Articles and opinion
As a result of the turmoil in the global financial markets in the past two years there is a movement by family offices and private capital investors towards bespoke asset management solutions investors are adopting a much more hands-on approach to their investment procedure and asset allocation decisions.
Very Private Funds ("Private Funds") set up in Jersey are beginning to be recognised as a flexible structuring tool for private capital. They can also dovetail with estate planning by family offices. A number of family limited partnerships have been established in the form of Private Funds in Jersey.
These Private Funds can be set up for use by a single sophisticated investor or by a small group (not exceeding 15) of sophisticated investors in the form of private Jersey companies, private Jersey unit trusts or Jersey limited partnerships. These vehicles are very flexible and can be tailored to the exact requirements and risk appetite or sensitivity of the investors. They can be established swiftly, usually within a matter of a few business days once the specification for the fund has been agreed and the service providers to the fund have been identified and agreed terms. Normally a Jersey based trust company or fund administrator will be appointed to administer the Private Fund.
- The Private Fund can either be self-managed with investment decisions being taken by its board of directors in Jersey or an investment adviser or manager can be engaged for the fund. Where a manager or adviser is appointed they can be granted powers to take investment decisions within agreed parameters.
- Investors make capital contributions to the Private Fund and acquire shares, units or partnership interests depending on the legal form selected for the Private Fund. The size of the interest of each investor in the Private Fund is measured by means of a unitisation of the investment portfolio of the Private Fund which is undertaken for internal accounting, valuation and investor reporting purposes. The unitisation also enables the calculation of performance fees or carried interest if such participation arrangements are to be used to incentivise the Private Fund manager or adviser and align their interests with those of the investors.
- The Private Fund can be established as an open-ended vehicle so that, subject to the number of participants not exceeding 15, investors can make additional investments into the fund following their initial investment and subject to the terms of the fund they can withdraw and redeem the whole or part of their investment on periodic dealing days. Alternatively the Private Fund can be established as a closed-ended fund with one or more closings and with a fixed life or indefinite duration.
- There are no prescribed investment or borrowing restrictions so a Private Fund can be customised to meet the particular requirements of its investors. It can be used for direct investment into a portfolio of securities or a particular investment situation or as a feeder fund or fund of funds structure. It may be suitable where an investor wishes to award an investment management mandate over certain monies to a third party manager and have its investment portfolio held within a Private Fund structure.
- Alternatively the Private Fund may be of value as an asset allocation vehicle for use by family offices or it can be used as a joint venture investment vehicle where a group of sophisticated investors numbering not more than 15 wish to co-invest together in a particular investment scenario or acquire a portfolio of investment assets.
- These Private Funds are normally structured so as to be exempt from direct financial services regulatory controls and supervision in Jersey. To benefit from this exemption the minimum investment amount per investor must be set at or above £250,000 (or foreign currency equivalent). The Private Fund is therefore free from direct regulatory prescription but is administered within a regulated environment in Jersey.
- Private Funds are free from direct tax in Jersey on non-Jersey source investment profits and income. They can also operate as tax transparent arrangements if a limited partnership form is used.
Jersey Private Funds integrate well with the private wealth management services that the Channel Islands have developed a reputation for over the last 30 years. Their use is set to grow now that family offices and private capital investors are placing less reliance on wide discretionary mandates granted to third party managers and instead are becoming more active in managing and controlling their own investment affairs.
For further information please contact: Simon Howard