LETTER FROM … JERSEY: David v. Goliath

Story-writers often use dark and stormy weather to foreshadow danger on the horizon. Fitting, then, that when PEI landed in Jersey recently, we were met with an overcast sky and enough intermittent rain to leave this correspondent’s suit damp before morning tea.

In mid-July about 150Jersey policymakers, lawyers and private equity practitioners gathered to discuss incoming regulations that will introduce unprecedented restrictions on Europe’s private funds industry. The worry for Jersey and other offshore centres is whether such wide-ranging reforms will encourage some EU member states to tighten rules on foreign funds at national level, too

So while Jersey’s pedestrians battled with the spray from passing vehicles and umbrella-busting winds, inside the island’s luxurious Hotel de France that summer day the setting may have been rather more serene – but  there was still plenty of anxiety about what could be on the horizon.

Among the speakers at the gathering, which was hosted by industry group Jersey Finance, was James Greig, a funds-focused partner in PwC’s London office. He said that he expected a number of member states to “review their private placement regimes – either relaxing their rules or beefing them up” in the next couple of years. In conversations after his presentation, most interviewees pegged France as the country most likely to take the latter approach.

Giles Swan, a regulator with the UK’s Financial Services Authority and another conference speaker, told PEI that it was still too early for member states formally to have declared any changes to their individual fund marketing rules. However, it was safe to assume that the UK and other EU states would “consider the broader implications [of] their domestic frameworks in a post-AIFM world”, he added.

He was of course speaking about the Alternative Investment Fund Managers Directive, which will cover everything from general partners’ pay to the way in which private equity funds keep their partnership agreements. Should certain EU nations decide to subject foreign funds to similar criteria, offshore financial centres will face immense pressure to bring their local regulatory regimes in line with European standards – or forgo certain markets altogether.

The bottom line is that all funds domiciled in Europe must comply with the directive by mid-2013, when member states will introduce the new rules into their national frameworks. The aim is to give these funds access to a pan-EU marketing passport designed to harmonise the continent’s patchwork of national private placement regimes. Until at least 2018, however, non-EU managers (like those in based in Jersey) can continue pitching their funds to EU investors through the various private placement routes, as long as they comply with certain information exchange agreements.

Crucially for non-EU countries, though, nothing in the directive prevents EU member states from reforming their respective national regimes once the passport is in effect. And that’s why the likes of Jersey are nervous.

As the speeches drew to an end, and attendees scurried off to take advantage of the various pastries and hot drinks on offer outside the conference room, Jersey Finance chief Geoff Cook highlighted some of the points in Jersey’s favour in an interview with PEI.

Most importantly, he suggested, the island will offer investors a fund vehicle fully compliant with the Directive. Should a nation’s rulebook (or investors) prefer an AIFM- regulated fund, then that’s no problem, says Cook – “Jersey can provide that.”

As the conference concluded and final business cards were exchanged, the weather outside finally began to settle and the sun even threatened to come out. Jersey will be hoping that was the more pertinent omen of the day.