Introduction
A wide range of fund categories are available under the Jersey regulatory fund regime, from the highly regulated recognised “retail” funds to eligible investor funds. The range of funds available fit into these categories:
(i) Recognised Funds
(ii) Unclassified Funds
(iii) Listed Funds
(iv) Expert Funds
(v) Private Funds (Joint Venture Arrangements)
(vi) Eligible Investor Funds
(vii) COBO only/Private Placement Funds/Unregulated Funds
In this briefing note, references to the JFSC are references to the Jersey Financial Services Commission. Since July 2013, Jersey alternative investment fund managers (“AIFMs”) marketing Jersey or other non-EU/EEA AIFs to investors in the EEA have been required to comply with additional disclosure, transparency and reporting requirements pursuant to the Alternative Investment Funds Directive (“AIFMD”).
Types of Fund Vehicle
Jersey funds may be established as unit trusts, limited partnerships, companies, protected cell companies and incorporated cell companies. With the exceptions of Unregulated and Listed Funds (which must be close-ended), funds may be closed-ended (single or multiple offerings with no redemptions) or open-ended (continuous subscriptions and redemptions at the option of the holder).
Fund regulation
Jersey based functionaries of Recognised Funds must be regulated under the Collective Investment Funds (Jersey) Law 1988. Jersey based functionaries of all other funds must be regulated under the Financial Services (Jersey) Law 1998 as providers of “fund services business”. The JFSC is the body responsible for the regulation of funds and fund functionaries in Jersey.
Types of fund
Recognised Funds
Recognised Funds are collective investment funds that comply with the Collective Investment Funds (Recognized Funds) (General Provisions) (Jersey) Order 1988. Recognised Funds (also known as “retail” funds) are the most highly regulated funds in Jersey with investors having access to a statutory compensation scheme and whose functionaries are regulated under the Collective Investment Funds (Jersey) Law 1988 (where applicable, all other fund functionaries are regulated under the Financial Services (Jersey) Law 1998). It is possible to market Recognised Funds direct to the UK public under the Financial Services and Markets Act 2000 and to nationals of a number of other countries with corresponding legislation.
Unclassified Funds
Unclassified Funds are funds that are offered to over 50 investors or are listed and do not fall within the simplified regulatory regimes of the Expert Fund, Eligible Investor or Listed Fund Guides. Unclassified Funds are suitable structures for public offerings.
Unclassified Funds are governed by the Collective Investment Funds (Jersey) Law 1988 and the promoters of such funds must comply with the JFSC's promoter policy. Compliance with the promoter policy includes reference to a promoter's reputation, ownership, track record and financial standing. Unclassified Funds must have a Jersey based manager and, for open-ended funds, a Jersey based custodian. Unclassified Fund prospectuses must comply with the Collective Investment Funds (Unclassified Funds) (Prospectuses) (Jersey) Order 1995 where the vehicle is an OEIC or unit trust or with the Companies (General Provisions) (Jersey) Order 2002 where the vehicle is a close-ended corporate structure. The lower the minimum investment requirement, the more closely the JFSC will regulate a fund of this type.
Listed Funds
The JFSC Listed Fund Guide provides a fast track process to establish corporate structured closed-ended funds for listing on recognised markets or stock exchanges.
Listed Funds must have at least two Jersey resident directors and a Jersey based functionary to monitor the fund in line with the Listed Fund Guide. The investment manager of a listed fund must be established in an OECD member state or in a jurisdiction with which the JFSC has entered into a memorandum of understanding or otherwise be approved by the JFSC. There is no minimum subscription amount and Listed Funds are available to all classes of investor.
Expert Funds
The JFSC Expert Fund Guide provides a fast track process to establish a regulated fund, called an Expert Fund. An Expert Fund may be closed or open-ended and can be offered to an unlimited number of investors (providing all such investors qualify as “expert investors” and expressly acknowledge the same). “Expert investors” are defined in the Expert Fund Guide and include institutional and sophisticated investors or any person investing at least US$100,000 (or its currency equivalent). Expert Fund prospectuses must comply with the Collective Investment Funds (Unclassified Funds) (Prospectuses) (Jersey) Order 1995 where the vehicle is an OEIC or unit trust or with the Companies (General Provisions) (Jersey) Order 2002 where the vehicle is a closed-ended corporate structure.
An Expert Fund must have at least two Jersey resident directors for the fund company, trustee (for unit trusts) or general partner (for limited partnerships). The fund company, general partner or trustee (as appropriate) must be established in Jersey and all expert funds must have a Jersey based administration or management functionary.
Eligible Investor Funds
Eligible investor funds are restricted to “eligible investors” (which, amongst other tests, includes a person committing at least US$1 million (or equivalent) to the fund). They are subject to a streamlined approval process and a relatively light degree of regulation under the Eligible Investor Fund Guide. There are also limited content requirements in respect of an eligible investor fund’s offering document.
An eligible investor fund must have a Jersey based administrator, manager or (in the case of a closed-ended unit trust) trustee and at least two Jersey-resident directors. If open-ended a Jersey-resident custodian will usually also need to be appointed.
Eligible investor funds are alternative investment funds (“AIFs”) for the purposes of the AIFMD and are therefore only available when they are to be marketed into the EU / EEA.
Unregulated Funds, Private Placement and COBO Only Funds
Following implementation of the Alternative Investment Fund Managers Directive (the “AIFMD”) it is no longer possible to market COBO-only, private placement or unregulated funds in the EU/EEA without further regulation to ensure compliance with the AIFMD.
The Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008 exempts two types of structure from regulation as collective investment funds in Jersey: Unregulated Exchange-Traded Funds and Unregulated Eligible Investor Funds. Unregulated Exchange-Traded Funds are closed-ended funds which are, or are to be, listed on an approved stock exchange or market. Unregulated Eligible Investor Funds, which may be open or closed-ended, are required to have “eligible investors” who are classed as professional or institutional investors or who make a minimum initial investment of US$1,000,000 (or its currency equivalent).
If a fund is offered to no more than 50 investors and it is not listed, it can be treated as a Private Placement Fund (also known as a “COBO” Only Fund). COBO is a reference to the legislation which regulates these types of funds, that being the Control of Borrowing (Jersey) Order 1958. A Private Placement Fund is not required to comply with the regulatory requirement that other types of collective investment funds must comply with.
Private Placement Funds are governed by policy rather than statute and the JFSC will regulate such funds by imposing conditions in the Control of Borrowing (Jersey) Order 1958 consent, by conducting a review of the promoter (the JFSC's promoter policy will apply) and by reviewing any prospectus. Any Jersey based functionary will require a licence under the Financial Services (Jersey) Law 1998. The JFSC will review Private Placement Fund funds with a lighter regulatory touch where those funds are considered to be “Professional Investor Regulated Schemes”, having a £250,000 minimum.
The Alternative Investment Funds Directive
Where there is to be marketing into the EU/EEA pursuant to the AIFMD then the impact of the AIFMD on Jersey AIFMs and AIF funds is as follows:
Very Private / COBO Only / Private Placement Funds
These funds must apply to the JFSC for an AIF Certificate under Jersey’s Alternative Investment Funds (Jersey) Regulations and adhere to the applicable sections of the JFSC’s AIF Codes of Practice. Jersey-based AIFMs of these funds will need to be licensed by the JFSC under the Financial Services (Jersey) 1998 Law as providers of AIF Services Business and must comply with relevant sections of the AIF Codes.
Expert / Listed / Eligible Investor / Unclassified / Recognised Funds
These funds are already required to be regulated under the Collective Investment Funds (Jersey) Law 1988 and their service providers are required to be regulated under the Financial Services (Jersey) Law 1998. Therefore, the only additional regulatory requirements pursuant to the Jersey AIF Regulations are compliance with applicable sections in relation to disclosure, reporting and asset stripping together with notification to the JFSC in advance of marketing.