Jersey is touting its credentials as a funds domicile to Asian investors, but faces an uphill battle to compete with established jurisdictions such as the Cayman Islands and new contenders including Hong Kong.
Members from Jersey Finance, a promotional agency, visited Hong Kong last month to meet institutional investors and fund managers to talk up the UK island’s appeal as an offshore centre.
Its aim is two-fold: to encourage Asian fund firms, notably private equity and real estate managers, to domicile their funds in Jersey; and to persuade Asian asset owners to invest in these funds.
Clearly it holds appeal for some managers. PwC estimates that 22% of real estate funds and 15% of private equity funds globally are domiciled in either Jersey or Guernsey.
Jersey Finance is touting the island as a gateway to Europe. “You’ve got European promoters coming into Hong Kong and they will often use Jersey vehicles because they are familiar with Jersey,” says Richard Corrigan, head of global business development for Jersey Finance.
With Chinese and Hong Kong fund managers increasingly seeking clients in Europe and the UK, Jersey is attractive as a domicile, he adds. “We see ourselves as a gateway to the UK and Europe in much the same way as Hong Kong is a gateway to China.”
Florence Yip, Asia-Pacific tax leader of asset management at PwC, agrees that Jersey should be considered for managers with a significant investment portfolio of private equity and real estate in the UK and Europe – but it’s just one of the choices.
“If you look at international investors, the portion from the UK/Europe or the underlying investment portfolio in the UK/Europe may not be significant, so investors might be more receptive to Cayman,” she notes.
Jersey Finance’s July road trip did not take in hedge funds, which have fallen out of favour with Asian investors recently. Jonathan White, the promotion firm's chairman, says many investors are put off by hedge funds’ traditional 2% and 20% fee structure.
But many remain sceptical about Jersey’s ability to compete for business from both asset owners and fund managers in Asia.
Hong Kong-based lawyers say they rarely receive inquiries from clients seeking to domicile their funds in Jersey – they’re more interested in the Caymans or, less frequently, the British Virgin Islands.
“Cayman obviously has a strong establishment – they’ve got all the service providers, custodians, law firms, auditors, administrators, custodians, trustees, independent directors – whatever you think of, they have it,” one source says. “Whereas Jersey, they are trying to make themselves known and to grow the market.”
As such, it is “not easy psychologically for someone to start using Jersey all of a sudden when most start-ups are still using Cayman vehicles”, he adds.
Yip makes a similar point, noting that Jersey, with a population of 100,000, will have trouble competing with Hong Kong, a city of more than seven million. Hong Kong has the infrastructure, telecommunications, information flow and talent pool, she says.
Moreover, while Jersey is better-known among the European community, the Caymans remain a popular and cost-effective choice of domicile for Asians, notes the lawyer.
On top of this, Hong Kong has entered the picture after announcing plans this March to exempt private equity funds from tax. Once passed, PE firms will be entitled to the same tax exemptions as other offshore funds.
Yet Caymans is not without issues, notes White of Jersey Finance. The multiple-directorship issue – with residents of the islands sitting on hundreds of fund boards – limits the ability to provide effective oversight, he argues.