Jersey Private Funds and their potential application for family offices
We are launching a series of technical articles in conjunction with some partners that we hope are of interest to family offices. Our first, by Simon Briggs of Whitmill Trust Company, looks at Jersey Private Funds and their potential application.
Family offices will often be managing money for several members of the same family. The amount individuals have available for investment often varies, in some cases considerably, and each will have their own risk profile and objectives. Some may lack the critical mass to meet the minimum investment criteria required for private equity or similar alternative investments.
Running multiple individual mandates is likely to be expensive and inefficient. For a family office it means additional time spent on account opening, due diligence, reviews and reporting. It also makes implementing investment changes over a number of individual portfolios unnecessarily complicated.
There are of course ways to deal with the problem. If there are a relatively small number of investors, all with identical objectives and similar time horizons, a joint account may work although it is important to stay on top of the bookkeeping and ad hoc additions and withdrawals for individual investors are problematic. Another solution is to open the mandate via a multi-shareholder offshore company but again the bookkeeping can quickly become complicated, and additions and withdrawals often involve either issuing or redeeming shares or using loans. This becomes impractical if there is a lot of activity.
An obvious solution for a family office dealing with a large number of family investors is to establish a private mutual fund structure. Either multiple individual funds or a multi-cell single fund. The family office can then run, say, an equity mandate in one fund or cell, fixed income in another with alternatives in a third.
Typical Family Office Jersey Private Fund Structure
This type of structure allows individual investors to build their own portfolios by taking units or shares in their preferred funds. This can work particularly well for longer duration investments like real estate or private equity. Family investors are still able to participate even though they may not ordinarily have the critical mass or risk appetite to make individual real estate or private equity investments. It also means that investors have an easy mechanism through which to add and withdraw funds.
However, it is true to say that historically family offices have often discounted the idea due to costs and regulatory complexity. In the past establishing a private mutual fund in jurisdictions like Luxemburg or Jersey meant trying to work with, and adapt, an infrastructure and regulatory environment which had really been designed for institutional investors looking to promote their funds publicly. This meant that a private mutual fund only really made sense for the largest family offices with the critical mass to justify the expense.
Inevitably though, offshore jurisdictions have adapted and developed their fund offerings to meet the demand of the market and this has meant legislation and regulation which is much more suited and user friendly for private clients and family offices.
Jersey updated their legislation in 2016 and introduced the Jersey Private Fund. The aim was to provide a framework specifically designed for boutique style funds with limited numbers of experienced or related investors. Take up has been brisk and to date over 500 Jersey Private Funds have been registered.
Our family office clients like the fact that a Jersey Private Fund can be established quickly, it is cost effective and flexible. There are no restrictions on investments or borrowing and there is no requirement for an audit, although in our experience clients often opt for this. It is also possible to include an option for carried interest which can be a useful mechanism for family offices providing in-house investment management as a way to attract and retain the best investment managers.
A Jersey Private Fund is limited to just 50 “Professional” or “Eligible investors” which in our experience seems to be about right and family office clients have not found the restriction to be an issue.
Family offices now have access to fund structures which previously were only available to institutional investors. Any office continuing to manage money via joint accounts or multi-shareholder companies should certainly consider revisiting these arrangements. They may be pleasantly surprised by just how easy and cost effective it now is to establish their own private mutual fund.
For technical queries or further information regarding this article, please contact Simon Briggs at Simon.email@example.com or +44 (0)7385 784 125.
Established in Jersey in 1992 and regulated in by the Jersey Financial Services Commission, Whitmill provides a full range of private client offshore fiduciary services.
Please note: Whitmill does not provide legal or tax advice and the above content is provided for information purposes only and does not constitute advice or a recommendation.
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