Focus on substance offers long-term advantage
By Ashley Le Feuvre and Kate Anderson - One of the principal characteristics at present of the private equity sector in Jersey is a much longer lead time for investment than a few years ago, which has slowed up the fundraising process. Clients are conducting much more thorough due diligence than in the past before taking investment decisions, and as a result there can be a long period between a promoter coming forward with an investment proposition and the structure actually being launched.
This environment favours more than ever established fund managers, and to a lesser extent, spin-offs from other firms that benefit from a demonstrable track record and existing relationships with investors. While we continue to receive enquiries from completely new promoters, many of them have failed to attract sufficient commitments from investors to get their projects off the ground
Many of them have some very sound investment ideas that have won interest from potential investors, but it remains difficult to secure firm commitments. For the past couple of years, we have seen the phenomenon of money being available for deployment, but the will to invest is not there. In addition, the industry still faces much greater problems in obtaining leverage than in the past.
Like other financial centres with established private equity sectors, Jersey is facing a challenge in the current environment, but there are reasons to believe that once activity recovers in earnest, the island will be well placed to benefit thanks to its combination of tax neutrality and high regulatory standards.
Particularly over the past year or so, firms have been assessing their standards of corporate governance, not only to meet regulatory demands (and future sets of rules such as the EU’s Alternative Investment Fund Managers Directive) but also to satisfy the more rigorous requirements laid down by investors – witness the substantial increase in the number of non-executive directors in the island.
Jersey is already well equipped to serve the alternative investment industry in terms of its broad range of fund vehicles and the flexibility of its regulatory regimes. Over the past year, indeed, its capabilities have been enhanced by new legislation introducing incorporated limited partnerships and separate limited partnerships.
And in many cases the island’s unregulated funds regime offers the flexibility sought by fund promoters, with the absence of regulation of the fund vehicle itself counterbalanced by the checks and balances provided by regulated Jersey service providers, including island-based directors of any corporate vehicles.
The island’s fund services industry continues to thrive on its international reputation for expertise, reinforced by the recent arrival of large global players such as State Street as well as local firms that have built up specialist skills over the years. In some respects the more difficult times over the past three years have honed the industry’s calibre by ensuring that providers have the resources to deal with all stages of the market cycle.
Ultimately the island is set to benefit from the more demanding investor requirements and regulatory standards because of its knowledge, experience and substance. Jersey funds are no brass nameplate entities but benefit from a real presence in the island, a real board making decisions, and directors with the capability to carry out their duties properly.
Ashley Le Feuvre is a senior manager in the funds and SPV group at Volaw Trust & Corporate Services, and Kate Anderson is head of the funds legal team at Voisin
Please click here to download a copy of the Private Equity Wire Special report: Jersey Private Equity Services 2011