A look at BEPS and Brexit from a different perspective… A solution not a problem
An article by Elliot Refson, Director, Fund and Management Company Services, Crestbridge
With almost 70 jurisdictions – including Jersey – having come together in Paris to sign up to a Multi-lateral Instrument (MLI) in June, the OECD’s Base Erosion and Profit Shifting (BEPS) project is now a reality.
Whilst aimed primarily at large-scale multi-nationals, this signing ceremony has relevance for the alternative fund management community – in fact, certain Articles within the MLI (12 to 14) refer specifically to changes to Permanent Establishment rules, which are likely to capture fund managers.
As a result, and combined with the uncertainty surrounding Brexit where UK managers are concerned, the issue of substance in fund jurisdictions has shot up managers’ agendas. Indeed, the interestingly-timed publication of ESMA’s opinion on manager relocations at the end of May suggests that fund managers could and should be looking at alternative routes of access.
The good news is that some fund domiciles are taking this seriously and to a large extent Jersey, of all the international finance centres, is furthest ahead in the provision of substance. There is strong evidence that Jersey’s approach is giving managers confidence by providing a platform that is able to capably demonstrate real substance and meet the criteria as set out by BEPS.
The growth in fund management business Jersey has seen in recent years is a real reflection of the confidence managers are placing in it as a location for establishing and building a genuine operational presence. Hedge Funds is a good example of this.
A decade ago, for instance, there were a handful of hedge funds based in Jersey. Today that number has grown to 23 which, benchmarked against Preqin data, positions Jersey as the sixth largest hedge fund management hub globally. This growth is mirrored across the private equity and real estate fund space too, with the total number of alternative fund managers having grown by more than 100% over the past five years.
For most managers that come to see what Jersey has to offer, it is an easy sell. A well-established and experienced alternative fund servicing infrastructure and a flexible and robust regulation make Jersey an attractive proposition for the setting up of their own management subsidiary.
However, adding to Jersey’s armoury, the Management Company (ManCo) is fast becoming a real alternative. Research published last year by IFI Global and supported by Crestbridge (‘AIFM ManCo Platforms & Fund Structuring), found that the overall ManCo concept is increasingly finding favour with non-EU managers particularly in light of Brexit, and has subsequently identified rising interest from US fund managers wishing to access EU capital.
Although originally a continental European construct, the ManCo concept can be applied equally successfully in Jersey, giving managers from the UK but also increasingly Asia and the US who want to make use of Jersey’s expertise and infrastructure but whose preference is not to establish a full-service presence or an outsourced solution.
By guaranteeing required levels of substance as set out by BEPS and providing access to specific offshore expertise and experience, the Jersey ManCo can offer some distinct advantages for these managers wanting to set up outside of the EU. A Jersey ManCo is able to act as manager to a fund domiciled in Jersey or other equivalent jurisdictions and the ManCo provides risk and portfolio management to a structure, whilst delegating other functions to the manager as required; and it can also help future-proof managers by managing the ever-increasing compliance demands – all whilst retaining the flexibility of being located in an innovative specialist funds jurisdiction that has the freedom to market beyond Europe, as well as into it via National Private Placement Regimes.
Launched in 2015, Crestbridge’s ManCo is seeing strong interest for precisely these reasons, offering both new and existing managers a significant amount of optionality to establish a cost-effective and practical offshore alternative to a full-presence office or branch – and at the same time tap into Crestbridge’s full suite of complementary fund services.
With a growing focus on substance in light of BEPS, and with Brexit set to make the marketing of funds into the EU increasingly complex, the ManCo solution offered by Jersey is likely to prove an increasingly attractive option for non-EU fund managers.
For more information please contact our Director of Funds and ManCo, Elliot Refson: email@example.com
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