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Wealth Management / Viewpoint
Private placements booming on back of strong alternatives interest
VIEWPOINT – Confidence has returned to the investment community after a volatile 2016 that brought unexpected upheaval from a dramatically shifting global political paradigm.
Geoff Cook 31 Aug 2017
Geoff Cook is CEO of Jersey Finance, which promotes Jersey’s finance industry.
Geoff Cook is CEO of Jersey Finance, which promotes Jersey’s finance industry.

Confidence has returned to the investment community after a volatile 2016 that brought unexpected upheaval from a dramatically shifting global political paradigm.

Assets managed by the top 20 Asian private banks showed year-on-year growth of 6.1% to US$1.55 trillion in 2016 according to a recent study. However, tightening regulatory control and the changing macro-economic environment has led Asian investors to look for alternative investments, such as private equity, hedge funds, real estate and infrastructure funds to protect and grow their wealth. This use of alternatives to reduce volatility and actively manage investment portfolios has gained more traction in the asset management sector.

We are seeing Asian investors setting up family offices or engaging professional intermediates and wealth managers to invest in alternative investments. PwC forecasts that alternatives and passive products combined will form 35% of assets managed by the industry by 2020. This is also evidenced by Preqin Investor Outlook’s research that says asset managers are forecasting substantial increases in their allocation in alternatives, including 62% to private debt, 53% to infrastructure and 48% to private equity.

In view of the growing interest in alternatives by investors and asset managers, there is a stronger need to pursue private placements to access capital. This financial arrangement provides a seamless, cost-effective and flexible route into different investor markets. Investors should note the following key areas when considering the various platforms and investment vehicles for private placements:

1. Use a tax-neutral environment to avoid double or triple taxation of funds and their investors;
2. Identify a regulatory framework that has evolved specifically for alternative asset classes;
3. Provide the flexibility to alternative fund providers of varying sizes and areas of specialization;
4. Use a range of regulatory regimes offering different levels of regulation depending on the investors’ needs.

The increased number of investors looking to choose the right fund regime will further help funds to attract investors who are looking for stability and certainty. This in turn has created a stronger need for international financial centres to dedicate resources to support the development of trusted fund services. Jersey, for example, is expected to see a boost in its funds business over the Brexit negotiation period because of the certainty and stability of its third country position with the EU, compared to the uncertainty over that of the UK when it leaves the EU.

In the final quarter of 2016, the total value of funds being serviced through Jersey rose by 15% over the year to stand at US$335 billion. This growth was driven by alternative asset classes, which increased annually by the same proportion to US$243.8 billion. Among which, private equity fund values and real estate fund values performed particularly well. In view of its vigorous regulatory framework and diversified outreach to clients from different markets, Jersey’s market access for the financial services sector during the Brexit period uncertainty remains solid. During the first quarter of 2017 the net asset value of funds registered in Jersey increased by 6.7 billion pounds from 259.6 billion pounds to £266.3 billion pounds.

For investors and their advisors to capture the opportunities in alternatives in a changing market landscape, they need to choose a fund management service and jurisdiction that fully understand the investor’s need and to ensure reaching their long-term wealth management and investment goals through investing in alternatives.

Geoff Cook is CEO of Jersey Finance, which promotes Jersey’s finance industry.

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