24 November 2021
Dylan Latimer and Richard Le Liard, Partners at Bedell Cristin in Guernsey and Jersey, provide a roadmap for success.
Raising that first fund is challenging at the best of times, let alone during a global pandemic, where the ‘flight to the familiar’ has been felt particularly hard by first-time fund managers. For the best chance of tackling those challenges successfully, fund managers must get certain key decisions right – and that includes the jurisdiction in which the fund should be domiciled.
When choosing a domicile, there are several considerations that have to be taken into account. In the first instance, the process will be smoother if a domicile is selected that is familiar to investors and has a track record in the funds space.
A question to ask at the outset is: does this jurisdiction provide access to the markets required? As noted, regulation needs to meet the international requirements for high standards but also be simple to navigate, so that fund managers are not tied up in red tape. Managers are naturally concerned about costs when launching their first fund and a high-cost ratio will eat into a fund’s returns, which will not appeal to investors or managers, so cost-effectiveness will be a further important consideration.
Finally, there is the collaboration required for a successful launch. Managers must surround themselves with the right advisers and service providers, preferably a close-knit team who have administrative and legal skills and can easily connect with each other so that the process remains as seamless as possible.
The Channel Islands
Where do the Channel Islands align in meeting these objectives and are both Jersey and Guernsey a suitable fit for the first-time fund manager?
Whether Jersey or Guernsey is selected may depend on the relationship that the managers or their advisers may have with a particular jurisdiction. However, while existing relationships may influence such a decision, the most important factor when assessing a choice of jurisdiction is that both Jersey and Guernsey have the regulatory and legislative framework necessary, backed up by the expertise on the ground among practitioners, and can offer the flexibility when required.
There is no doubt that both jurisdictions have established a global footprint. And their reputation as funds jurisdictions is appreciated by investors across the world, but especially the UK, mainland Europe, the Nordic countries, the Middle East, the Far East and the US.
The Channel Islands have ensured there are no barriers to marketing the funds product to the rest of the world. Agreements are in place that ensure easy and cost-effective access to the UK and the EU if required, or freedom from AIFMD regulation if not. The Brexit agreement between the UK and EU has not affected the jurisdictions’ capabilities in offering seamless access to the EU market, thanks to their ‘third country’ status and separate agreements with the EU that have long been in place.
Both jurisdictions have been astute in developing their regulatory regimes. They provide a regulatory model that has wide appeal and has been tailored to meet the needs of managers, especially those working in alternatives. The Channel Islands offer a range of fund products to suit all requirements and certain funds are subject to streamlined, light-touch regulation, which helps reduce costs and ensure speed to market. Another crucial factor is the turnaround time with the local regulator which, in certain cases, can be as quick as one business day.
The regulatory landscape is an evolving one and managers have to take into account economic substance rules, disclosure and reporting requirements. But Jersey and Guernsey have ensured their regulatory platforms have evolved, too, so that the process remains straightforward.
Tax neutrality has been a feature of both jurisdictions for decades and it provides managers with simplicity and certainty, without having to negotiate complicated tax arrangements.
Another strength has been the nucleus of first-rate advisers and service providers that operate in both jurisdictions, a deep pool of experienced practitioners accustomed to working together as a team and able to guide fund managers embarking on their first product launch on the best means of achieving their goal. Location helps too, and London-based fund managers are easily able to meet their service providers face to face, which provides added reassurance.
Lawyers have a pivotal role to play in the process and the team at Bedell Cristin, working in both Jersey and Guernsey, often work with first-time and smaller scale fund managers, advising on the best legal structure and regulatory treatment for them. Although we advise on complex, multibillion-dollar vehicles, our advice also extends to joint venture arrangements and proprietary single asset holding structures. We advise on all types of investment vehicle, structured to meet cross-border investment strategies and, when required, we have extensive experience in Shariah-compliant structures. Our expertise also extends to BVI and Cayman law.
Sometimes, the vehicle can be structured to fall outside the funds regimes in the Channel Islands altogether, providing further opportunities to reduce costs and increase simplicity. The firm can also help a client navigate along that route if that is the preferred option.
In meeting the requirements of fund managers, flexibility remains the key in both jurisdictions. And given their long track record of success in servicing the needs of the funds marketplace – their combined assets under management currently total more than £650bn – the islands remain the ideal jurisdictions of choice for managers who are about to launch a fund for the first time.
First published in Businesslife magazine The Funds Edition Aug-Oct 2021.