The Jersey Private Fund (‘JPF’) regime has been a huge success since its inception in 2017 with over 700 authorised to date, offering sponsors a fast-track (48 hour) regulatory approval process for a flexible and cost-effective fund with access to EU and non-EU private markets.

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On 2 July 2024, the Jersey Financial Services Commission (‘JFSC’) issued updates to the Jersey Private Fund Guide (‘JPF Guide’) following consultation and feedback from industry members, and as a whole, has sought to refine and improve the existing regime.

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The material updates are as follows:

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1. Investor eligibility:

• Clarification that investor eligibility is determined and satisfied upon admission into the JPF, and such eligibility may be relied upon despite a status change for the investor (for example a departing employee director, partner, or expert consultant etc).
• Updating the definition of ‘eligible’ in relation to employees of investment businesses or other service providers, by removing the ‘senior’ employee definition and replacing with ‘financial sophisticated’.
• Clarification regarding transfers of interest, whereby there is no requirement for the transferee to qualify as a ‘professional investor’ on the same criteria as the transferor, provided the transferee meets the definition of professional or eligible under the JPF Guide.

2. Governing body:

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Clarified the JFSC’s expectation that there should be at least one or more Jersey resident director appointed to the JPF board/governing body.

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3. Carry and co-investment vehicles:

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It is now recognised that a co-investment scheme may form part of the JPF’s carry and/or incentive arrangement and provides greater flexibility as the vehicles can be admitted into the JPF without counting towards the ’50 or fewer’ investors test (provided they meet the criteria of the JPF Guide).

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4. Arrangements that fall outside of the JPF regime:

• The JPF Guide has been revised in respect to schemes that would be ‘exempt’ and therefore not treated as a JPF (under Annex B of the JPF Guide), where there are employee or family connections between investors in the vehicle. The definitions around employee or family connections (including ‘relative’) have been widened and now include trusts established for a person satisfying the new definition of ‘family connection’.
• Where a JPF is established outside of Jersey, it is expected that the management and control be in Jersey. That being said, it is possible for both to be outside of Jersey subject to the provision of information to the JFSC to establish the ‘indirect but relevant nexus to Jersey’.

The collaborative approach by the JFSC with industry participants and the subsequent amendments brought forward are only believed to make the regime even more attractive to global fund managers, providing further flexibility to a reliable, well-regulated and cost-efficient jurisdiction, strengthening Jersey’s position as one of the leading domiciles of choice for private alternative investment funds.

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Our team has a vast range of experience establishing and operating JPFs since the regime was introduced, supporting sponsors throughout the life of their fund product from setup and marketing to compliance and administration.

We are delighted to announce our new office in Tokyo, Japan, which will be led by Shinobu Miyata, our Head of Japan.

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Prior to Langham Hall, Mr. Miyata spent 7 years as COO of a secondary strategy GP, leading fund formation and management in both Cayman Islands and Japan, as well as secondary transactions including several GP-Led secondaries. Mr. Miyata also established the Japan office of a global fund administrator in 2007 and led the business successfully for 7 years.

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Welcome to Langham Hall, Miyata-san!

We are delighted to announce that Langham Hall has won the “Best Fund Administrator – $50-500bn (total AUA)” category at The Drawdown Awards 2024. This category recognises best in class administrators working with top tier clients across Europe.

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Commenting on the win Rob Short, Managing Partner said: “We are delighted to have been recognised with this award. Our partner-led, client centric approach makes us increasingly unique in this market as we continue to support both emerging and established managers across Europe.”

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The Drawdown Awards celebrates excellence and innovation within private fund operations. The judging process is based on the views of a panel of leading private capital fund COOs, CFOs, CCOs, GCs and CTOs.

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Find out more about The Drawdown Award here.

In August, the Securities and Exchange Commission (‘SEC’) issued the new Private Fund Adviser Rules which required fund managers to issue quarterly performance, detailed fee reports, granular performance metrics and perform annual audits amongst other new requirements with the aim of increasing transparency in the industry.

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The additional requirements applied to private equity and venture capital funds as well as managers of funds for institutional investors such as pension funds and endowments.

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These were burdensome requirements that would have led to significantly more detailed reporting being delivered to investors in tighter timeframes, as well as an increased burden on fund managers to disclose what was previously considered to be confidential information.

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Last week a US court overturned the SEC requirements which has been positioned as a win for the industry. This means that fund managers will not be required to meet the new requirements, as of now. It is anticipated that the SEC may petition for this ruling to be re-considered, Langham Hall will continue to monitor any developments.

The final text of the amendments to the Alternative Investment Fund Managers Directive, known as ‘AIFMD II’, were published in the Official Journal of the EU on 26 March 2024, coming into force on 15 April 2024. EU Members have 2 years from this date to ensure the new rules are written into national law.

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Although AIFMD II is not an entire change of the current legislation and less impactful than initially expected, it includes material amendments targeting provisions of the previous directive that fund managers need to be aware of and assess the result on their private funds business or operation.

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Changes affecting the marketing rules and reporting for non-EU AIFs/AIFMs:

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Non-EU managers marketing into Europe via the National Private Placement Regime (‘NPPR’) will be caught by the enhanced reporting obligations and requirements (specifically asset and market related data) under Annex IV reporting – the regulatory requirement triggered by formally marketing a non-EU fund in most European states.

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Changes affecting EU AIFs/AIFMs:

1. Loan origination: New requirements on EU AIFs that carry out ‘loan origination’ (defined as providing a loan either directly, or indirectly through special-purpose vehicles), as AIFMD II targets the compliance and governance associated, including but not limited to, policies and procedures of the AIFM, risk retention, diversification, conflicts of interest and the leverage limits of the AIFs involved.
2. Liquidity management: Conditions on liquidity management for open-ended AIFs, whereby the managing AIFMs must use at a minimum two liquidity management tools from an explicit list. Practically speaking this is already prevalent, however the update now requires that the liquidity management tools be selected from a specific list and be appropriate in relation to the investment strategy, fund profile and redemption policy of the AIF.
3. Depositary: AIFMD II provides flexibility for a depositary to be domiciled in a different EU state than the appointing AIF, subject to certain conditions and approval from the AIF’s regulator. For example, it is appreciated that some markets have a lack of competitive supply of depositary services, leading to increased costs and inability to effectively meet the needs of the AIF in regard to its investment strategy. Nevertheless, this is not automatically permitted even if conditions are met and would only be considered by authorities after a case-by-case assessment. To be clear, AIFMD II does not permit depositary passporting, contrary to the expectations of the amendments.
4. Annex IV reporting: Enhanced reporting obligations and requirements, as mentioned above.

Non-EU GPs

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Even though we are seeing an increasing number of non-EU fund managers set up parallel funds in Luxembourg, marketing via NPPR is still the preferred route to raise capital in Europe for most non-EU managers, which allows targeted county by country marketing. Even under the NPPR route, there are certain continuing regulatory requirements including Annex IV reporting. Although many North American and UK GPs may feel that AIFMD (and any amendments) would not apply directly to them, it is important to understand the impact to their cross-border business model, especially those who have (or intend to) market their products in Europe. AIFMD II will implement enhanced scope under Annex IV reporting, a service we provide to many non-EU managers, specifically around the delegation of portfolio or risk management, markets, instruments, exposures and assets of AIFs managed.

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It remains possible under AIFMD II for an EU AIFM (or ‘host AIFM’) to delegate portfolio management of an EU AIF to a non-EU fund manager, however the amendments impose closer scrutiny of the delegation arrangement and as such, non-EU fund managers involved in this model should expect to be subject to increased supervision and enhanced monitoring by the EU AIFM.

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Although ‘depositary passporting’ in Europe is still not permitted under the new rules for an EU domiciled fund under AIFMD, depositary-lite services to a non-EU fund (for the purposes of registering for NPPR in Germany and/or Denmark) remains possible from a non-EU state (for example from our London office).

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EU AIFs/AIFMs

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Many of the amendments targeted at loan origination in fact mirror legislation already prevalent across EU states, so although on the surface the amendments do not appear to be too onerous or practically challenging, it achieves the objective to ‘level the playing field’ across Europe and is considered particularly significant as we see an increased number of credit funds launched in recent years.

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Material impacts to EU AIFs involved in loan origination, how these are managed and related exemptions:

1. Policies and Procedures: AIFMs managing debt funds must ensure effective and frequently reviewed policies and procedures are in place for the granting of loans, however, this does not apply to shareholder loans where the value of the loans is below 150% of the fund’s capital.
2. Diversification: Restricts lending to a single borrower if they are a financial institution, whereby the loan may not exceed 20% (directly or indirectly) of the fund’s capital – this is intended to limit relationship in the lending business with financial companies.
3. Conflicts: Forbids lending to the fund’s governing bodies and/or related parties (i.e., fund manager, depositary, employees) – exemptions are permitted for lending to entities under the consolidated group of the fund, if such entity is a financial undertaking which only finances borrowers that are not one of the above.
4. Risk retention: Ensures that the loan originating AIF retains 5% of the value of its granted loans and does not pass them on, for instance on secondary markets or further syndication. Exemptions apply if the fund is being wound down and assets liquidated to enable investor redemptions.
5. Leverage limits: Differentiates limits of open-ended and closed-ended funds regarding ratios for value of the loan and total fund value.

Taking everything into account, the impact of AIFMD II is arguably limited aside from the most significant of amendments targeted particularly at debt fund managers and funds involved in loan origination, enforcing regulation where there previously may have been a lack of consistency across Europe. That being said, whether or not managers are targeting European capital with an EU AIF under a European marketing passport, or registering a non-EU AIF through NPPR, compliance of AIFMD and any amendments should be of utmost importance.

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To lighten the regulatory burden and offer efficiencies, we offer host AIFM and depositary services to support managers achieve their marketing strategies in the EU for their funds. Increasingly, we are also seeing non-EU fund managers opt for our hosted premarketing service to assist navigating the decision between NPPR or a Lux parallel route. Langham Hall specialise in providing host AIFM services for investments in illiquid assets for European and non-European managers without regulatory permissions, working closely with GPs to navigate the changing regulatory environment and challenges associated with fundraising in Europe and the ongoing operation, reporting and compliance of EU and non-EU alternative investment funds.

As Private Equity and Alternative Markets continue to scale and attract sophisticated capital, fund managers and their investor bases will need to leverage their service providers to comply with evolving Private Fund regulations and increasing demand to deliver complex reporting in an expeditious manner. Excessive time spent with your Fund Administrator can prove both frustrating and costly, diverting attention from your core focus and the fiduciary obligation of generating returns for your Limited Partners. These are just a few factors that underscore why fund managers are reconsidering their options and evaluating new fund service partnerships now more than ever.

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The burden and complexity of data migration can often leave fund managers and CFOs feeling captive with their existing provider. This sense of being trapped, coupled with the perceived risks associated with transitioning, often leads fund managers languishing in poor-quality service and compounding errors at the detriment of the General and Limited Partners. However, transitioning between service providers does not have to be as daunting as it may seem or as complicated as you recall from prior experiences. Langham Hall’s Partner-led methodology employs a comprehensive approach towards conversions, enabling fund managers to migrate efficiently while preserving data integrity and minimizing disruptions to your internal team.

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At Langham Hall, we believe the role of the Fund Administrator is to alleviate your workload by engaging with the spirit of being a true extension of your team. Our systematic transition plan is built through the lens of our clients, incorporating a thorough risk assessment at the onset of engagement. Langham Halls’ due diligence on your fund documentation, legal, compliance, and electronic data requirements, allows for a realistic transfer timeline that ensures data accuracy and a seamless transition. Our team members work in lockstep with your CFO and back office to drive the transition process, as opposed to being reactive and waiting on requests to trickle through.

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Our Partner-led model fosters an analytical culture, providing valuable insights and often uncovering critical errors that may have been overlooked from a previous engagement. Langham Hall has a proven track record of rectifying historical errors in sensitive areas related to fund management and reporting. Our rigorous approach includes rebuilding complex waterfall models, management fees, and equalization calculations during client migrations. At Langham Hall, our foundation is built upon an apprenticeship model where young, talented individuals are trained by professionals with profound expertise in fund reporting and complex structures. Our proven model is further enriched by our Wolfram Computable Data Strategy, an innovative approach that propels us far beyond outdated of legacy systems using advanced data processing. In this way, our customizable reporting templates mitigate risks associated with data transition and ensures seamless continuity in LP reporting.

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Langham Hall has undertaken multiple fund transitions. Our migration process is built around four main pillars:

• Data Collection – Our onboarding team gathers all available fund documentation, historical general ledgers, trial balances, financial statements, as well as any capital activity notices from your previous service provider.
• Data Analysis – We conduct a comprehensive review of the data available; rebuilding models exact to fund documentation to ensure accuracy and smoothing out historical data to align with our proprietary Wolfram Transaction Capture.
• Upload and Processing – Once the fund and Limited Partner data is processed through our system, the historical financials and partner capital statements can be generated in a matter of minutes. This streamlines the process significantly. Fund data sets are highly customizable through our Wolfram reporting tool.
• Reconciliation and Assurance – The clients receive reconciliations between the onboarded data comparing to the historic data, giving fund managers the assurance, the migration was completed successfully.

Langham Hall stands as one of the few remaining privately owned Fund Administrators. Over the past few years, we have witnessed a significant influx of new clients come to us due to feeling marginalized by the impacts and fallout that M&A has had on their current arrangements. They are drawn to the fact we structure our business as a partnership with partners directly involved in driving the engagement and overseeing the delivery of client work.

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Transitioning service providers does not have to be as daunting or as arduous as commonly perceived. Tolerating subpar service from your current provider not only puts your firm and capital at risk, but also distracts you from your core focus and fiduciary obligation to your Limited Partners. This underscores the critical need for fund managers to reassess their options and carefully consider new fund service partnerships.

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Langham Hall is an award-winning global provider of fund administration and AIFMD services to top tier fund managers. Our aim is to establish ourselves as the foremost global provider of administration and AIFMD services to top tier private equity, real estate, debt, and infrastructure clients. We aspire to be respected for our sound judgment and unwavering integrity, and to attract and cultivate the most talented individuals through active apprenticeship.

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To hear more about how we can help, please get in touch with a member of our team.

You have successfully navigated the Graduate Programme application and have secured yourself a role to become a Trainee Fund Accountant, but what is next?

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We spoke with two of our September 2023 Graduate Trainee cohort, Pádraig Casey and Deborah Omoshola, who have shared their experiences of their first six months of employment.

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Deborah studied Accounting and Finance and Pádraig studied International Business.

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Q: What kind of tasks have you completed / do you complete on a daily basis?

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DO: Since joining Langham Hall, I have been involved in a variety of initiatives to help simplify the current fund accounting processes. I undertake a range of daily tasks including bookkeeping, addressing client queries, helping during the audit of financial statements, preparing VAT returns and distribution notices.

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I’ve also been responsible for handling HMRC inquiries regarding VAT matters which has meant, I have played a key role in preparing both management accounts and financial statements, contributing to the overall efficiency and accuracy of our day-to-day operations. Over the last six months, I have been able to continuously learn and develop through Langham Hall’s various internal training programmes.

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PC: Working in a client-focused environment, daily tasks vary and encompass a large variety of recurring activities such as general bookkeeping, periodic reporting and ensuring individual client-specific requirements are met. Since starting the Trainee Fund Accountant role, it has become evident how key financial deadlines bring specific demands to the role. For example, as our client has just closed their financial reporting year, our team is currently focused on preparing financial statements and participating in the preparation of the client’s audit. Before you begin the working day, you may have planned what you are going to try complete but as the day unfolds, new tasks and challenges arise.

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Q: What did you find the most challenging in your first few weeks/months? How did you overcome it?

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DO: During my first few weeks as a Trainee Fund Accountant I found navigating the systems and procedures challenging as they were completely new to me. However, I have an extremely supportive line manager and team who made sure I was comfortable enough to approach them with any questions I had regardless of how many times I asked. In addition, in the first few weeks the Learning & Development team ensured that I was trained on everything that I’d be working on which helped me immensely as it allowed me to further understand the role I would be doing.

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PC: Like starting any job, there is always going to be an adaption phase, where you begin to settle into your role. New challenges and difficulties arise, such as facing a period where you feel lost or ill-prepared for the role or being unfamiliar with certain policies and practices carried out within the company. However, this is where the support from your team really comes into play. Knowing that I joined a team that is full of people willing to help answer any queries that I may have has really helped me during this settling in period. As well as this, as I joined in a large graduate intake, knowing most of my new-found colleagues and friends were also feeling the same way meant that we could rely on each other for support when needed.

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Q: Are you involved in any extracurricular activities at Langham Hall? Or are there any you would like to join?

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DO: I am looking to get more involved in the extracurricular activities which are on offer at Langham Hall. One which I am keen to join is the Diversity and Inclusion Committee who have organised a variety of initiatives including the International Women’s Day celebrations.

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PC: There are a wide range of extra-curricular activities offered to employees at Langham Hall. The most anticipated event of every quarter is the team socialising event. The events vary from team dinners, drinks or a fun activity in the city. Not only is this a great way to bond with your team, but it also allows you to meet newer members of the wider teams as well.

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Q: What are your tips/recommendations for anyone starting a Graduate Programme?

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DO: A Graduate Programme is an exciting opportunity! I advise that you set clear goals to stay focused and motivated. Juggling studying and working can be challenging so by working towards set goals it has helped me stay on track.

One of my top tips is to embrace learning, be teachable and committed to ongoing professional development. Take full advantage of the opportunities which are offered to you.

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PC: My main recommendation to anyone starting the Graduate Programme is to ask as many questions as possible. Although you may think it is annoying team members, they want you to succeed, become more knowledgeable and more efficient in your role. The only way you can do this is to ask questions, to try to understand the reasoning behind practices and processes. At the end of the day, the Graduate Programme is all about learning and the best way to learn in this environment is to rely on your peers for support.

Our trainee programmes are aimed at kickstarting your career in the funds sector, covering illiquid asset classes such as private equity and real estate, developing your skills and knowledge to allow you to make an impact in our business and industry.

If you are interested in joining Langham Hall, check out our latest vacancies.

Langham Hall has supported DTCP with the final close of its flagship fund Digital Infrastructure Vehicle II SCSp (‘DIV II’), which has now raised €1.6 billion of commitments, including co-investments. The funds will be primarily deployed across core infrastructure sectors including mobile networks, data centers and fiber networks.

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Focusing on a core-plus investment thesis in the European mid-market, DTCP seeks to accelerate digital transformation with a focus on passive infrastructure.

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Martin Klima, CFO of DTCP. said: “We are very proud of this result and thank our partners for their continued trust and support. The commitments are a confirmation of our specialised investment approach, the expertise of our team and the sustainable added value of our portfolio. Langham Hall, as a recognised provider of administration and AIFMD services, provides valuable support to DTCP’s portfolio management team.”

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Langham Hall supports a large number of infrastructure managers, with private infrastructure playing an important role in digitalisation, carbon transition and economic stability. We expect to see this asset class continue to grow as more institutional investors increase their capital allocations to infrastructure.

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About DTCP

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DTCP is an independent investment management firm with €2.8 billion in assets under management and over 50 professionals.

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DTCP Infra specialises in investments in European digital infrastructure – mobile towers, fiber networks and data centers. DTCP’s infrastructure investments include Swiss Towers (acquired by Cellnex), Community Fibre, Cellnex Netherlands, Open Dutch Fiber, e-fiber, and maincubes.

In April 2022, the UK implemented a new “private” real estate investment trust (‘REIT’) regime, which allowed fund managers to take advantage of the various benefits of REITs without having to undertake the more onerous listing requirement imposed since the beginning of the REIT regime in 2007. According to HMRC, there have been 29 private REITs set up since the regime was amended* and we expect to see the new regime continue to prove popular with fund managers as an alternative to using offshore structuring options.

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What is a private REIT?

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A REIT is a company limited by shares that invests in real estate, in order to primarily undertake property rental business. REITs are exempt from UK corporation tax on both income profits and capital gains, with tax being levied at shareholder level, meaning the tax impact on investors is similar to making a direct investment in the underlying real estate. This is particularly beneficial to tax exempt investors, such as sovereign investors or UK pension funds, who can claim exemptions on property profits received from a UK REIT.

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How is a private REIT typically used in a fund structure?

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Traditionally, REITs were required to be admitted to trading on a recognised stock exchange, but the 2022 amendments have removed this requirement where at least 70% of the REIT’s ordinary share capital is held by institutional investors. Importantly, other commonly used fund structures (such as authorised unit trusts, or English limited partnerships) that meet a genuine diversity of ownership (‘GDO’) test are themselves considered an institutional investor for the purposes of the 70% test. Furthermore, real estate consultant John Forbes, who was consulted by HMRC on the GDO amendments, said that the rules on this have recently been made even more flexible, allowing ownership by parallel fund vehicles too. Using fund vehicles that meet the GDO test provides an attractive option for fund structuring, and in our experience a number of fund managers are exploring using a partnership structure to admit investors, with a private REIT held directly beneath.

This type of structuring has been commonly used elsewhere, for example in the US, for many years now, so is well understood by global institutional investors.

What are the requirements to hold REIT status?

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To maintain private REIT status, managers should be aware of several conditions that must be met for a company to qualify for and continue to hold REIT status, including but not limited to;

• Property Income Distribution (‘PID’): a REIT is required to distribute no less than 90% of its property rental income as a dividend. This income is not taxable at the REIT level but is subject to withholding tax on distribution. Any other profits (e.g. interest receipts or property trading profits) are subject to UK corporation tax. Generally, an experienced fund administrator will work closely with a specialist tax advisor to ensure compliance with the PID requirements.
• Close company test: Companies are considered “close” if controlled by five or fewer participants This is not permitted for REITs. However, the new regime allows REITs to be close for the first three years and can be close if held by an institutional investor.
• Property business: a REIT must hold at least three properties, with no single property representing more than 40% of the value of the REIT. The exception to this rule is where the REIT owns at least one commercial property valued at £20 million or more.

Operational considerations

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The PID calculation is, in our opinion, one of the most important elements of running a private REIT. Failure to distribute enough of property income can result in a company potentially losing REIT status, and instead being subject to 25% UK corporation tax. Using an experienced fund administrator in conjunction with a specialist tax advisor minimises this risk.
Additionally, private REITs are also required to submit a quarterly CT61 return for each period in which a PID is paid, and a reconciliation for each accounting period of how distributions made in that period have been attributed. Again, working with a fund administrator that has experience in the operation of these structures is important here.

Finally, there is a “Holder of Excessive Rights” charge levied on any shareholder which is beneficially entitled to 10% or more of dividends or voting rights of the REIT, meaning a tax charge will be imposed on any distributions made to such a shareholder. The new regime relaxes this rule for shareholders who are entitled to gross payment of distributions, such as UK corporates and pension funds, allowing them to avoid having to fragment their shareholdings by use of multiple SPVs.

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What next?

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We expect to see a continued growth in the use of private REITs for holding income producing real estate in the UK, particularly as so many public REITs continue to trade at deep discounts to NAV. The ability to use a private REIT within a wider fund structure makes for an attractive option to fund managers and makes the UK increasingly attractive as a fund domicile. A private REIT may also be a good stepping stone to a listed REIT later. A pool of assets can be built up when the REIT is private with the REIT then being listed via an IPO at a more propitious point in the market.

Operating such structures comes with complexity, and we would urge anybody considering the use of a private REIT to speak to us about the operational aspects of running such a structure.

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_{* As at 31 Jan 2024. Confirmed via a Freedom of Information Act request submitted directly to HMRC}