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This article from
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Room for growth in new expert fund sector
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IAN MOORE
Managing director, Moore Management
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There is a growing acceptance by government and the community at large that economic growth is both advisable and necessary for the Island.
Within the financial services industry, fund administration is a key sector ripe for expansion.
The Finance and Economics Committee’s fiscal strategy will be debated in July. If the move to a zero-ten per cent rate of corporate tax is agreed (and from the perspective of maintaining competitiveness it must be) then the Island will be faced with a tax shortfall of between £80-£100 million.
The committee has proposed several measures to reduce this deficit, among them economic growth. While there is benefit in promoting some economic diversification, financial services remains Jersey’s predominant industry and the most likely source of increased business.
Jersey’s funds sector, in particular, has great opportunity for expansion at present. The introduction of the Expert Fund legisalation is the most encouraging development within the sector for a decade. It is also an opportunity for wider reforms of policy and practice which can create a sustainable future for Jersey as a jurisdiction of choice within the international funds industry. The regulatory regime for these funds allows for a streamlined authorisation process for expert investors, without impinging on the Island’s international reputation for probity. The expert category recognises an important principle that professional investors, such as financial institutions, and those with sufficient financial resources and knowledge of investments can be dealt with by a lighter touch approach from the Jersey Financial Services Commission (JFSC). The JFSC has placed increased reliance on local service providers to ensure that an expert fund and its documents meet all relevant criteria for defining who can establish this new type of vehicle.
This is a very significant step in a positive direction by the JFSC. However, from the perspective of international investors it is not exactly revolutionary. Other centres already operate similar regimes, or are developing a similar approach to the regulation of funds. Jersey expert funds are competing with several other centres and most directly with the Cayman Islands. On its own a Jersey expert fund could be attractive to an investor who has traditionally used Cayman; however, in all honesty it is unlikely to produce significant changes in business flow within the near future. Quite simply, there is no particular need to change. There are also limited beneficiaries of the business if Jersey wants to compete only in the establishment of funds. Fees paid to law firms are one-time transactions. This work also provides limited opportunities to create jobs or wealth in the wider economy.
To win significant new business Jersey must look to its capability to become a globally recognised centre of excellence for fund administration. The Cayman Islands is well known as a centre for the speedy and flexible establishment of fund products. However, the majority of funds established there are administered elsewhere, most often in Dublin. Indeed, it has been a strategy of Dublin to promote itself as a centre of excellence for fund administration for at least the past decade.
Jersey’s funds services industry was established in the 1970s, long before competing jurisdictions. This experience is evidenced in the expertise and high level of professional service provided to clients. If Jersey becomes a one-stop shop for expert funds it will not only be able to compete head-on with other centres but will send out a clear message to the global funds industry that it is serious about growing in this area. The Island has been hesitant to develop its fund administration industry in the past because of concerns relating to the staffing levels required to undertake high-volume ‘back office’ work. However, advances in technology and communications mean that fund administration is no longer as high volume in terms of the extra employees companies will require to expand business. Now it is possible to create sustainable growth in this area to the benefit of the economy as a whole. A career in fund administration offers young, and older, people of all abilities the opportunity to learn new skills and pursue further education and professional qualifications. Growth in this industry will then cascade employment opportunities into the wider economy.
There is little doubt in anyone’s mind that Jersey has the capacity and the appetite to expand its fund administration industry. The rolling out of initiatives such as the expert fund and the soon to be announced Non-Domiciled Fund Guide (which will allow the administration In Jersey of funds domiciled in other jurisdictions) establishes the platform upon which this growth will be built.
Jersey’s reputation, allied with its depth and strength in the field of fund administration, will also be a critical success factor.
Strong political leadership is also required. In the coming months both the fiscal and migration strategies will be debated. If their promoting committees are successful then the Island will have the mechanisms in place for a more business friendly environment. It will be important for our senior politicians to spread this message internationally and encourage new business, and new companies, to the Island. The future of Jersey’s financial services industry will be extremely positive if we continue seeking to offer international customers the broadest range of high quality services. It is just as important to develop sectors that can offer broad based training and opportunities for our young people. Fund administration must play a key strategic part in Jersey’s ongoing success.
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