Emily Haithwaite Alexandra O'Grady Matt McManus September 15 2022 Jersey expert funds Ogier | Private Client & Offshore Services - Jersey Emily Haithwaite, Alexandra O'Grady, Matt McManus Private Client & Offshore Services Who is an expert investor?Regulatory requirementsInvestment manager or adviserJersey service providersOffer documentStock exchange listings and transfers of interestAuthorisation processAIFMD and UK AIFMDTaxationEconomic substanceThe Jersey expert fund is a longstanding and successful regime offering swift authorisation and a streamlined regulatory environment for funds making an unlimited number of offers to expert (ie, professional, 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 the requirement for any formal regulatory review of the fund or its promoter.Expert funds have been at the core of Jersey's attractiveness as a jurisdiction for funds with a global, institutional investor base.Who is an expert investor?Underpinning the expert fund regime is the requirement that each investor should fall within one of the categories of expert investor set out in the Jersey expert fund guide published by the Jersey Financial Services Commission (JFSC). These include (among others):a person who makes a minimum initial investment or commitment 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, but excluding their principal place of residence) of at least $1 million (or other currency equivalent);an entity with assets available for investment of not less than $1 million (or other currency equivalent);a company, partnership, trust or other association of persons in which every member, partner or beneficiary is themselves an expert investor;a fund service provider to the fund or their associate, and any employee, director, consultant or shareholder to or of any such person acquiring their investment by way of remuneration, incentive or co-investment (including "carried interest" investors); ora government, local authority, public authority or supra-national body in Jersey or elsewhere.Regulatory requirementsAn expert fund is subject to a very light degree of regulation. In particular:the promoter of an expert fund is not subject to any regulatory review or approval (other than approval of the individuals who are the "principal persons", such as owners or controllers of any Jersey-regulated functionaries or directors of a corporate fund); andthe expert fund is not required to adopt any prescribed investment restrictions or risk diversification strategy.The parameters for an expert fund are set out in the guide and outlined below. If an expert fund does not comply in all respects with these requirements, it is possible to request derogations from the JFSC in respect of any areas of non-compliance.Investment manager or adviserThe investment manager or adviser must:have had no convictions or disciplinary sanctions imposed on it;be solvent;be established in an Organisation for European Cooperation and Development member state or another jurisdiction with which the JFSC has entered into a memorandum of understanding (or equivalent) on investment business and collective investment funds;be regulated in that jurisdiction or, if its proposed activity is not a regulated activity in its home jurisdiction, gain the JFSC's approval to act in relation to the expert fund (which, provided the other requirements are met, will ordinarily be granted on an expedited basis);have relevant experience in managing or advising on investors' funds using similar investment strategies to those to be adopted by the expert fund; andsatisfy the JFSC's general principles of corporate governance by maintaining an adequate "span of control" over its business.If the distributor of the expert fund is independent of the investment manager or adviser and either is a driving force behind the fund or introduces the majority of investors to the fund, it must satisfy the same requirements as the investment manager or adviser (other than in relation to investment management experience).Jersey service providersAn expert fund must appoint an administrator, manager or (in the case of a closed-ended unit trust) trustee that has:two Jersey resident directors with appropriate experience;staff; anda physical presence in Jersey.The administrator (or manager or trustee, as applicable) must monitor the compliance of the investment manager or adviser with any investment or borrowing restrictions set out in the expert fund's offer document and must have access to appropriate records of the investment manager or adviser to enable it to carry out this monitoring function.If established as a limited partnership or unit trust, the expert fund must have a Jersey general partner or trustee and this, or the fund itself if a corporate fund, must have at least two Jersey-resident directors with appropriate experience.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 FS Law) and will be required to comply with applicable codes of practice published by the JFSC. A fund service provider (such as a special-purpose entity general partner) established to act for an expert fund and which relies upon the services of a "manager of a managed entity" or "MoME" – such as a Jersey administrator – to satisfy any part of its regulatory obligations 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 expert fund must appoint an auditor. If open-ended, it must also appoint a Jersey custodian (although this is not required in the case of a hedge fund that appoints a prime broker that is part of a group with a minimum credit rating of A1/P1).Offer documentThe offer document of an expert fund must contain certain specified disclosures, including all information that investors would reasonably require to make an informed judgement about investing in the fund. Derogations may be sought in respect of specific content requirements where relevant.Investors must acknowledge in writing receipt of a prescribed investment warning, which includes acceptance of the reduced regulatory requirements applicable to expert funds.Expert funds can be marketed to investors in the United Kingdom, the European Union and the European Economic Area (EEA), subject to compliance with certain additional requirements set out below.Stock exchange listings and transfers of interestAn expert fund may be listed on a stock exchange, provided the exchange permits restrictions on transfers of interests in order to ensure that only expert investors can participate in the fund. The JFSC will still require that each new investor accepts the investment warning referred to above, and that suitable mechanisms are in place to prevent non-expert investors from becoming registered holders of interests in the fund.Authorisation processThe authorisation process for an expert fund is simple and quick. An application form must be submitted to the JFSC setting out the key features of the fund, together with a confirmation (countersigned by the administrator) that the investment manager or adviser complies with the requirements set out above. The submission must be accompanied by a structure chart, the draft offer document (with any derogations from content requirements typically being requested at this stage) and the related application for the fund to be granted a certificate under the Collective Investment Funds (Jersey) Law 1988 (the CIF Law). An application fee is also payable at this stage.The JFSC will check that the application form has been properly completed and may request further information on the fund and its service providers, but it will not carry out a full regulatory review of the fund or its promoter. The requisite consents can be issued within as little as three working days.AIFMD and UK AIFMDJersey alternative investment fund managers (AIFMs) marketing funds to investors in the United Kingdom, the European Union or the EEA via national private placement regimes (NPPRs) are required to comply with certain additional disclosure, transparency and reporting requirements under the EU Alternative Investment Fund Managers Directive (AIFMD) or the United Kingdom's AIFMD regulations. However, as Jersey is a "third country" for AIFMD purposes, Jersey firms engaging in marketing under NPPRs are subject only to these limited obligations that apply to non-EU, EEA or UK AIFMs – not to full AIFMD compliance.Since expert funds are regulated under the CIF Law and their Jersey service providers under the FS Law, no additional regulatory permissions are required in Jersey for the fund or to act as the fund's AIFM. However, the relevant provisions of the Alternative Investment Funds (Jersey) Regulations 2012 and the JFSC's Code of Practice for Alternative Investment Funds and AIF Services Business will apply (namely in relation to disclosure, reporting and asset stripping, together with notification to the JFSC in advance of marketing into the United Kingdom, the European Union or the EEA).These additional requirements apply only where there is to be active marketing of such funds in the United Kingdom, the European Union or the EEA under NPPRs.Jersey has implemented a notification regime for small AIFMs that manage AIFs below certain specific thresholds. This regime mirrors the corresponding exemptions provided in the AIFMD.TaxationJersey offers a location for investment funds that does not impose its own tax burden on an investment fund or its investors.Economic substanceBoth the Taxation (Companies – Economic Substance) (Jersey) Law 2019 and the Taxation (Partnerships – Economic Substance) (Jersey) Law 2021 (together, the Substance Laws) are relevant in the context of Jersey investment funds.A company or partnership will be caught within the scope of the Jersey economic substance regime if it is a "resident company" or a "resident partnership" that carries on one or more "relevant activities" from which it receives gross income.The Substance Laws do not apply to investment funds directly, save in the case of self-managed corporate funds (ie, corporate funds which have not appointed an external manager). However, any Jersey fund manager appointed in respect of the fund will be conducting the relevant activity of "fund management business". Accordingly, consideration should be given to the application of the Substance Laws to general partners, managers, investment managers and managing trustees.If within scope, the relevant company or partnership must satisfy the "economic substance test".For further information on this topic please contact Emily Haithwaite, Alexandra O'Grady or Matt McManus at Ogier by telephone (+44 1534 514 000) or email ([email protected], alexandra.o'[email protected] or [email protected]). The Ogier website can be accessed at www.ogier.com.