Why the Channel Islands for Private Investment Funds?

07 July 2020

The Channel Islands are increasingly cementing themselves as the “go-to” international financial services centres of choice for Private Investment Funds.  Both Guernsey and Jersey have exceptionally sophisticated financial infrastructure in place and a workforce armed with the experience, skill, and industry knowledge to support prospective fund managers, however complex their needs.

‘The Channel Islands are held in high regard by fund managers and investors, especially for Private Investment Funds during the past number of years,’ says Mark Cleary, Director, ZEDRA Jersey. ‘The ZEDRA funds team work closely with fund managers, offering exceptionally dedicated and personal support.  The level of professionalism and dedication from our Funds team is second to none,’ says Mark.

Private fund structure types in the Channel Islands

There are some nuanced differences between Private Investment Funds (‘PIFs’ in Guernsey and ‘JPFs’ in Jersey) but also some overarching similarities.  PIFs and JPFs both require a licensed service provider in the relevant jurisdiction to oversee the management/administration of the fund’s activities and both JPF and PIF can usually be launched usually a couple of days – providing invaluable speed to market where necessary for the promotor of the scheme.

As indicated in their name, Private funds target a smaller circle of investors – some of which are possibly already known or closely associated with the sponsor – to provide capital to be invested in potentially (but not necessarily) risk assets.  Hence, both regimes place a cap on the number of investors who may be admitted to a private fund (up to 50) and mandate the type or category of investor that would be deemed suitable.

As is usual, PIFs and JPFs can be structured as either open or closed-ended funds.  Closed-ended funds typically have a lifespan of 7-10 years and are usually structured as limited partnerships (LP’s), which provide tax transparency and structural flexibility.  It is nevertheless possible to structure private funds in other forms such as corporate, unit trust, and protected / incorporated cell vehicles, each of which have their own advantages and disadvantages.  It is commonplace and advisable for legal counsel to be involved in all aspects of fund structuring deliberations and decisions.

Cost-efficient and quick to incorporate

As private funds, there are also potential cost efficiencies to be gained for the sponsor and a lower performance drag for investors.  Neither of the private fund regimes in the Channel Islands requires a prospectus to be drafted or published and this clearly has the potential to save cost and time.  Further, for the Jersey Private Fund specifically, there is no requirement for the fund to be audited, providing further potential cost savings.

As noted previously, from a regulatory perspective, Private funds may be established in a very short timeframe in both Jersey and Guernsey.  But, to take advantage of such a compressed launch timetable, the locally licensed service provider must have satisfied itself of all the respective due diligence on, for example, the promotor, beneficial owners and directors to their entire satisfaction before an application for registration is made to the respective regulator.

Advantageous regulatory environment

A combination of cost efficiency, robust governance standards, well respected reputation and the expertise of service providers on Jersey and Guernsey make private funds hugely appealing.  Fund managers are also attracted by the Island’s well-developed legal systems, their regulatory frameworks and their dedication to making Guernsey and Jersey leading international financial services centres for funds. ‘Practically, the local regulators have historically been quick to adapt to investor demand and the changing environment and have always kept an eye on innovation.  This has been exemplified by the introduction of the respective private fund regimes in each Island, each of which has been successfully in place for a number of years now” explains Mark.

For more information please contact Mark Cleary, Director, ZEDRA Jersey

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