Targeted innovation to support global alternative manager ambitions
Contributed by Elliot Refson of Jersey Finance, April 2023
Offering a new Limited Liability Company (LLC) structure from a European jurisdiction is helping to
futureproof the ambitions of US and global alternative fund managers with an international investor
base, writes Elliot Refson, Head of Funds at Jersey Finance.
Future-proofing operational models to meet the challenges of an ever-changing regulatory environment is taking on greater resonance with global alternative fund managers, especially those with an international investor base.
Such an evolving regulatory playing field can lead to increased complexity with associated costly changes such as relocating domicile or implementing new compliance frameworks, which in turn can disrupt fundraising and capital flows.
Managers – in particular those in the US - wishing to market into Europe will be particularly attuned to these intricacies and, against this backdrop, stability and familiarity are increasing in significance, with operational models that can go some way towards mitigating regulatory uncertainty sitting high on managers’ lists.
Limited Liability Company (LLC) structures have long provided the requisite reliability and familiarity, especially amongst US managers - and, when combined with the most appropriate jurisdiction, can limit the impact of regulatory uncertainty.
Familiarity
US and Caribbean fund domiciles have long-established LLC legislation, aimed at ironing out such operational complications.
However, last year, shifts in EU regulation prohibiting European investors from allocating capital to black and grey-listed financial centres, necessitated a reassessment of domicile for a sizeable number of managers with international investors.
Understandably, looking to circumnavigate potential regulatory changes and ultimately future-proof their business became a key consideration but, up until recently, utilising an LLC structure via a European jurisdiction with the required reliability and stability was not possible.
That is why earlier this year, Jersey made the innovative move to introduce its own LLC legislation, modelled on existing regimes in Delaware and Cayman, to provide much-needed familiarity and certainty for US and other global fund managers.
As well as benefitting from a simple registration process, the unique flexibility of LLC operating agreements also affords members the ability to structure and manage their undertaking as best suits their needs.
Seamless access
The Jersey LLC was the fruit of a collaborative approach between government, Jersey Financial Services Commission and industry and offers the flexibility of a reliable LLC operating agreement but, crucially, from a European location that is not within the EU.
Such an LLC structure is unique in its ability to offer a future-proofed alternative to marketing under full compliance with the Alternative Fund Managers Directive (AIFMD) and other European directives.
Specifically, marketing from a domicile through National Private Placement Regimes (NPPR) offers quick and easy access to EU capital without the regulatory burden of complying with the full scope of the AIFMD and consequently comes with significant cost and speed-to-market advantages.
The reality is that few managers need blanket access to EU Member States with figures provided by the EU Commission suggesting that 97% of managers market into just three EU markets or less.
Consequently, the ongoing cost and regulatory burden of operating from an onshore EU base is disproportionate with private placement being a very credible, fast, cost-effective and sensible solution.
Certainty and stability
Creating a bridge between US manager and EU investor markets is a key challenge for the industry – and domiciles that are able to support European investor access to global fund opportunities, combined with a strong internal regulatory infrastructure and a forward-thinking approach to structuring, will no doubt continue to be in high demand.
It is those domiciles that can target their innovations to where they are needed most, and employ familiar and reliable structures such as the new Jersey LLC, that can truly offer the long-term operational solutions capable of future-proofing global alternative fund managers’ ambitions.
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