Elliot Refson, head of funds at Jersey Finance, discusses why Jersey has reported record fund launches, dealflow and AUM and what makes it a domicile of choice.

While events of the past twelve months have posed challenges for the international private equity industry, they have also served as a stark reminder that there is not only a sustained appetite to allocate to PE, but that PE has a valuable role to play in global recovery efforts.

For specialist PE centres like Jersey, this paints a positive picture of the future, but it’s vital that domiciles pay close attention to evolving trends in the market if they are to continue to deliver value and impact and reflect the increasing emphasis on purpose-driven investment in the months and years ahead.

New records

Against this challenging backdrop, Jersey is seeing records across the board in terms of fund launches, dealflow and asset values, with Jersey finishing 2020 in a buoyant mood.

Over 2020, the total value of regulated funds business booked through Jersey broke through the US$500bn mark for the first time ever, and we finished the year at a new record high of some $520bn. This represents growth of 66 per cent over five years and 125 per cent over ten. In fact, at the end of 2020, AUM stood at $521bn, with above average growth seen last year.

This growth is being driven by PE, which has recorded asset value growth of more than 150 per cent over the past five years, with fund entity growth doubling over that same time frame.

At a vehicle level, the figures point to an upward trajectory too, with 100 Jersey Private Funds (JPFs) established over the year, bringing the total number to more than 400. It’s a vehicle that has quickly become the go-to for alternative fund structuring. In 2020, we also saw a record number of Limited Partnerships created and the number created in December 2020 was double that of 2019.

There’s an interesting geographical narrative here too, with Jersey reporting greater diversification in terms of managers and promoters selecting Jersey for PE structuring. We’ve seen a sustained rise in non-EU managers using Jersey to access EU investor capital through our tried-and-tested private placement regime, and record levels of inflow from the US in particular. It’s a market where we are seeing particular traction having established an office in New York some 18 months ago.

Clear balance

While the pandemic has really served to highlight the importance of sound governance, stability and resilience, the reality is that for some time, investors have favoured jurisdictions that offer certainty, familiarity and no surprises.

The fact that PE has shown such stellar growth over the past decade in Jersey is no surprise – thanks to the collaborative efforts of Jersey’s industry, regulator and government, the focus has long been on nurturing an ecosystem that can enable alternatives to flourish. The result of this forward-thinking approach is the sustained growth that we have seen over the past ten years – and in times of uncertainty, as we have seen over 2020, that trend is exacerbated.

But, there are new dynamics that have emerged from the pandemic and that specialist domiciles like Jersey are now responding to, including demonstrating a clear balance between stability and ‘no-change’ on the one hand and innovation on the other.

These concepts have been highlighted recently in a new report Jersey Finance has supported on the future of fund domiciliation, published by IFI Global, which builds on a previous report published in early 2020. The pandemic, the report suggests, has not necessarily shifted the paradigm, but it has acted as a catalyst for accelerated change in certain areas, such as digital growth.

The rise of ESG, Brexit, and evolving substance demands are also new factors that are increasingly shaping domiciliation, according to our study, with diverging attitudes between North America, Europe and Asia all creating a picture that is more complex than ever.

At the top of the agenda has been the continued rise in sustainable finance, already worth around £30trn globally. 100 per cent of all investors and 69 per cent of all managers and their advisers in our study said that ESG considerations will play a growing role in their decision-making, including domiciliation. (Of the balance who did not agree, the overwhelming majority came from the US).

Meanwhile, the industry is beginning to experience the implications of a Brexit agreement. From Jersey’s perspective, being outside the EU already, Jersey has third country status, with agreements in place, making our platform for EU-bound alternative fund distribution ideal to support the market.

Continued growth

Looking to the future, the trend is for allocations to PE to continue to rise, with Preqin figures showing that 81 per cent of investors expect to increase their allocations to alternatives over the coming five years. PE specifically is anticipated to double in terms of AUM over the next five years, and North American PE firms alone are sitting on almost $980bn of reserves.

The key question now revolves around where and how to put that capital to work. The overarching theme of our latest survey is that investors are asking more questions around impact, reporting, transparency, governance, regulation and substance – and jurisdictions need to be able to answer those questions robustly.

Jersey stands ready to meet the needs of a PE investor-base that is increasingly global, sophisticated and purpose-driven. We are acutely aware of our responsibility as an IFC to help drive positive change – indeed our objectives are aligned with PE investors. It’s why earlier this year, we launched a new sustainable finance strategy that aims to position Jersey as a leader in this space. It’s why we remain unrelenting on enhancing our regulatory environment, and on leading on governance and substance. It’s why we are focused on making investor access easier through our digital-first ecosystem. And, it’s why we continue to support managers and promoters in an increasingly diverse range of markets.

PE now has an opportunity to address the very human challenges we face today, and the potential to play a part in helping to put capital to work where it is needed most. At a time of unprecedented change, Jersey remains focused on providing a straightforward, investor-friendly platform to help achieve that purpose-driven aim.