office: Strathvale House, 90 North Church Street, PO Box 10378 APO, George Town, Grand Cayman, Cayman Islands. MOURANT Jersey is responsive to the market’s changing needs By Gary Clark

The evolution of Jersey’s regulatory reality would not be subject to any structure for the fund industry over the past meaningful regulation. three years has been essentially driven by The nature of these funds is made clear the needs of the market. The various to investors through the disclosure initiatives the island has undertaken, requirements and by restricting access to starting with introduction of the Expert appropriate investors. It’s then down to the Funds Guide in 2004, have been driven by investors to carry out their due diligence on the industry talking to people in London, the fund – as they would do anyway. This listening to what they want from us as a type of product is for institutions, funds of jurisdiction, and responding to the needs of funds, family officers, pension funds and the market. their advisers, who are more than able to Gary Clark is head of hedge Cynics might say that Jersey is becoming fund services with Mourant look after themselves, not the type of a less regulated jurisdiction and is open to International Finance investors represented by independent more risk, but it’s more accurate to describe Administration in Jersey financial advisers. it as putting products into the market that are In introducing unregulated funds, Jersey is appropriate for certain types of investor and simply responding to the requirements of the situations, and providing more structural market; had a similar regime been available flexibility to the market in the way they a decade ago, many of the funds that are service Jersey-domiciled funds. now domiciled in Cayman might well have The introduction of Unregulated Funds, come to the Channel Islands instead. In which carry a minimum investment level of practice, it took the launch of Expert Funds USD1m, is the latest step in an overall to begin the process of providing the full strategy that requires Jersey to be range of vehicles, structures and regulatory responsive to the market and its needs in a regimes the market requires. meaningful way, with products that the But Jersey does see itself at the upper market requires. The majority of these types end of regulated offshore jurisdictions, and of funds are currently domiciled in the strives to meet international standards and Cayman Islands. maintain its reputation as well as respond to It would be almost misleading to claim the needs of the market. By offering a that one was offering protection to product that’s structurally very open as to sophisticated institutional investors with a how it’s serviced, managers have a greater very light touch regulatory regime. We ended choice of service providers, which must be up with an unregulated regime because the in the interests of investors. For example, Jersey Financial Services Commission there is a wider pool of directors beyond believed it better to have a structure that was Jersey’s shores that can be appointed to clearly designated as unregulated rather than fund boards, which paves the way for better an even more lightly regulated structure than corporate governance and ultimately greater those offered in other jurisdictions, which in investor protection. ■

JERSEY Hedgeweek Special Report Nov 2007 www.hedgeweek.com | 8 OVERVIEW

p6 ➧ have a free choice of exchanges on which to list. There are no restrictions on the type of investor that may buy shares in these funds. Fund industry professionals in Jersey believe the new categories will appeal to promoters including hedge fund managers and financial institutions for which an unregulated product is attractive, often because speed in bringing the product to market is essential. “The unregulated funds regime is an interesting development and a bold move from Jersey,” says Ozannes corporate partner Mark Chambers. “It’s the way to build a significant fund industry within the island. It’s been a successful model in Cayman, and with careful regulatory overview it could be quite successful for Jersey too.” The new regime was drawn up by the Jersey Finance Working Group, chaired by note of the regulatory changes that have Rupert Walker, who says: “From the been introduced in other jurisdictions, and feedback we received, we found that there following extensive consultation with the were many factors involved in the decision JFSC are now ready with a new element on a fund’s domicile, of which regulation is which has been missing from the Jersey only one. Also important is familiarity with product range in the form of unregulated the establishment process, as well as the funds.” proximity of the domicile to the sponsor and Jersey Finance technical director Robert functionaries. The clients said that Jersey Kirkby says the working party was had room for improvement in terms of established at the beginning of this year certainty, speed and simplicity. because industry practitioners were receiving “One option was to do nothing, but we feed back from clients that was critical about concluded that there was a gap in the the limitations of the existing regulatory market for an unregulated fund product. framework for funds. “We also wanted to There is a lot of movement right now at the look at what we needed to do to position lightly regulated end of the market, and it ourselves for the future,” he says. “We were made no sense to offer an even more lightly thinking about funds where we don’t really regulated vehicle. We decided it was more know yet what asset classes they belong to, honest to offer products that are unregulated but we wanted to make sure Jersey enjoyed and openly advertise that fact.” first-mover advantage with them. There is no requirement on unregulated “We spoke to a number of gatekeepers, funds to use a Jersey-based administrator, promoters, hedge fund managers and private directors or custodian, although Walker equity houses, and came back with a very points out that there is no reason not to, clear message that there was no given the depth of expertise on the island in requirement for an additional layer of administering complex and sophisticated regulatory protection in Jersey for institutions fund products. “Using a Jersey administrator and high net worth individuals who are would also establish a stronger connection professionally advised. Quite often those with the islands when determining the institutions or their advisers are regulated jurisdiction of courts abroad over a fund,” he onshore anyway, but we were told that these says. clients were big enough to know what they Richard Thomas, a partner at law firm are doing. The additional layer of regulation Ogier, chairman of the Jersey Funds in Jersey was becoming costly and causing Association and another member of the them difficulties when creating bespoke-type working party, says: “We have been taking arrangements. ➧ p12

JERSEY Hedgeweek Special Report Nov 2007 www.hedgeweek.com | 9 A DIFFERENT PERSPECTIVE

Having expertise is vitally important. At Ozannes it’s what we do with it that sets us apart. By looking at things from a different perspective, we can offer pragmatic solutions which are based on that expertise and on our substantial international experience. That’s one of our strengths. It’s how we gained our international reputation for legal excellence and why we are a leading legal adviser to investment fund business in the Channel Islands. For a different perspective to meet every individual requirement, maybe the time is right to take a closer look at Ozannes – legal excellence, naturally.

PO Box 186 1 Le Marchant Street St. Peter Port PO Box 733 Le Quesne Chambers 9 Burrard Street For more details visit our Guernsey GY1 4HP Channel Islands St. Helier Jersey JE4 0ZS Channel Islands website: www.ozannes.com tel: +44 (0) 1481 723466 fax: +44 (0) 1481 727935 tel: +44 (0) 1534 723466 fax: +44 (0) 1534 723465 e-mail: [email protected] e-mail: [email protected] OZANNES ADVOCATES Jersey’s fund regime comes to maturity By Mark Chambers

The impending introduction in Jersey of emphasising its lifestyle qualities, Unregulated Funds, following the introduction advantageous tax system and high-quality of the Experts Funds, Listed Funds and Non- professional and technological infrastructure. Domiciled Funds regimes over the past three These efforts are vital because the years, is a reflection of the island’s growing competition is tough, not just from traditional maturity as a funds jurisdiction. Jersey has rival Guernsey but fund industry hubs around always prided itself on being one of the the world. In seeking to attract alternative more highly regulated centres for funds, but managers to domicile their funds in Jersey, the unregulated regime signifies the the island is up against the Cayman Islands, realisation that there are categories of funds which has had a type of unregulated that do not require regulation. registered funds regime in place for years, Mark Chambers is a corporate Whether Jersey should introduce an making it the world’s leading hedge fund partner with Ozannes in unregulated fund regime has been a topic of Jersey domicile. In the same way, Dublin has discussion between industry representatives established itself as one of the foremost and the Jersey Financial Services Commission centres for hedge fund administration. for some time. It was a route that Guernsey In launching a category of unregulated opted not to go down when implementing the funds that do not require the involvement of Harwood Report on fund regulation delivered a Jersey-regulated managing functionary, we last year, but Jersey has decided on this bold are setting out our stall especially to move because highly sophisticated European managers. In particular Jersey is institutional investors often do not need or focusing on low-footprint but high worth desire the regulatory protection and attendant services that suit its restricted size and constraints attached to Expert Funds. population constraints – hence the strategy This is the next logical extension of the to concentrate on niche products geared to island’s strategy to focus on niche, the requirements of high net worth clients sophisticated products for high net worth rather than a mass market. and institutional investors, as opposed to Today the island offers three main types retail funds, which has characterised the of fund vehicle: corporate, limited development of the industry since the partnerships, which cover the private equity introduction of the Expert Funds regime side, and unit trusts, which include property in 2004. funds. The new regulatory structure allows It will also help the island to build the Jersey to compete more aggressively for service capabilities and human skills required funds because they are now regulated – or to make it a competitive long-term player in not – according to their level of risk and the the alternative funds industry. When the type of investors they serve rather than Expert Funds regime was introduced, there according to rigid restrictions more suited to was already a core of administrators on the protection of a retail customer base. island capable of dealing with alternative Jersey will probably never be a Cayman, funds, but a process of organic development attracting hundreds of new funds every year, is underway which is enabling Jersey but it is capable of competing effectively for providers to offer high added-value services, business from European managers for whom in the same way that the authorities are the island’s skill set, economic and political seeking – with growing success – to attract stability, high reputation and convenient time hedge fund managers to the island by zone make it an attractive alternative. ■

JERSEY Hedgeweek Special Report Nov 2007 www.hedgeweek.com | 11 OVERVIEW

Listed Funds Guide, and now the unregulated regime, for clients that are very wealthy and know exactly what they’re doing. “We’re positioned for the future, because often when a new asset class or a new type of structure comes along, Jersey and other offshore jurisdictions don’t have the skill set to administer it. By providing a non- administrator-based location we can gradually learn from interaction with the promoter and the investment manager, we still get the domicile, and over time we can p9 ➧ “The working group had to weigh up the build up the administration base.” demands of ensuring a good workflow but It has already been noted that also maintaining the island’s reputation as a Unregulated Exchange Traded Funds are well-regulated jurisdiction. Under the regime, very unlikely to qualify for a listing on provided the fund complies with certain Euronext, where the attraction of Jersey criteria it can pass through a portal that funds has been an agreement with the allows it to be unregulated. The essential Dutch regulator, the Financial Markets point is that the regime only applies to funds Authority, declaring the island’s regulatory aimed at sophisticated investors and standards to be equivalent to those in the institutions, and is in no way applicable to Netherlands. Kirkby agrees, saying: “Unlisted products for widows and orphans.” funds won’t be eligible for Euronext, we Some industry observers have queried know that. Guernsey has applied for its how the Jersey authorities can ensure that Registered Funds and has been denied, so funds adhere to the criteria for escaping we don’t expect it. regulation once they have been launched, “However, where an exchange does permit but Kirkby says self-regulation is the key. an unregulated listing, it can go through this “When a new fund is to be established in the channel. In terms of the market, it’s part of island, a Jersey lawyer will inevitably be positioning ourselves for the future rather contacted, and although there is no legal than any immediate flow of work. The biggest requirement to do so they will make some gain in the immediate future will probably be relevant checks on the promoter,” he says. hedge funds looking for technical listings to “They don’t want that promoter to be satisfy the requirements of their investors.” splashed all over the news in a year’s time PricewaterhouseCoopers partner David and to be associated with that. As for the Pirouet agrees, saying: “Some hedge funds promoter, he only needs to make one have taken technical listings in order to meet mistake and his reputation will be gone, and the requirements of certain investors such as the same for whichever administrator is used, pension funds, and the Unregulated Exchange whether it’s on or off the island – they will Traded Fund product is designed to meet need a good reputation to maintain ongoing those criteria. It should still enable those business. When funds go through the portal, listings to take place and meet the needs of Jersey advisers will ensure that the promoters funds launched for this types of investor.” are not involved in money laundering or have Kirkby cautions that the island can never a reputation for recklessness. Everyone who rest on its laurels. “The Expert Funds regime, operates here wants to make sure the island introduced in 2004 and amended last year, maintains its reputation.” was fantastic for the island,” he says. “It Kirkby describes Unregulated Funds as really pulled us back into the alternative fund “the final piece in the jigsaw” for Jersey. “At market – prior to that we were struggling. But one end we have the recognised fund regime the lesson of the 1980s and 1990s is that that is very much for retail customers, with Jersey can’t be complacent. We must plan heavy regulation and lots of protection,” he for the future even when things are says. “Then there’s the unrecognised fund successful now, and this was one of the regime, with the Experts Funds Guide and drivers for revisiting our funds offering.” ■

JERSEY Hedgeweek Special Report Nov 2007 www.hedgeweek.com | 12 JERSEY FINANCE Exciting additions to funds capability By Beverley Le Cuirot

Jersey intends to introduce a new domicile their fund elsewhere but still take unregulated fund regime early in 2008 advantage of the administration and custody designed to meet more closely the needs of skills prevalent in Jersey. the hedge fund community. It follows Earlier this year the Listed Fund Guide extensive consultation with the funds was introduced, a fast-track authorisation industry both at home and in London, which process for the establishment of closed- identified that the island needed to widen its ended collective investment funds that are to capabilities through the provision of be listed on recognised stock exchanges or unregulated funds to remain on track to markets. become the European jurisdiction of choice As a result of further consultation with the for the alternative funds sector. JFSC, Jersey is now ready for its next move, Beverley Le Cuirot is director The new regime is designed to provide the unregulated category. Fund promoters of marketing at Jersey Finance promoters and other fund introducers with the will not need to seek regulatory approval if simplicity, certainty and speed they seek when they apply to set up a fund in either the setting up certain types of specialist fund. Unregulated Eligible Investor Category or The move comes at a time when Jersey is Unregulated Exchange Traded Category. enjoying record growth in its funds sector. Consultations continue with the regulator to The catalyst was the introduction of the fine-tune the proposals ready for the launch, Expert Fund Guide, the streamlined approval but one of the key features is that there will process for professional investor funds, be no requirement for a Jersey-domiciled launched in 2004. Since then the industry administrator, directors or custodian and, has enjoyed consistent and sometimes significantly, no audit requirement. spectacular growth. The latest figures show Unregulated Funds will be only suitable that industry assets grew by more than 30 for professional and expert investors or per cent to GBP210bn during the 12 months those who have taken appropriate to the end of June. professional advice. Investment warnings will More than GBP110bn of that total is in the be prominent to indicate that such funds are alternative market, with an estimated unregulated, and existing funds will not be GBP51bn in hedge funds and funds of hedge able to transfer to the new regime. funds, GBP31bn in real estate, GBP16bn in Professionals in Jersey have welcomed venture capital and private equity and the new categories, believing that they will GBP12bn in other specialist vehicles appeal to promoters such as hedge fund including corporate debt. managers and other financial institutions, Since the changes to the regulatory who look to set up certain funds in platform in 2004, Jersey has continued to jurisdictions in which they can establish an consult and the Jersey Financial Services unregulated product, often because speed in Commission (JFSC) has implemented further bringing the product to market is essential. changes to the regime. Ever evolving to meet the demands of the The island also has in its regulatory marketplace, Jersey’s funds industry believes armoury the Non-Jersey Domiciled Fund that the new additions to its funds capability Guide, which allows Jersey functionaries to will enhance the island’s appeal as a centre service non-domiciled funds under a for alternative investment funds and will streamlined authorisation process. This gives encourage a further inflow of new funds fund promoters greater choice if they wish to business. ■

JERSEY Hedgeweek Special Report Nov 2007 www.hedgeweek.com | 13 ©2007 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

Local context in a global environment.

KPMG’s European Hedge With local and global Fund team have been multidisciplinary teams of named “Best Provider experienced and highly- of Transaction and skilled professionals we Advisory Services” at the can offer a range of services inaugural The Hedge Fund to meet the needs of your Journal Awards. hedge fund business and its funds. For more details of how we can help, contact Heather MacCallum, KPMG Channel Islands Limited, 5 St Andrew’s Place, St Helier, Jersey JE4 8WQ. Telephone 01534 888891. www.kpmg.jersey.je KPMG Administrators under paper pressure By Heather MacCallum

Historically the offshore funds landscape was The model for administrators is a dominated by traditional funds. Much of the combination of the right people, the right administration process was paper-based, and technology and the right processes. Ongoing few traditional fund service providers were review of all the processes to value and involved in administration of hedge funds. administer funds is necessary to refine and Today strategies have become more produce efficiencies in the process. Without complex and the typical investor profile has significant continued investment in technology shifted from high net worth individuals, who and refinement of processes, administrators in general were content with monthly or may find themselves overtaken by others quarterly NAVs and mainly paper-based quicker to respond. reporting, to institutions that require Independent and timely valuation of illiquid Heather MacCallum is an electronic and web-based reporting, more securities and complex instruments remains executive director with KPMG frequent NAVs and above all transparency. Channel Islands in Jersey an ongoing challenge, requiring administrators The administration process has historically to recruit specialist staff that understand the been paper-driven, with technological instruments and the alternative asset space. developments mitigating some of the Capacity issues are critical, with skilled operational risk. However, many alternative staff in high demand in the alternative funds still rely heavily on manual processing, investments sector and administrators having which can be a major risk factor for complex to compete with capital markets firms and fund structures. prime brokers for talent. In some offshore Increased use of derivatives and illiquid centres, the availability of skills may not be assets increases the complexity of the sufficient to go round. administration process and creates system Administrators must improve service, challenges – hence the need to build up create capacity, reduce process risk and specialist back-office staff capable of improve operational efficiency. Merely understanding the legal documentation increasing staff numbers to deal with a large governing the investments, the terms of number of manual processes is no longer clearance and settlement, and the valuation viable, but while investment in people will of the fund’s instruments. not stop, substantial spending on technology By their nature, funds of hedge funds are is required to replace manual processes. people- and paper-intensive, with a very Processes that cannot be fixed by manual administration process. technology may eventually migrate to lower- Administrators rely on estimates of prices, cost or higher-capacity jurisdictions. custodial records and information on trades The impact of these changes on the audit from the investment manager, with most process should not be underestimated. More activity happening at month-end. complex alternative investment funds may By contrast, hedge fund administrators require much more audit effort and skill due rely on details of trades from the investment to the nature of the strategies and manager, along with reconciliations to the instruments used. The impact of manual assets and cash reported by the prime processes, the nature of operational risk and broker. Levels of automation and pricing the growth of automation are all issues to complexity can vary according to the fund’s which the audit process must adapt as the strategy, but administration still remains alternative investment industry faces up to its typically people-intensive. challenges. ■

JERSEY Hedgeweek Special Report Nov 2007 www.hedgeweek.com | 15 ADMINISTRATION

Jersey’s rising tide lifts service providers’ business By Simon Gray

For an executive from a Jersey hedge fund the success of the new regime, there is no administration firm, Gary Clark is remarkable guarantee that – directly at least – it will sanguine about the island’s launch at the bring any work at all to Jersey firms. beginning of next year of a new category of In an increasingly global marketplace, that funds that come with no regulatory obligation matters less and less, according to Clark, a to use any Jersey service provider. But as former chairman of the Jersey Funds head of hedge fund services at Mourant Association. In fact, he notes, the majority of International Finance Administration, Clark the work carried out by Mourant International subscribes to the theory that a rising tide lifts Finance Administration in Jersey is for funds all boats. domiciled in other jurisdictions. The introduction of Unregulated Funds is At the end of June, according to Lipper’s widely viewed by the island’s fund services latest Jersey Fund Encyclopaedia, Mourant industry as a move that can for the first time was by far the largest administrator of all put Jersey on a level playing field with the funds, both locally-domiciled and foreign, Cayman Islands as a competitor for the serviced in Jersey, with USD74.5bn in assets domiciliation of hedge funds and other – almost three times as much as its nearest alternative investment vehicles. But whatever competitor. In the past year Mourant has ➧ p19

JERSEY Hedgeweek Special Report Nov 2007 www.hedgeweek.com | 16 EDGE PROPERTIES Meeting the needs of Jersey’s new breed By James de la Cloche

The arrival in Jersey of a growing stream of managers but high net worth individuals hedge fund managers and other seeking to establish offshore domicile. professionals involved in the industry has Although Edge was originally established created new demand for assistance in to serve the top end of the market, it has relocation to the island, in areas ranging subsequently expanded its scope to provide from finding housing to rent or buy and services to a broader range of individuals examining schooling options to the mundane attracted to Jersey by the fund industry and functions of ensuring utilities are provided. other financial services sectors or who have Edge was established in February 2006, essential employee status with service initially to offer property search and selection providers such as law firms and services to people seeking to move to accountancy practices, but who may be James de la Cloche is principal Jersey. However, the expanding requirements of Edge in Jersey looking for properties at a slightly lower level. of both individual and corporate customers In addition the firm is gaining an have prompted the firm to expand into increasing amount of business from property broking and relocation services. established Jersey firms such as law firms With the growth of the financial industry that are looking to smooth the relocation and especially the specialist funds sector over process for incoming staff. The service now the past two or three years, there has been a embraces everything from orientation tours sharp increase in the number of high net for people considering a move to the island worth individuals moving to the island either to finding them temporary or permanent to set up business operations or as a tax accommodation, handling the mechanics of domicile, and who prefer to deal with a single bureaucracy and ensuring that the needs of point of contact for their accommodation partners and children are also met. needs rather than have to deal with the more Although Jersey may seem superficially to than 30 estate agents active across Jersey’s be similar to the UK, in practice incoming 45 square miles of territory. people have to adjust to a myriad important The firm’s first-ever client was a hedge differences, involving everything from the fund manager, Nitin Parekh, who had spent transfer of vehicles to the opening of bank some time looking for an offshore location accounts. For small, people-focused and chose to move to Jersey because of the businesses such as hedge fund jurisdiction’s quality as a financial services management firms, it’s vital that these details centre, but also the island’s geographical are dealt with, leaving the principals to focus attractiveness to people seeking privacy and fully on the establishment and operation of seclusion. their business. Since then many of Edge’s clients have Ensuring that newcomers receive a been hedge fund professionals. They will service that makes them feel welcome can typically spend well over GBP1m on a be crucial in ensuring that Jersey attracts the property and in some cases as much as people required to keep its financial industry GBP5m. But in the bracket between GBP1m competitive. One leading law firm, for and GBP2.5m, there is intense competition to example, says its acceptance rate for job secure any advertised property from both offers has shot up to more than 90 per cent locally based people and potential new since it engaged Edge to assist candidates residents, who include not only fund in getting to know and settle in the island. ■

JERSEY Hedgeweek Special Report Nov 2007 www.hedgeweek.com | 17 Capita Financial Group – for Fund Managers who just want to manage funds

Capita Financial Group can provide your business with fast and cost effective third party fund administration services, allowing you the peace of mind to focus solely on ensuring your funds and business grows. As a group, we have more than 30 years experience in the industry and currently administer in excess of £25 billion*. We offer a full service that covers all aspects of fund administration – everything from communication with your clients through to the valuation of your fund accounts. To find out more about our services, please contact Richard Boléat: Tel: +44 (0) 1534 883 832 Email: [email protected] We look forward to hearing from you.

Capita Financial Group is represented in Jersey by Capita Financial Administrators (Jersey) Limited of Victoria Chambers, 1-3 Esplanade, St Helier, Jersey JE2 3QA. It holds permits issued by the Jersey Financial Services Commission in respect of the provision of administration and ancillary services to funds established under the Collective Investment Funds (Jersey) Law 1988 as amended. Capita Financial Group is represented in Guernsey by Capita Financial Administrators (Guernsey) Limited of PO Box 336, Anson Court, La Route des Camps, St Martin, Guernsey, GY1 3UQ and Capita Alternative Fund Services (Guernsey) Limited, Ogier House, St Julian’s Avenue, St Peter Port, Guernsey, GY1 1WA. Both entities hold licenses to carry on Controlled Investment Business under the Protection of Investors (Bailiwick of Guernsey) Law, 1987. *as at 1st June 2007 ADMINISTRATION

worldwide shortage of administration talent, the flexibility of the regime is a helpful thing.” There is still some concern about whether Jersey is capable of breaking into the ranks of the most important fund servicing centres. Heather MacCallum, an executive director with KPMG Channel Islands in Jersey, says the hedge fund sector has suffered from the fact that business tends to flow to jurisdictions where the industry is most prominent. “Cayman is still out there as a phenomenal leader, so that’s where people go to establish hedge funds,” she says. “I don’t think Jersey has yet broken through that barrier. “Hedge fund processing and administration is very resource-intensive. We haven’t convinced the world yet that we have the capacity to run large-scale hedge fund p16 ➧ seen its assets under administration grow administration here. The investment it takes from USD100bn to USD150bn across its in people and technology is huge, and some worldwide businesses, with much of that administrators have to decide whether they growth in Jersey. And although its business are in that game or not. Until they are up focuses on Jersey domicile alone, the and running with several hedge large funds, administration business’s sister law firm, they have state of the art systems and Mourant du Feu & Jeune, is also the island’s experienced people, it’s hard to convince leading provider of legal services to the new clients, and it will be hard for the sector sector as adviser to 873 funds and sub- to really take off. But Jersey does have a funds, some 64 per cent of the total. number of administrators committed to Clark argues that the fact Unregulated investing in the necessary resources and IT Funds will be able to select administrators infrastructure.” wherever they choose promises in fact to Although Jersey has long enjoyed a strong benefit Jersey because a requirement to use reputation for the domicile and servicing of local providers might overstrain the capacity property funds, it was the launch three years of the island’s administration sector. He and ago of the Expert Funds Guide that put the other representatives of the sector believe island on the map as a centre for the that a significant number of managers will in alternative fund industry as a whole, and fact opt for a Jersey service provider, but the kick-started the growth of the administration flexibility of the regime means there will be business. no problems about outsourcing some Central to the concept of Expert Funds functions to other jurisdictions if necessary. was that many of the due diligence “We’re all increasingly global in our outlook responsibilities previously shouldered by the and in the way we service our clients, so regulator, the Jersey Financial Services every organisation that has the ability to Commission, during the process of structure its affairs to carry out certain authorising new funds would henceforth be functions away from the island if they have undertaken by a licensed administrator. In capacity issues or they have a centre of order to achieve a three-day turnaround excellence elsewhere can do so, without period for authorisation applications, on a par creating a huge raft of perceived additional with the timescale in some rival jurisdictions, cost from oversight requirements,” Clark says. much of the regulatory burden would shift “It allows us to respond in a more global from the product to the service provider. way and get round the resourcing issues. It’s The success of the Expert Funds regime not just Jersey – there are resources issues since then has brought vigorous growth to in Guernsey, in Luxembourg and in Dublin, the administration sector, and with it a wave everyone’s in the same boat. With the of corporate activity as new players seek to

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enter the market by acquiring local providers, such as BNP Paribas’s purchase of Royal Bank of Scotland International Securities Services, which was completed in July. Over the past couple of years the Expert Funds regime has undergone some amendment and updating, and it has been supplemented by the Listed Funds Guide, which offers a similar fast-track approval process for funds destined to be listed on stock exchanges, as well as the Non- Domiciled Funds Guide, which is designed to ease the regulatory process for Jersey administrators to take on funds established outside the island. “The Expert Funds regime is a huge success,” Clark says. “Over the past five years, fund assets serviced in Jersey have more than doubled from around GBP100bn to more than GBP200bn. The focus on Robert Kirkby, technical director at the alternative asset classes is evident and the industry promotional agency Jersey Finance, proportion represented by Expert Funds is believes the Non-Domiciled Funds regime quite significant. Clearly the evidence is that may have suffered from unduly high when we’ve given the market something that expectations. “When it was introduced it it likes, people use it.” wasn’t expected to double the size of the There’s some debate among market, but rather provide a nice add-on that administrators about whether the Non- a few people thought was useful,” he says. Domiciled Funds regime has enjoyed the “Some people probably had higher same success, with some providers arguing expectations of a large inflow of business that any regulatory process surrounding the than were realistic. It wasn’t anything more servicing of non-domiciled funds places than a light-touch regime for funds domiciled Jersey at a competitive disadvantage elsewhere.” compared with other fund centres. Kirkby notes that the rules governing non- Clark is generally upbeat about the domiciled business were adopted in order to regime’s impact. “In my business, I mainly protect Jersey’s reputation, but believes a look after non-Jersey funds, and making it rethink could be on the cards once the easier to do that is clearly a good thing,” he island’s new regulatory regime covering fund says. “Now we’re not double-regulating a administrators is in place. “Regulation of the fund that’s domiciled in another jurisdiction service provider could do the job, but at the and creating layers of extra regulation in a time we didn’t have that – it will only take way that’s not attractive to that fund, its effect in mid-November,” he says. “We’ll see manager or its investors. The new regime how that beds down over the next six has definitely had a positive effect.” months or so and what the issues are. There David Pirouet, a partner with may be teething problems to iron out and PricewaterhouseCoopers in Jersey, adds: that could be one of them.” “The changes to the rules have made the Pirouet says the Listed Fund Guide, process of administering non-domiciled issued earlier this year has been successful funds easier and more straightforward. In the in providing both speed and certainty to the past there were additional regulatory burdens authorisation process. “It’s provided certainty involved in administration of, say, a Cayman to both local and UK lawyers about how long fund. Now it is much simpler and we’re back the process will take and what’s required. In on a level playing field with other addition, from the beginning of this year jurisdictions, which wasn’t the case a few Jersey’s regulation has been recognised by years ago.” Euronext, which is of benefit to alternative

JERSEY Hedgeweek Special Report Nov 2007 www.hedgeweek.com | 20 ADMINISTRATION

funds. We’ve been involved with the listing of offices or third-party providers in other property and other funds on Euronext, jurisdictions when manpower is cheaper or something that has grown significantly in simply more available. This in turn is popularity over the past year and a half.” increasing pressure on administrators to But members of the industry readily spend heavily on maximising automation of acknowledge that even before the launch of administrative functions, something that the Unregulated Funds regime, resources favours big institutions rather than niche issues are never far away. Jersey has long players and is probably contributing to the found it necessary to control immigration wave of restructuring. through a system of housing and Says Clark: “We need flexibility to do more employment permits, and while the will is outside the island. We’ll keep on bringing there to help the financial industry attract the talented people in. The environment has got skills and manpower it needs, this must be much easier in the past couple of years than balanced against the capacity of the island it has been historically. For the moment it’s a to absorb newcomers. benign environment, but it’s challenging “There have always been controls on because, like everywhere else, there is a housing and on the establishment of limited talent pool.” businesses,” says Ozannes corporate partner Inevitably administrators are becoming Mark Chambers. “The States of Jersey has choosier about the business they take on. made a political commitment to encourage “When you have a lot on in terms of new more people to come to the island who are clients and new projects, and you have a lot contributing a lot to its wellbeing. The of ambitious targets to hit, you become more success of the industry requires economic selective about the way you pitch for migration into the island, alongside the business,” Clark says. “You perhaps don’t training of local residents. But inevitably there pitch quite as aggressively as you would if are constraints in living in an island nine you were looking for your first client. miles by five that eventually will prove “You’re wanting to make sure you get fees insurmountable simply in terms of sheer that are appropriate to doing a good job, numbers.” you’re not trying to buy business. Inevitably These considerations are prompting some work will find a cheaper home administrators to focus on the higher added- elsewhere, perhaps with a hungry value aspects of the fund business and to administrator that has less business overall, examine where some lower-value, labour but it doesn’t mean that you have no intensive functions can be outsourced to capacity left for new business.” ■

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