Jersey Investment Funds An Overview

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1 Jersey Investment Funds An Overview Introduction This briefing is intended to provide a general overview of some of the factors to be considered by promoters and onshore counsel looking at Jersey as an investment fund domicile. Onshore or offshore? Promoters and managers have found many advantages, quite apart from tax efficiencies, in choosing offshore over onshore jurisdictions for domiciling their investment funds, including: 1. the ability to define investment strategies and objectives without restrictions imposed by onshore regulators in the name of consumer protection, and the consequent absence at the fund level of expensive reporting requirements to onshore regulators such as the SEC in the United States and the FSA in the United Kingdom; 2. in relation to certain types of funds (an example being property unit trusts), an offshore fund can be more widely marketed to institutional investors and is often listed on an offshore exchange (for example, the International Stock Exchange (formerly the Channel Islands Stock Exchange) to facilitate this; and 3. Jersey is home to a concentrated level of real estate and private equity fund expertise, including experienced law firms, fund administrators and managers and all of the major accounting firms and private equity fund specialist audit firms. Selection of offshore jurisdictions Once the decision has been made to go offshore, the following key considerations come into play: Political and economic stability Jersey is not part of the United Kingdom. It is a self-governing dependency of the British Crown. It has complete autonomy in all matters of internal government, including taxation. The legal system is derived in part from the customary laws of Normandy but is strongly influenced by English law in company and commercial matters. Jersey's particular constitutional position is recognised by the European Union ("EU") in protocol (No 3) attached to the United Kingdom's treaty of accession to the EU. In general terms, the protocol provides that the Treaty of Rome applies to Jersey only to the extent necessary for the free movement of goods. Accordingly, EU directives on fiscal harmonisation, financial services and company law do not have direct effect in Jersey. Jersey's constitutional relationship with the UK will not be affected by BREXIT, nor is it envisaged that BREXIT will impact Jersey's existing market access rights.

2 Page 2 Jersey's finance industry typically gains access to EU markets by means of EU legislation providing for third country access in respect of which Jersey demonstrates equivalent standards. The Government of Jersey have confirmed that they believe Jersey's best interests lie in maintaining the substance of our current relationship with the EU and with the United Kingdom. Integrity and reputation Jersey is a recognised jurisdiction for the purposes of the Financial Action Task Force ("FATF") for its anti-money laundering legislation. This provides comfort to investors who may be satisfied that Jersey has adopted standards that are at least equivalent to, if not higher than, those of their own jurisdiction. Such considerations may be important, in particular, for institutional investors and government organisations. It can also often be to the fund's advantage that it can demonstrate to the authorities in the jurisdiction where it seeks to invest that it is properly regulated in an internationally recognised jurisdiction. Payments may also be assisted to and from the target jurisdiction due to Jersey's recognition by the FATF. Modern legislation and regulations Jersey has a government that recognises the importance of working closely with the private sector to provide legislation that meets market needs. Absence of direct taxes and exchange controls Investment funds can be established in Jersey without the imposition of direct taxes, and Jersey is completely free of exchange controls. Good communications and access The communications system in Jersey is first class and the legal and financial services providers operate information technology systems on a par with those available in any other major financial centre. Jersey is easily accessible by regular direct flights from London and other United Kingdom airports and is in the same time zone as the United Kingdom. Recognised stock exchange The International Stock Exchange has been designated as a "recognised stock exchange" by Her Majesty's Revenue & Customs and as a "designated investment exchange" by the UK FSA. Regulatory framework The Control of Borrowing (Jersey) Law, 1947 ("COBO") and the Collective Investment Funds (Jersey) Law, 1988 (the "CIF Law") together with the regulations and Codes of Practice made thereunder govern the establishment and regulation of investment funds in Jersey. Although the scope of the two statutes overlaps, in practice an investment fund with a limited number of investors which is not to be listed will be governed by COBO whereas a more widely distributed or listed fund will be regulated under the CIF Law. The regulatory body in Jersey is the Jersey Financial Services Commission ("JFSC"). Private Funds For fund vehicles where offers are being made to 50 or fewer investors, these are considered to be "private funds" in Jersey and are authorised as Jersey Private Funds ("JPFs") pursuant to the JPF Guide. A consent will be granted

3 Page 3 pursuant to COBO, provided the fund meets the requirements of the JPF Guide. A JPF does not need to be a Jersey domiciled vehicle and does not need Jersey resident directors to be appointed to the board of the governing body (although that may be desireable for substance reasons) and an offer document is not a requirement. There is a fast-track approval process with the JFSC. Public Funds If, on the other hand, shares, units or limited partnership interests are to be offered to more than 50 persons or are to be listed, a certificate under the CIF Law will be required. These are known as "public funds" in Jersey. It is important to note that for these purposes it is the number of offers made which dictates whether a fund is to be regulated under COBO or the CIF Law. Accordingly, from a Jersey law perspective, it is possible for a "red-herring" offering document to be distributed to more than 50 prospective investors without this giving rise to regulation under the CIF Law, provided the red-herring document makes it clear that it is not intended to constitute an offer of shares, units or limited partnership interests. Where a certificate is granted under the CIF Law, any COBO consents that were issued upon establishment will be automatically cancelled. Jersey has adopted a streamlined approval process for Expert Funds. An Expert Fund will be subject to a degree of regulation and will need to comply with Codes of Practice applicable to certified funds and the Expert Fund Guide. However, the promoter of an Expert Fund will not be subject to any regulatory review or approval (provided it meets the requirements of the Expert Fund Guide) and an Expert Fund will not be required to adopt any prescribed investment restrictions or risk diversification strategy. Self-certification as to compliance with the Expert Fund requirements means that an Expert Fund can be approved by the JFSC within days. An Expert Fund must appoint a Jersey resident administrator, manager or (in the case of a closed-end unit trust) trustee. An open-ended Expert Fund must appoint a Jersey-resident custodian (unless it is a hedge fund, in which case a prime broker with a credit rating of A1/P1 is required). A Jersey open-ended fund (not being an Expert Fund) must appoint a Jersey resident manager and a Jersey resident custodian. Jersey also offers a streamlined approval process for closed-ended collective investment funds listing on a designated exchange. A listed fund will be subject to a very light degree of regulation. In broad term, a listed fund must satisfy the same criteria as an expert fund, and will need to follow similar guidelines. For additional details on the Expert Fund or the Listed Fund regimes, see our briefings entitled "Expert Funds in Jersey" and "Listed Funds". As an alternative solution, Jersey also has unregulated funds products which have no regulatory lead time for their establishment. For additional details in relation to such funds see our briefing entitled "Unregulated Funds". Fund vehicles Different structures are available to be used for private equity funds and a combination of structures may also be permitted. Companies 1. The Companies (Jersey) Law 1991 is a modern statute, based upon internationally familiar English company law principles. 2. There are no minimum authorised or issued share capital requirements imposed. 3. A number of different types of company are available and no par value shares and cell companies are also available.

4 Page 4 Unit trusts 1. In contrast to an investment company, a unit trust is not a separate legal entity as such, but a trust arrangement whereby legal ownership of the fund's assets is vested in a trustee who holds the assets of the fund on trust for the benefit of the unit-holders. 2. The unit trust will generally be constituted by means of a trust instrument made between a trustee company and an independent manager. Typically the manager will promote, manage and administer the scheme. Subscription proceeds will be paid to the trustee which will act as custodian of the investment assets of the fund. In addition, the trustee will generally supervise compliance by the manager with its obligations under the trust instrument. 3. The trust instrument will generally contain provisions regulating the issue, redemption and valuation of units, the appointment and removal of the trustee and the manager, their duties and remuneration, borrowing powers, investment restrictions and for the winding-up of the trust. 4. Jersey has a modern statute-based trusts law. 5. For most practical purposes a unit trust scheme will operate and be regulated in the same manner as a corporate investment fund. Limited partnerships 1. Limited partnerships may be established and operated under comprehensive and modern legislation. Jersey offers a selection of limited partnerships, including general partnerships, plain-vanilla limited partnerships (with no separate legal personality), separate limited partnerships (which do have separate legal personality), incorporated limited partnerships (ie an incorporated partnership) and limited liability partnerships ("LLPs") (where all parties enjoy a degree of limited liability). 2. A limited partnership may be an appropriate structure for a number of different purposes. A principal use is to provide an additional form of investment vehicle for mutual funds, in particular for the private equity industry. A limited partnership can also be an attractive structure for various tax planning purposes as the partnership is generally treated as being fiscally transparent. 3. There is no maximum imposed on the number of limited partners of a limited partnership. 4. The general partner will manage the business of the partnership and have unlimited liability for its debts (save for with respect to an LLP). The liability of investors taking interests as limited partners (and who do not participate in the management of the business) will be limited generally to the amount of their investment. Selection of investment structure The prospective investor at whom the investment product is targeted will be an important consideration in determining the selection of the appropriate form of investment vehicle. Where, for example, a retail fund is to be offered to the public in the United Kingdom, or to Japanese investors, a unit trust may be the most familiar structure, whereas if the fund is to be marketed in mainland Europe or in the United States, an open-ended mutual fund company may be the more appropriate form. For complex investment products with high minimum investment thresholds to be offered to investment institutions, limited partnerships may be preferred. While regulatory and marketing considerations are important in selecting whether the corporate, unit trust or limited partnership form is used, the fiscal implications for investors will generally be the determining factor. The promoters

5 Page 5 of the investment fund will generally wish to ensure that, at the least, the investment fund achieves tax neutrality, whereby an investor will be in the same tax position whether he makes his investment directly in the underlying assets or through the medium of the investment fund. AIFMD Jersey funds that are to be marketed into the European Economic Area will also need to comply with any requirements under EU's Alternative Investment Fund Managers Directive and Jersey's AIF Codes of Practice. Private Funds in Jersey will require additional regulatory consents from the JFSC in order to be able to market into Europe. Advice will need to be sought in the EU jurisdictions where the fund is to market to ensure compliance with local private placement routes. Updated: 18 May 2017 For further information please refer to your usual contact or: Jersey - Nigel Weston, Partner nigel.weston@walkersglobal.com +44 (0) Jersey - Jonathan Heaney, Partner jonathan.heaney@walkersglobal.com +44 (0) Jersey - Sophie Reguengo, Senior Counsel sophie.reguengo@walkersglobal.com +44 (0) The information contained in this memorandum is necessarily brief and general in nature and does not constitute legal or taxation advice. Appropriate legal or other professional advice should be sought for any specific matter. Walkers works in exclusive association with Taylors in Bermuda, a full service commercial law firm providing advice on all aspects of Bermuda law.