Jersey expert funds

What constitutes an expert fund?
Regulatory requirements
Stock exchange listings and transfers of interests
Authorisation process
Economic substance requirements
EU Alternative Investment Fund Managers Directive

Jersey expert funds were introduced to enhance Jersey's attractiveness as a jurisdiction for the establishment of funds aimed at institutional and high-net-worth investors. Expert funds can be established within a matter of days on the basis of a self-certification approach without any formal regulatory review of the fund or its promoter. There are currently more than 400 authorised expert funds.(1)

What constitutes an expert fund?

An investment fund constitutes an expert fund if each investor signs an investment warning and falls within one of the following categories:

• a person who makes a minimum initial investment of $100,000 (or other currency equivalent);
• a person whose ordinary business includes buying, managing, holding or selling investments or giving investment advice or any employee, director, partner or consultant to or of any such person;
• a person with a net worth (individually or jointly with their spouse) of more than $1 million (or other currency equivalent), excluding their place of residence;
• an entity with assets available for investment of at least $1 million (or other currency equivalent) or of which every member or partner is an expert investor;
• a fund service provider to the fund or a person connected with a fund service provider to the fund (including carried interest investors); or
• a government, local authority, public authority or supranational body in Jersey or elsewhere.

Regulatory requirements

An expert fund is subject to a light degree of regulation. In particular:

• the promoter of an expert fund is not subject to any regulatory review or approval; and
• an expert fund need not adopt any prescribed investment restrictions or a risk diversification strategy.

The regulatory requirements applicable to an expert fund are as follows:

• The investment manager or adviser must:
  • have had no convictions or disciplinary sanctions imposed on it;
  • be solvent;
  • be regulated in relation to managing or advising on investment funds in an Organisation for Economic Cooperation and Development state or jurisdiction or any other state or jurisdiction with which the Jersey Financial Services Commission (JFSC) has entered into a memorandum of understanding (or equivalent) on investment business and collective investment funds, or be approved by the JFSC;
  • have relevant experience in managing or advising on investors' funds using similar investment strategies to those to be adopted by the expert fund; and
  • satisfy the JFSC's general principles of corporate governance by maintaining an adequate span of control over its business.
• If the distributor of the fund is independent of the investment manager or adviser and is a driving force behind the fund, it must satisfy the same requirements as the investment manager or adviser (other than in relation to investment management experience).
• An expert fund must appoint an administrator, manager or (in the case of a closed-ended unit trust) trustee (the administrator), which is regulated and has staff and a physical presence in Jersey. The administrator must monitor the compliance of the investment manager or adviser with any investment or borrowing restrictions set out in the offer document and must have access to appropriate records of the investment manager or adviser to enable it to carry out such monitoring function.
• All Jersey fund service providers to an expert fund (including the administrator) must be regulated in Jersey under the Financial Services (Jersey) Law 1998 (the FSJ Law) and comply with applicable codes of practice. A fund service provider established for the purpose of acting for an expert fund which relies on the services of a manager of a managed entity (eg, an administrator) to satisfy any part of its regulatory obligations (eg, a special purpose vehicle general partner) will be subject only to the core principles of the Code of Practice for Fund Services Business unless it elects to follow the code in full.
• An open-ended expert fund must appoint a Jersey custodian or, in the case of a hedge fund, a prime broker with a credit rating of A1/P1 (in which case a Jersey custodian is not required).
• An expert fund which is established as a limited partnership or unit trust must have a Jersey general partner or trustee.
• The fund company, general partner or trustee (as the case may be) must have at least two Jersey-resident directors with appropriate experience.
• An expert fund must appoint an auditor.
• The offer document must contain certain specified information, including all information that investors would reasonably require to enable them to make an informed judgement about an investment in the expert fund.
• An investor in an expert fund must acknowledge in writing receipt of a prescribed investment warning which includes acceptance of the reduced regulatory requirements applicable to expert funds.
• If an expert fund does not comply in all respects with the above requirements, it is possible to obtain derogations from the JFSC in relation to such non-compliance. No other structural or documentary requirements apply to an expert fund.

Expert funds can be marketed to investors in the European Union or the European Economic Area subject to compliance with certain additional requirements (see "EU Alternative Investment Fund Managers Directive" below).

Stock exchange listings and transfers of interests

An expert fund may be listed on a stock exchange which permits restrictions on transfers of interests. This is to ensure that no one other than an expert investor can participate in the fund. Reasonable steps must be taken to ensure that non-expert investors do not become the registered holders of interests in the fund.

Authorisation process

The application process for an expert fund is simple and quick. An application form setting out the key features of an expert fund, including a confirmation from the investment manager or adviser that it complies with the above regulatory requirements, must be countersigned by the administrator and submitted along with documentary evidence as to the investment manager's or adviser's regulation to the JFSC, together with an application fee, structure chart and the draft offer document. The JFSC will check that the application form has been appropriately completed, but will not carry out any regulatory review of an expert fund. In addition, an application form to register the expert fund under the Collective Investment Funds (Jersey) Law 1988 (the CIF Law) must be submitted to the JFSC. The requisite consents to the establishment of the fund will typically be issued within as little as three days from the formal filing of the application.

Economic substance requirements

The Taxation (Companies – Economic Substance) (Jersey) Law 2019 (the Substance Law) came into force on 1 January 2019. It requires Jersey tax-resident companies that carry on certain specified geographically mobile activities, including fund management business, to ensure that they are governed and operated in a way which complies with the law – namely:

• all of their core income-generating activities (CIGAs) must be carried out in Jersey;
• they must be directed and managed in Jersey in relation to their CIGAs; and
• they must have adequate expenditure, employees and premises in Jersey.

The applicable requirements are often met by the relevant company appointing a Jersey corporate services provider to act as the company's administrator. Jersey tax-resident corporate managers of expert funds are in scope of the Substance Law where they have gross income in relation to their fund management activities.

EU Alternative Investment Fund Managers Directive

Since July 2013, Jersey alternative investment fund managers (AIFMs) which market Jersey or other funds that are not domiciled in the European Union or the European Economic Area to investors in the European Union or the European Economic Area have had to comply with additional disclosure, transparency and reporting requirements pursuant to the EU Alternative Investment Fund Managers Directive.

Expert funds are already regulated under the CIF Law and their service providers are regulated under the FSJ Law. Accordingly, the only additional regulatory requirement pertaining to such funds and their service providers pursuant to Jersey's Alternative Investment Funds (Jersey) Regulations is compliance with applicable sections of the JFSC's Code of Practice for Alternative Investment Funds and AIF Services Business (in relation to disclosure, reporting and asset stripping, together with notification to the JFSC in advance of marketing into the European Union or the European Economic Area). These additional requirements apply only when such funds will be actively marketed in the European Union or the European Economic Area.

For further information on this topic please contact Emily Haithwaite, Niamh Lalor, Sophie Reguengo or Joanna Christensen at Ogier by telephone (+44 1534 514 000) or email (emily.haithwaite@ogier.com, niamh.lalor@ogier.com, sophie.reguengo@ogier.com or joanna.christensen@ogier.com). The Ogier website can be accessed at www.ogier.com.

Endnotes

(1) For further details please see:

• "Jersey public investment funds – regulatory options";
• "Jersey Managers and Funds Marketing into the European Union under the Alternative Investment Fund Managers Directive (AIFMD)";
• "Updated economic substance requirements for Jersey fund managers";
• "Jersey Private Funds"; and
• "Jersey listed funds".

​Tatiana Collins, managing associate, Alexandra O'Grady, managing associate, Catrin Le Rendu, associate, and Brooke Lewis, associate, contributed to the preparation of this article.