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Wealth Management 2005 from
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Coinvestment
" By Tinao Bakare
English solicitor and member of the Rathbone Trust Company Jersey’s funds team
Trusts remain a cornerstone of Jersey’s financial services industry, but professionals are also developing new, innovative solutions
In recent years Jersey has been developing actively opportunities for structuring joint investments through legislation and regulatory support.
This complements Jersey’s enviable reputation in providing wealth management and asset preservation services to private clients as well as its expertise in relation to securitisations, structured finance and other products.
For individuals the classic trust structure remains effective and addresses most clients’ needs for tax and estate planning or simply for holding family wealth. Indeed, the trust structure continues to evolve and develop in response to demand for structures in which the settlor/donor retains a degree of influence. However, industry professionals increasingly have to find more innovative solutions. There is, for example, a client-driven demand for collective investment structures which offer greater flexibility, diversity, tax transparency and exposure to the more speculative investments which trustees generally approach with caution, given the nature of their duties.
Examples of the new-style structures include:
Jersey limited partnerships
This is an area where we have experienced considerable demand for growth. Jersey limited partnerships offer passive investors limited liability (even where they have some indirect influence in management), an efficient means of investing and withdrawing funds and a general lack of bureaucracy. A limited partnership may be appropriate for a number of different purposes.
A principal use has been as an additional form of investment vehicle for mutual funds, in particular for the venture capital industry and as a useful vehicle for holding assets situated in another jurisdiction. In addition, investors from international jurisdictions often desire a structure that is transparent for tax purposes. It is also possible to list limited partnership interests on the Channel Islands Stock Exchange.
In Jersey, the limited partnership is not subject to assessment for income tax purposes and a non-resident partner will not be liable to Jersey income tax except on Jersey source income (excluding bank deposit interest).
Protected cell companies
The eighth amendment to the Jersey Companies Law introduces two types of cell companies – incorporated cell companies and protected cell companies.
A particular attraction for investment funds adopting a protected cell company structure is the total segregation of assets within each cell not only for accounting and ownership purposes but as a safeguard against cross liability. Guernsey has attracted enormous amounts of monies to its protected cell companies and given that the Jersey proposals are arguably more robust and more flexible this must bode well for the future particularly as international recognition grows. The Jersey law will hopefully come into force sometime in the new year.
Expert funds
Sophisticated investors understand the risks associated with speculative investments, but are prepared to accept those risks in order to take advantage of the possibilities of higher returns than stock market benchmarks as well as exposure to alternative asset classes. Given the obligations and responsibilities of a trustee the typical trust structure is not always the best solution for such investment approaches and sophisticated investors clearly require a more flexible and less restrictive investment model which the expert fund regime offers.
Expert funds provide wealthy investors with access to investment in diverse asset classes ranging from real estate to wine and are an example of a market-orientated and risk-based innovation from the Jersey regulator, and have been widely welcomed by the industry.
The expert fund legislation can be applied to limited partnerships, unit trusts or companies, there is no limit to the number of investors and the shares in a closed ended expert fund may be listed.
The flexibility and depth of expertise that Jersey offers to clients is undoubtedly key to Jersey’s continuing role as an attractive place to do business. These recent innovations are just the latest example of the Island’s willingness to legislate where necessary. In view of Jersey’s well established legal, accounting, banking and regulatory infrastructure these enormously valuable new co-investment structures will keep Jersey in the premier league of international finance centres for high net worth clients.
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