Walkers Fundamentals White Paper 2021 – Regional Update: Europe

It has been another twelve months in which the extraordinary has become the norm, the unthinkable the mundane. Lockdowns have oscillated between full, partial and non-existent. Offices, restaurants and borders across the globe have creaked open and slammed shut as the pandemic has continued to shape the way we live our lives. And yet, throughout it all, lock-up funds have continued to be raised: investors were wooed over Zoom, side letters were negotiated at kitchen tables and the universe of participants and stakeholders in the closed-ended funds industry repeatedly showed themselves to be nimble and flexible enough to keep the wheels turning.



Guernsey’s investment funds sector has reported a record high in the Net Asset Value (“NAV”) of funds domicile in the Island, with a 20% rise over the last 12 months.

The figures, taken from the regulator – the Guernsey Financial Services Commission (“GFSC”) – paint a robust picture of a funds jurisdiction that is meeting the challenges of the last 18 months. The regulator’s most recent update for Q2 2021 confirmed that the NAV increased in sterling terms by £9 billion over the quarter, and by £45.8 billion between the end of Q2 2020 and the end of Q2 this year.

That success has been built, at least in part, by a proactive relationship between the regulator and the industry, the most recent evidence of which is the GFSC’s approval of its first cryptocurrency fund, which is seeking the UK regulator’s approval to be the world’s first tier-one Bitcoin exchange-traded fund. Further, Guernsey is currently working on legislation that will regulate virtual assets, which is due to be introduced in mid-2022.

Likewise, the GFSC has taken a proactive approach to medical cannabis investments – last September the launch of the first Guernsey cannabis fund focusing on medical cannabis, which Walkers acted on, made headlines in the Financial Times, and more inquiries have followed. More recently, the GFSC has relaxed its stance on allowing Guernsey funds to invest in recreational cannabis (provided it is legal in the relevant jurisdiction) and is willing to consider regulatory applications for such funds on a case-by-case basis.

The Commission has also changed the rules around the use of the Guernsey Green Fund kitemark for ESG funds following a thematic review and consultation with industry participants – the changes reduce the frequency of monitoring against ESG targets for closed- ended funds, and allows market announcements on recognised exchanges in respect of Guernsey Green Fund status.

As part of a revision of laws project, the principal laws in Guernsey dealing with the regulations of financial services, including the law relating to investment funds and fund managers, have been updated with the new laws coming into force on 1 November 2021. In connection with these updated laws, the GFSC has updated all the related revised rules, codes and guidance, all of which also come into force on 1 November 2021. In terms of international markets, Guernsey products are increasingly understood, recognised and used beyond the traditional home in London – we have seen a series   of instructions from US managers in respect of the use of Private Investment Funds or Guernsey-domiciled single investor vehicles as a feeder structure for the use of European investors.

Research completed last year reported that Guernsey-domiciled funds saw a capital flow of £43 billion into the US in mid-2019, with a third of that figure originating in that country (with more than two- thirds of the total invested in private equity). US investors backed Guernsey-domiciled funds with £43.6 billion, more than £33 billion of which was invested globally, particularly Europe.


The latest statistics show that the net asset value of Irish-domiciled funds exceeded €3.6 trillion at the end of Q2 2021. This represents an annual increase of 20% (€634 billion) from €3 trillion in Q2 2020. Since Q4 2020, the net asset value of Irish-domiciled funds grew by over €358 billion.

The number of Irish-domiciled funds (including sub funds) grew from 7,962 in Q4 2020 to 8,162 in Q2 2021. On an annual basis, the number of Irish-domiciled funds increased by 402, growing from 7,760 (in Q2 2020). In terms of the number of Irish-domiciled funds by category, Irish-domiciled AIFs (including sub-funds) reached 3,189 at the end of Q2 2021 and the total number of Irish-domiciled UCITS

Funds (including sub-funds) reached 4,973. Out of all Irish-domiciled funds, 21.7% of Irish-domiciled funds are bond funds, 23.62% are alternative funds, 15.84% are money-market funds, 32.2% are equity funds, 4.78% are balanced funds, and 1.85% are other funds.

The total number of Irish-domiciled QIAIFs reached 2,879 at the end of June 2021 and total assets held by Irish QIAIFs reached €823 billion. This was driven by annual QIAIF asset growth of 15% up to the end of Q2 2021. As of the end of Q2 2021, Ireland is the top domicile for European ETFs, with a 65.29% share of the European ETF market and total assets of €722 billion.

As a consequence of COVID-19 and its effects on the Irish investment funds industry the Central Bank of Ireland has continued its increased focus on liquidity related issues throughout 2021. Another key area of focus, not only for the Central Bank of Ireland but for the European Supervisory Authorities also, is fund costs and fees. Regulation continued to shape the investment funds industry through 2021 with particular attention being placed on the new requirements relating to sustainable finance and cross-border distribution.

Recent amendments to the legislation governing the Investment Limited Partnership (“ILP”), Ireland’s regulated investment funds partnership product, in the form of the Investment Limited Partnerships (Amendment) Act 2020 have enhanced the product offering by bringing it more in line with the partnership structures in other funds jurisdictions and introducing best in class features. While partnership structures are generally used for investment funds with strategies relating to private equity or debt, real estate, infrastructure or other types of illiquid assets, the ILP is a flexible structure that can be utilised by asset managers seeking to establish open-ended and/or closed- ended investment funds through a regulated partnership structure.


Despite a backdrop of challenging conditions in some markets, the latest figures for Jersey’s finance industry show impressive and sustained growth - the value of total funds business booked in Jersey grew by 15% over the first half of 2021, to US$599 billion, with growth in the funds sector driven by private equity, which has grown by 24% from January to June 2021.

The figures from the regulator – the Jersey Financial Services Commission – bear out the increased levels of activity that our growing Jersey Investment Funds Practice Group has seen over the course of the last 12 months.

In particular, growth in the funds sector appears to be driven by the sustained success of the Jersey Private Funds (“JPF”), a new structure designed for small groups of sophisticated and professional investors, which grew by over 13% in the six months prior, with total assets under management of US$107 billion.

Long-established as a go-to offshore jurisdiction for the London market, Jersey has also found success in newer markets – not least in South Africa, and in Singapore, where under a Double Taxation Agreement, Jersey has emerged as a key jurisdiction for structuring certain Crypto funds and structures.

Another more recent trend is the interest in Environmental, Social and Governance investing, which the jurisdiction has sought to capitalise on with the launch of new ESG rules – recent instructions for our team include a social housing fund, an agritech Venture Capital (“VC”) fund, an African equities fund, and an industrial assets/warehouse fund aiming to build carbon neutral warehouses.

Beyond ESG we continue to see a wide range of asset classes, with a continued rise in the number of real estate, private equity, VC, equities and bonds, and family office funds being launched and a significant number of enquiries around the launch of new digital assets, hedge funds and more bespoke asset classes.

We have also seen a rise in the number of new Jersey fund managers being established to manage non-Jersey domiciled funds (in the case of both full presence managers and those seeking to rely on local administrators to provide compliance and other services), including a US$42 billion mega fund, and a steady flow of managers moving to Jersey from another financial centre.

From the perspective of US managers, an interesting trend is emerging which further demonstrates the attractiveness of Jersey to international markets – the use by US based managers/promoters of Jersey Private Funds, joint ventures and co-investment vehicles, or alternatively, a Jersey-domiciled single investor vehicle as a feeder structure established for an European investor. The trend appears to be driven in part by the regulatory climate, with managers/promoters in the major US fund centres increasingly looking for alternative ways to structure investment vehicles suitable for and acceptable to their Europe-domiciled investor base.


There has been strong Cayman hedge fund activity in the London market in 2021, notwithstanding the macro uncertainties continuing from 2020. The trend of capital consolidating with large managers has continued. While larger, more-established managers provide solid returns and remain active in setting up new fund structures, consistent with prior years, many smaller and emerging funds are offering better returns. But barriers to entry have been difficult for emerging managers to navigate.

Investors are increasing their focus on operational due diligence. This is not solely due to understanding the risks exposure of their investment, but is often needed by investors to fulfil their own regulatory obligations. Greater transparency remains key to investors, so managers continue to offer greater transparency in terms of reporting to all investors in order to meet these demands, which has an attendant cost. While Cayman retains its position in relation to offshore hedge funds, given recent regulatory changes in Cayman last year, we have seen increased demand for BVI Approved Funds from start-up fund managers looking for a less regulated structure for smaller launches.

Cayman domiciled private equity fund launches have seen continued growth in this market as an alternative to European Private Equity jurisdictions, fuelled by Cayman’s still flexible regime after the introduction of private fund registration. The exempted limited partnership structure remains the most commonly used vehicle although corporate structures are used for specific client bases.

 To read more from the series, please use the links below:

Matt SandersManaging PartnerT +44 (0) 1481 748 914matt.sanders@walkersglobal.com

Jonathan HeaneyManaging PartnerT +44 (0)1534 700 786jonathan.heaney@walkersglobal.com
Christopher ReedPartner, Walkers (CI) LPT +44 (0) 1534 700 825christopher.reed@walkersglobal.com

Tatziana Paraguacuto-MaheoPartnerT +44 (0)20 7220 4991tatziana.paraguacuto@walkersglobal.com
Hughie WongPartnerT +44 (0)20 7220 4982hughie.wong@walkersglobal.com

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