Walkers Named Best BVI Law Firm 2021 by WWL

Walkers is pleased to announce that its BVI office was recently named the Best BVI Law Firm 2021 at the annual Who's Who Legal Awards.

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Walkers Scoops WWL Asset Recovery and Restructuring & Insolvency Awards

Walkers is pleased to announce that its Global Insolvency & Dispute Resolution Group has won two awards at the recent 2021 Who's Who Legal Awards.

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Colette Wilkins QC to Head Walkers Asia Litigation Practice

Walkers is pleased to announce that Cayman Islands partner, Colette Wilkins QC, will be relocating to the firm's Hong Kong office to lead its Asia litigation practice from January 2022.

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Irish Quarterly Legal and Regulatory Report - Asset Management and Investment Funds

Welcome to the October – December 2021 issue of our Irish Quarterly Legal and Regulatory Developments report for asset management and investment funds. This report covers key developments during the quarter under the following headings:

  • AIFMD developments;
  • UCITS developments;
  • Central Bank developments; and
  • other legal and regulatory developments

Click to view article

Walkers Fundamentals White Paper 2021 – Regional Update: Americas

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.

Bermuda

Funds

Bermuda continues to be the leading jurisdiction for the creation, support and listing of insurance-linked securities (“ILS”) (with the Bermuda Stock Exchange having almost 95% of market share of global ILS listings) and ILS funds. Investors’ appetite for portfolio diversification and interest in this relatively uncorrelated alternative asset class that is also acknowledged as a sustainable development investment for ESG continues to grow and the total assets under management (“AUM”) of global ILS investment managers is approximately $100 billion. Many of the largest ILS investment managers have a physical presence in Bermuda.

Bermuda remains the third largest offshore jurisdiction for traditional fund products, in terms of number of funds registered, with a reputation for quality clients and innovative structures. The most recently released figures saw total net asset values increase to US$213.70 billion, representing a year to year increase for nearly all classes of funds as compared with 2020. As Bermuda already had   in place a robust infrastructure for funds that meet international standards, there were no changes to the asset management regulatory landscape during 2021.

The introduction of the new Incorporated Segregated Accounts (“ISAC”) Act legislation has been well received. This builds on the traditional concept of operating segregated accounts that have the benefit of statutory segregation between accounts, allowing a ring-fencing of assets and liabilities, but also introduces the ability for each account to have its own separate legal personality. During 2021, investment managers operating in the Digital Asset sector, benefited from the introduction of this new legislation and we saw various classes of funds set up using an ISAC as a corporate vehicle.

Bermuda fared remarkably well throughout the COVID-19 pandemic. The Government of Bermuda’s offering of a ‘Work from Bermuda’ certificate, which allows digital nomads and professionals who normally work from another jurisdiction, a 1-year pass to live and work on the Island instead, has proven extremely attractive with nearly 500 applications received by the Government of Bermuda   in 2021. The programme is very attractive for those stuck in cities with high infection rates, or working from a home office longer than expected, and is being structured for asset managers in particular.

In April 2021, as part of its strategy to foster sustainable, equitable growth in Bermuda, the Bermuda Business Development Agency, led by Government and in collaboration with the private sector, has launched an initiative to establish and promote the jurisdiction as the world’s climate risk finance capital.

Like many financial centres, Bermuda is also seeing a marked increase in private equity activity, and an increase in family offices, looking to take advantage of Bermuda’s safe and stable environment.

Fintech

Bermuda’s vibrant Fintech sector is going from strength to strength. The sector includes a broad range of innovative financial products and services enabled by distributed ledger or blockchain technology, including NFTs and DeFi. Legislation such as the Digital Asset Issuance Act, the primary legislation for all digital asset offerings   in or from Bermuda, is aimed at prioritising regulatory certainty, investor confidence and compliance with international anti- money laundering (“AML”) standards. Notably, Bermuda secured an excellent endorsement from the Caribbean Financial Action Task Force when it issued a positive evaluation of Bermuda’s AML legislation and enforcement practices in early 2020.

The resulting surge of interest in Bermuda as a jurisdiction for Fintech businesses, means that the island expects to see more investors and venture capitalists looking to Bermuda for new opportunities, particularly given the regulatory certainty and transparency.

The British Virgin Islands

The British Virgin Islands (“BVI”) remains the second largest offshore jurisdiction for funds by number of funds registered. BVI continues to market itself as the jurisdiction of choice for emerging managers, and has developed a niche for crypto managers. The numbers show strong growth in this segment of the market. The number of approved funds has increased by an impressive 87% between Q2 2020 and Q2 2021. The number of incubator funds held steady over the period (these are subject to a 2 year term limit - the total does not reflect the number of launches within the year). Incubator funds have been particularly popular with crypto managers seeking to road test their strategy and build a track record. Incubator and approved funds are both limited to a maximum of 20 investors, but in return are subject to relatively few regulatory obligations.

BVI approved managers have also been very popular over the last year. BVI had 415 approved managers at the end of Q2 2021, an increase of 43% year-on-year. Legislative changes in other offshore jurisdictions have brought a greater focus on the BVI approved manager, which is a ‘regulatory-light’ product that is quick and cost-effective to establish and operate. In addition BVI continues   to host 284 investment managers with a full investment business licence, which shows the enduring attraction of BVI as a domicile for investment managers.

Legislation requiring the registration and regulation of closed-ended investment funds came into effect in 2020. The Financial Services Commission (“FSC”) had taken a sensible approach to the registration of closed-ended funds (known as ‘private investment funds’). It excluded broad categories of funds from the regime, including single asset funds, single investor funds, funds with ‘no external offering’ and joint ventures. From a standing start BVI had 224 private investment funds as at the end of Q2 2021. Private investment funds have drawn considerable interest from smaller managers (in particular those managing assets of US$50 – 100 million), and a good number of managers chose to migrate their existing closed- ended funds to BVI during the year. Private investment funds enjoy the usual benefits of BVI funds – relatively low Registry and FSC fees, a responsive and pragmatic regulator, no local audit requirements, no requirement for general partners or directors to register in BVI, audit waivers available on request, etc. A further attraction is the modern and flexible BVI limited partnership model, introduced under the Limited Partnership Act, 2017.

Looking forward it is anticipated the BVI government will introduce legislation in early 2022 to regulate virtual asset service providers for the first time. Updates are also anticipated to the BVI Business Companies Act. We anticipate another year of growth in the BVI funds market, which continue to attract managers from all geographies.

 

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

 

Walkers Fundamentals White Paper 2021 – Regional Update: Asia & MENA

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.

 

Dubai

Start-ups in the Middle East

The COVID-19 global pandemic has accelerated the growth and development of various start-up businesses in the Middle East region. Leveraging off such growth, we have seen strong fundraising rounds completed by leading regional start-ups in recent months.

Dubai-based cloud kitchen start-up Kitopi recently secured US$415 million in a Series C funding round backed by Softbank’s Vision Fund 2. Walkers’ Dubai office acted as British Virgin Islands counsel to Kitopi on this transaction, which marks Softbank’s first investment in a Middle Eastern company.

From the Dubai office, Walkers also acted as Cayman Islands counsel to leading global payment processor Checkout.com in its US$110 million Series A financing for Saudi buy-now-pay-later FinTech business Tamara. This is the largest-ever investment raised by a FinTech business in the Middle East region. It is also the largest Series A funding round conducted in the region and the largest-ever investment raised by a Saudi start-up.

The Rise of FinTech

The FinTech sector is growing quickly in the Middle East region, with the leading regional financial centres (including the Dubai International Financial Centre and the Abu Dhabi Global Market) having implemented a wide range of initiatives and projects with the aim of further developing the sector. These initiatives include sandboxes and test licences for FinTech start-ups as well as the DIFC FinTech Hub, which is the first and largest FinTech accelerator in the region.

In our experience, operators in the FinTech sector need to utilise the services of both onshore and offshore jurisdictions to address their needs. With respect to offshore jurisdictions, we have seen the Cayman Islands emerge as the leading offshore jurisdiction for FinTech operators in the Middle East region (a position enhanced by the introduction in the Cayman Islands in October 2020 of the VASP Act, which provides a regulatory framework for virtual assets).

Real Estate

Real estate (primarily located in the United States and Europe) continues to be a popular, low-risk investment option for Middle East based investors and we have seen asset allocations to real estate investment opportunities remain steady in the past 12 months.

That said, we have seen some variation recently in the type of   real estate assets that are being invested in, with a greater focus   on industrial real estate assets. For example, Walkers’ Dubai office acted as Cayman Islands counsel to Bahrain’s GFH Financial Group on its recent acquisition of warehouses in Spain that are operated by Amazon.

Hong Kong

While 2020 was year of challenges and contradictions in Asia, it was predicted that 2021 would be a year of improvement. With China being "the first country to lock down and the first to recover"[1], at the close of 2020, Walkers Asia Private Equity Survey Report found over 80% of respondents in the region were generally optimistic about the year ahead. And by and large their optimism was justified.

Private Equity

For private equity, 2020 had not been a bumper year for fundraising in Asia. Bain reported that the amount raised by Asia-Pacific focused funds that closed in 2020 had shrunk year-on-year from US$144 billion to US$90 billion. According to Preqin (which cited similar figures), one of the drivers for this was a slow exit market[2], and not simply due to complications arising from Covid-19.

On a relative basis, however, this performance did not seem particularly negative. According to KPMG, "Asia continues to outperform capital raising, setting new dry powder records"[3] with approximately US$476 billion in commitments to PE and VC at November 2020[4]. This represented 25% of the global market[5] and Preqin predicts Asia will have PE assets under management above US$4 trillion by 2025[6].

Looking specifically at Japan, both Japan-based and Japan-focused private equity funds actually increased the amount raised in 2020 year-on-year, even though the numbers of funds raised declined.

And the positive news is not limited to fundraising. In the first three quarters of 2020, Asia recorded a 29% increase in M&A deal value (compared with the same period in 2019)[7]. This uptick in deal value was led by China M&A activity which, according to Bain, witnessed a 42% year-on-year increase in total deal value from 2019 to the end of 2020[8].

Turning to investment opportunities, perhaps unsurprisingly, the leading sector for PE in the Asia region was technology, representing over 30% in total deal value[9] with US$33 billion in deals in the sector completed by Asian buy-out funds in quarters 1 to 3 of 2020[10]. If you add the value of healthcare deals to the technology total, those sectors account for more than 50% of total Asia-Pacific deal value[11].

Looking beyond 2021, technology and TMT are still regarded by many as the key areas of opportunity, together with healthcare[12]. Walkers Asia Private Equity Survey of 2021 also indicates that tech is the sector presenting the greatest opportunity in the region (favoured by 58% of respondents) followed by healthcare and then pharmaceuticals.

China remains the most popular geographic target for future investment, with 58% of investors considering it the most attractive according to Probitas Partners[13] and 47% of managers favouring the jurisdiction according to our own 2021 survey. Japan was the second most favoured jurisdiction for investment according to Probitas Partners [14].

Turning to the exit market, amidst the pandemic, private equity trade sale exits in Asia-Pacific decreased in 2020 and the aggregate value of such deals for the year sat at US$29.5 billion[15] (representing a 24% decrease year-on-year[16]) driven by travel restrictions and complications with in-person due diligence which truncated closing time tables.

Hedge Funds

There is reason to have a positive outlook of the Asia regional hedge fund environment. Asia Pacific hedge funds posted returns of +17.00% in 2020[17]. If results from Q1 2021 are added to that data, looking at the past three and five years, the Asia-Pacific benchmark is up 7.91% and 9.58%, respectively, on an annualized basis[18]. Such solid performance explains in part the increase in assets under management of Asia Pacific hedge funds in 2020 which increased from US$129 billion to US$156 billion[19].

As the clouds of the pandemic start to pass, travel restrictions slowly lift, and teams adapt to the challenges of electronic due diligence, we think this aggregate capital inflow of US$14.5 billion[20] as a sign of brighter times ahead.

Singapore

2021 is certainly shaping up to be a buoyant year for the Southeast Asia private equity and venture capital investment funds market.

By December 2020, Asia-Pacific ("APAC") AUM had risen to 28% of the global PE market.[21] It was estimated that the ASEAN-focused PE and VC industry stood at US$37 billion, more than doubling in five years.[22] The region's VC industry has seen a staggering six-fold increase over a 10 year period from 2010 to 2020, increasing from US$2.7 billion to over US$16 billion in AUM.[23] Fundraising by Southeast Asia-focused PE funds further rebounded in the first half of 2021 to match the whole tally of 2020.[24]

It is no surprise, then, that the outlook for the Southeast Asian region is bright. A recent Preqin survey found that, within the APAC region, fund managers felt Southeast Asia presented the best opportunities for 2021 (50% of respondents), followed by China (38%) and India (25%).[25] Private capital assets that are focused on the APAC region are expected to grow to a total US$6.1 trillion by 2025, with the majority of allocations to PE funds.[26] Dry powder targeting APAC private capital opportunities (excluding hedge funds) hit a record US$446 billion in April 2021, up from US$416 billion in December 2020.[27] Indonesia, with its population of over 270 million and its US$44 billion digital economy, remains Southeast Asia's premier jurisdiction for investment, with Jeff Bezos' family office recently participating in the Series B funding for Indonesian start up Ula being a good example of the flurry of interest in the country.

Singapore remains a PE and VC hub for the region. In 2020, AUM in Singapore rose 17% to US$3.5 trillion from 2019's 15.6% growth.[28] As at July 2021, the six largest ASEAN-focused VC funds in the market are headquartered in Singapore, with their fundraising targets ranging from US$150-400 million.[29]

Following the introduction of the Variable Capital Company ("VCC") by the Monetary Authority of Singapore ("MAS") in January 2020, being a new corporate vehicle for investment funds, over 300 VCCs have been incorporated by June 2021.[30] While industry participants expected VCCs to primarily be used by local boutique managers, some mid and larger asset managers have also adopted VCCs[31] and the MAS is presently considering allowing single family offices to utilise the VCC structure.[32]

Singapore's goal of positioning itself as a leading fund raising jurisdiction has been further supported by the Singapore Exchange's (the "SGX") new rules for the listing of special purpose acquisition vehicles ("SPACs"). In September 2021, the SGX became the first Asian bourse to allow SPAC listings since the investment frenzy in SPACs started in the US in 2019.[33]It is anticipated that this move will draw more firms to raise funds in Singapore.

This move follows a recent focus on de-SPAC transactions involving regional tech giants, including ride-hailing giant Grab announcing in April 2021 that it would go public on Nasdaq via a record-setting SPAC merger valued at US$39.6 billion.[34] Two of Indonesia's largest unicorns, e-commerce giant Tokopedia and super app platform Gojek, have recently merged and are considering listing on the US market through an IPO or SPAC (though ultimately landed on the former).[35] FinAccel, the Singapore-based parent of Indonesian fintech startup Kredivo, has also recently agreed to list in the US via SPAC merger.[36]

As deal activity levels in the Southeast Asian region remain strong, the Cayman Islands continue to play a significant role in the region. Investor familiarity continues to drive the Cayman Islands as a domicile of choice for fundraising vehicles and Cayman Islands vehicles are frequently part of the transaction deal flow seen in the region, to include M&A transactions, SPAC and de-SPAC transactions.

 

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




[1] Bain & Company, Asia-Pacific Private Equity Report 2021 p3

[2] Preqin, 2021 Preqin Global Private Equity & Venture Capital Report p27

[3] KPMG, Looking Ahead: Private Equity Trends for 2021 p 4

[4] KPMG, Looking Ahead: Private Equity Trends for 2021 p 5

[5] KPMG, Looking Ahead: Private Equity Trends for 2021 p 5

[6] Preqin, 2021 Preqin Global Private Equity & Venture Capital Report p27

[7] Grant Thornton, Asia Private Equity Insights 2021 – Navigating through turbulence p3

[8] Bain & Company, Asia-Pacific Private Equity Report 2021p6

[9] KPMG, Looking Ahead: Private Equity Trends for 2021 p10

[10] Grant Thornton, Asia Private Equity Insights 2021 – Navigating through turbulence p8

[11] Bain & Company, Asia-Pacific Private Equity Report 2021p9

[12] Grant Thornton, Asia Private Equity Insights 2021 – Navigating through turbulence p4

[13] Grant Thornton, Asia Private Equity Insights 2021 – Navigating through turbulence p8 citing Probitas Partners – 2021 Institutional Investors Private Equity Survey

[14] Grant Thornton, Asia Private Equity Insights 2021 – Navigating through turbulence p8 citing Probitas Partners – 2021 Institutional Investors Private Equity Survey

[15] KPMG, Looking Ahead: Private Equity Trends for 2021 p9

[16] Bain & Company, Asia-Pacific Private Equity Report 2021 p11

[17] Preqin, Preqin Markets in Focus: Alternative Assets in Asia-Pacific p44

[18] Preqin, Preqin Markets in Focus: Alternative Assets in Asia-Pacific p44

[19] Preqin, Preqin Markets in Focus: Alternative Assets in Asia-Pacific p 45

[20] Preqin, Preqin Markets in Focus: Alternative Assets in Asia-Pacific p45

[21] Asia-Pacific Private Equity Report 2021, Bain & Company

[22] AUM for Asean-focused PE, venture capital industry at US$37b, more than doubling in five years, Asean Business, 18 August 2021

[23] Ibid

[24] SE Asia-focused PE funds rebound from weak 2020 to raise $1b in H1 2021, Deal Street Asia, 17 September 2021

[25] 2021 Preqin Global Private Equity & Venture Capital Report, Preqin

[26] APAC-focused private markets AUM set to surpass $6trillion by 2025, Pensions & Investments, 17 June 2021

[27] Ibid

[28] Assets under management in Singapore rises 17% to $3.5 trillion, Asian Investor, 30 June 2021

[29] AUM for Asean-focused PE, venture capital industry at US$37b, more than doubling in five years, Asean Business, 18 August 2021

[30] View from Singapore: one year of the VCC structure, World Finance, 18 August 2021

[31] Ibid

[32] Plan to tweak VCC framework to draw more single family offices, Business Times, 7 December 2020

[33] SGX introduces SPAC listing framework, SGX News Release, 2 September 2021

[34] SoftBank-backed Grab agrees to deal to go public in world’s largest SPAC merger, CNBC, 13 April 2021

[35] Gojek, Tokopedia Reportedly Finalizing Merger Deal; Listings In US, Jakarta, PYMNTS.com, 10 February 2021

[36] Singapore’s Fintech Firm FinAccel To List In U.S. Via $2.5 Billion SPAC Deal, Forbes, 3 August 2021

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

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.

Ireland

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.

Jersey

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.

London

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:

Chambers Global Practice Guide 2021: Insolvency – Bermuda: Law and Practice

Bermuda partners Kevin Taylor and Nicole Tovey have authored the Chambers and Partners 2021 Global Practice Guide: Insolvency - Bermuda: Law and Practice.

The publication provides guidance on the current state of the restructuring market, including the statutory regimes governing restructurings, reorganisations, insolvencies and liquidations; out-of-court restructurings and consensual workouts; secured and unsecured creditor rights and remedies; and more. 

 

Click to view article

Published with permission from Chambers and Partners (December 2021)

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