In a world of increasing onshore regulation, new private equity funds being established offshore are likely to provide further ammunition for the industry’s critics.
In a world of increasing onshore regulation, new private equity funds being established offshore are likely to provide further ammunition for the industry’s critics. However, Jersey’s reputation and attitude to reform may help to silence their concerns.
Private equity is increasingly seen as a mainstream asset class. The industry has grown significantly over recent years and has a track record of delivering excellent returns to its investors. It is also seen by its proponents as a force for good, creating value and growth in the wider economy.
It is therefore of some concern that the industry is under such fierce attack. In a rather sinister portrayal, it is accused of stripping portfolio companies of their assets and employees and loading them with debt. It has also come under fire recently for paying too little tax and being under-regulated.
As a result, private equity firms are quickly realising that it is important to fully engage all their stakeholders, be they governments, tax authorities or members of the public, if they are to run some of the largest businesses in the world.
It has never been so important for the industry to demonstrate to the outside world that it is committed to reform and the interests of all its stakeholders. A primary way to do this is through the choice of jurisdiction when establishing new funds. It will be vital for private equity fund managers to choose the right jurisdiction in order to maintain credibility. Selecting a co-operative and transparent offshore regime will naturally help this cause.
Jersey recognises that the investment fund landscape is continually changing, particularly for the private equity world. In response, it has committed itself in recent years to overhauling its financial services industry and the way it conducts business. This includes a revised legal framework, an ever more effective local regulator, an almost completely revised tax regime, and continued development of its highly skilled workforce.
The objective of all of this has been to build a reputation for quality. Jersey takes very seriously its standing as a jurisdiction of repute among the many financial services centres in the world. It has engaged all its stakeholders outside the island, including the UK government, the International Monetary Fund, the Financial Action Task Force, the Financial Stability Forum and the European Union. Through co-operation and transparency, it now has a relationship with all these organisations that is benign and positive.
This is exactly the kind of business climate that the private equity industry is currently in search of. Amid the regulatory turmoil in the onshore world, fund managers will naturally look for jurisdictions that are credible and transparent when establishing new funds. As an offshore jurisdiction, Jersey offers the appropriate level of regulation and tax neutrality for investors and general partners alike.
But what sets it apart is the emphasis it places on continuing reform and the quality of its reputation, both of which are so high on the agenda for the private equity industry. Jersey’s image positively lends credibility to those setting up funds in the island. This is why it is becoming the offshore location of choice for private equity fund managers.
Nick Stevens is a senior manager and Heather MacCallum is executive director with KPMG Channel Islands in Jersey
