With the release of the Jersey Private Funds (JPF) Guide, Jersey has introduced a welcome simplification of its funds regime by providing for a single JPF product.
The JPF will replace the three existing fund products which cater to private funds in Jersey, namely Control of Borrowing (Jersey) Order (COBO) only funds, private placement funds and very private funds.
Existing COBO-only funds, private placement funds and very private funds may be converted into a JPF but are not required to do so. If they do not convert, they will continue to remain subject to their existing regulatory regime.
JPFs must receive consent under the Control of Borrowing (Jersey) Order 1958 and, subject to meeting the following eligibility and structuring requirements, may be established using a streamlined authorisation process.
A JPF is a private investment fund involving the pooling of capital raised for the fund and operates on the principle of risk spreading. Therefore, in order to fall within the scope of the JPF Guide there must be:
- at least two investors pooling their capital; and
- a number of assets being acquired in order to ensure that there would be risk spreading.
Importantly, however, the following are expressly stated as not falling within the definition of a 'JPF':
- holding companies;
- joint ventures;
- securitisation vehicles;
- family office vehicles; and
- carry and incentivisation vehicles.
In order to satisfy the requirements of the guide, the following marketing considerations and investor requirements must be met.
- Offers to invest in the JPF may not exceed 50 – for these purposes, an 'offer' means an offer that is capable of acceptance by an investor. As such, pre-marketing materials sent to prospective investors will not constitute an offer for these purposes.
- Where a JPF is marketed into Europe and is thus an alternative investment fund (AIF) for the purposes of Regulation 3 of the AIF (Jersey) Regulations, Jersey's Alternative Investment Fund Managers Directive and AIF Code of Practice will apply.
- There is no requirement for a JPF to have an offer document although it can do so (in which case, the document must contain all material information required by investors and their professional advisers for the purposes of making an investment in the JPF).
- The offering materials of the JPF must contain the investment warning and disclosure statement prescribed for within the JPF Guide.
Target investors The number of investors cannot exceed 50, with each investor being either a 'professional investor' (as defined the JPF Guide) or an eligible investor, in that it either:
- invests a minimum initial investment or commitment of no less than £250,000 (or currency equivalent);
- is the holder of non-participating founder, management shares or interests;
- is an involuntary transferee of an interest in the JPF (eg, a personal representative or trustee in bankruptcy of a registered holder) or is a carry vehicle; or
- is a discretionary investment manager investing on behalf of its clients, for whom it is satisfied can bear the economic consequences of the investment.
In either case, such investors must acknowledge in writing their receipt and acceptance of a stipulated investment warning and disclosure statement (in the form set out in Part E of the JPF Guide).
Retail investors are not permitted to invest in a JPF (directly or indirectly), unless as a consequence of being an involuntary transferee or through a discretionary investment manager investing on behalf of its clients.
Where all of the above eligibility criteria are met:
- a JPF will not be a collective investment fund under the Collective Investment Funds (Jersey) Law 1988 and need not comply with the Code of Practice for Certified Funds;
- personal questionnaires will not be required of any director, beneficial owner, controller, key persons/compliance staff or service provider to the JPF, aside from the designated service provider;
- the promoter of the JPF need not obtain prior approval from the Jersey Financial Services Commission; and
- the Jersey Financial Services Commission's outsourcing policy will not apply to the JPF (but will apply to the designated service provider).
A JPF may be established in Jersey or overseas and may be open-ended or close-ended, provided that the '50 or fewer' test set out below is met.
Where established in Jersey, a JPF can be established in the form of:
- a company (including a protected cell company, an incorporated cell company or any cell thereof);
- a partnership (including a limited partnership, limited liability partnership, separate limited partnership or incorporated limited partnership); or
- a unit trust.
Where established overseas, a JPF may be formed in the equivalent forms available in the relevant overseas jurisdiction.
Where a JPF is structured as a company, there is no requirement for Jersey resident directors. Similarly, where a JPF is structured as a partnership or unit trust, there is no requirement for the general partner or trustee to be incorporated in Jersey or for the general partner or trustee to have Jersey resident directors. However, while there is no explicit requirement for mind and management to be in Jersey, the JPF Guide states that the expectation of the Jersey Financial Services Commission (JFSC) is that, in the majority of cases, there will be one or more Jersey resident directors on the board of a JPF's governing body.
A JPF must appoint a Jersey-designated service provider. The designated service provider and, to the extent applicable, the governing body of the JPF must comply with the Money Laundering (Jersey) Order 2008 and the JPF will be designated as a 'specified Schedule 2 business' for the purposes of the Proceeds of Crime (Jersey) Law 1999 and the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008.
A JPF may not be a listed fund and this prohibition extends to technical listings.
The JPF Guide provides guidance around the application of the 50 or fewer test, as follows:
- A transfer of an interest from one investor to another will not be permitted if it means that the number of investors exceeds 50 at any one time.
- A top-up investment by an investor must be treated as part of the original offer to that investor.
- A split (transfer) of part of an investor's holding of an interest to another will not be permitted if it means that the number of investors exceeds 50 at any one time.
- Where a person acquires an interest with no rights attaching to it other than management or control rights (ie, acquires a non-participating interest in the profits of the JPF), that person will not be counted as an investor.
- A carried interest vehicle will not be counted as an investor, but each participant in the carried interest vehicle must be a professional investor or an eligible investor.
- A general partner of a JPF will not count as an investor, provided that it does not commit capital to the limited partnership for the purposes of co-investment.
- Where a professional investor acquires an interest for or on behalf of one of more retail investors, it will not be necessary to look through to the number of underlying investors. Therefore, a professional investor may acquire interests on behalf of retail investors.
- Feeder funds associated with a JPF whose investors are not professional investors or eligible investors will be permitted only with the JFSC's consent.
- Where feeder funds, whose investors are professional investors or eligible investors, invest in a JPF, there is a look through to each underlying investor for the 50 or fewer test; however, the feeder fund itself will not be counted for these purposes.
- The JPF Guide provides that derogations from the above may be permitted by the JFSC in exceptional circumstances.
The designated service provider must complete and file an application form for authorisation in respect of the JPF.
The JPF Guide provides for a 48-hour streamlined authorisation process for all JPFs which meet the eligibility criteria, provided that the JFSC's fund services business or trust company business authorisation team receives the completed JPF form and requisite application fee.
Any material changes to the information provided by the designated service provider in the JPF form before the launch of the JPF which would affect the accuracy of the information provided in the JPF form must be notified to the JFSC as soon as possible.
Material changes to the JPF that occur following the launch must be notified to the JFSC as soon as reasonably practicable and within 28 days.
The designated service provider must submit an annual compliance return in respect of the JPF.
There is no obligation under the JPF Guide for a JPF to appoint an auditor or audit its financial statements, although a JPF is free to appoint an auditor, if it so wishes.
The JPF Guide does not have retroactive effect and will not apply to existing COBO-only funds, private placement funds or very private funds, which can continue to operate until the end of their natural life (and will therefore remain subject to their existing regulatory regime).
However, such funds may apply to convert into a JPF provided they meet all the eligibility requirements of a JPF. For the purposes of the 50 or fewer test, any offer made or any investor admitted during the life of the fund will be counted. An application fee will attach to any such conversion.
As noted above, a JPF must appoint a designated service provider and there may be no change to the designated service provider without prior JFSC approval.
The designated service provider must be registered with the JFSC under the Financial Services (Jersey) Law 1998 to carry on one or more of Class V (administrator), Class U (manager), Class X (investment manager) or Class ZG (trustee) fund services business. However, where the JPF has 15 or fewer offers and professional or eligible investors (to be known as a very private JPF), the designated service provider may instead be registered with the JFSC to carry on any class of fund services business, trust company business or investment business within the meaning of the Financial Services (Jersey) Law 1998.
The designated service provider must be an existing Jersey full substance entity (as opposed to a managed entity).
The duties and responsibilities of the designated service provider do not replace those of the governing body of the JPF and the designated service provider must assume responsibility for the following:
- making all reasonable enquiries to ensure that the JPF meets all eligibility criteria, both on its establishment and on a continuing basis;
- ensuring that all necessary due diligence on the JPF and all related parties (including the promoter and service providers) is carried out;
- ensuring all documents relating to its due diligence enquiries are readily retrievable in Jersey;
- ensuring compliance with all necessary Jersey anti-money laundering (AML) and combating the financing of terrorism (CFT) requirements;
- completing and submitting the JPF form;
- notifying the JFSC in writing as soon as reasonably practicable (and within 28 days) of any:
- material changes which would reflect the accuracy of the information provided to the JFSC in relation to the JPF;
- non-compliance with the JPF's Jersey's AML/CTF obligations;
- material or unresolved complaints made in relation to the JPF; or
- a qualified audit of the JPF's accounts and financial statements (where the JPF has elected to appoint an auditor); and
- completing and returning the JPF return.
JPF service providers may continue to rely on the Financial Services (Investment Business) (Restricted Investment Business – Exemption)) (Jersey) Order 2001 or the Financial Services (Trust Company Business) (Exemption No 5) (Jersey) Order 2001 (together, the PIRS orders), so as to avoid the requirement to be licensed to provide services to a JPF.
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