The myth that investment activity undertaken in Jersey is relevant to and benefits only big business and wealthy people has been turned on its head with the publication of a new report this month, which shows that at least 60 million people around the world are benefiting from pension funds invested through Jersey.
Undertaken by independent economic consultancy firm Europe Economics and published by Jersey Finance, the research, ‘Jersey for Institutional Investors’, explores the role Jersey plays in facilitating the efficient management of tax-exempt pension and other tax-exempt institutional assets, such as sovereign wealth funds.
It then goes on to look at what sets Jersey apart from other international finance centres (IFCs) to make it a clear choice for investors and fund promoters.
Scale of activity
The report begins by looking at the Jersey funds and corporate structures that attract tax-exempt institutional investors. To understand the scale of activity of tax-exempt institutional investors in Jersey, Europe Economics analysed industry data and surveyed Jersey administrators and lawyers servicing funds, corporate structures and special purpose vehicles (SPVs).
A total of £52bn of funds under administration in Jersey, the report found, is attributable to tax-exempt institutional investors, including pension funds and sovereign wealth funds (SWFs).
In fact, pension funds (£39bn) were found to represent a significant part of Jersey’s funds landscape, accounting for almost four-fifths of institutional funds administered in Jersey and 16% of all funds business (around £246bn) done in Jersey. In addition, £14bn of funds are from other tax-exempt institutional investors such as SWFs.
Meanwhile, the research also found that of the £600bn held in corporate structures and SPVs in Jersey, around 20% or £120bn are pension funds.
That means that, in total, around £160bn of pension fund assets are invested through Jersey.
In terms of how this institutional investment is invested, the research revealed that the vast majority (60%) is invested in private equity and venture capital. A further 19% is invested in real estate, whilst bonds, equities, mixed and money market instruments account for 7% of institutional investment.
Who is benefitting?
Drilling down into the data, researchers then calculated that at least 58 million citizens globally are investing for their retirement pot through Jersey – that just includes pension funds investing in real estate, so the total number of people benefitting is likely to be a lot more.
And those people are located all over the world.
The research found that almost half (£18bn) of pension fund assets administered in Jersey originate in the EU, excluding the UK – including the Netherlands, France, Denmark and Germany. 13% (£5bn) comes from the UK, less than 10% (£4bn) from North America and 32% (£12bn) from the rest of the world, including Switzerland and China.
Meanwhile, the make-up of the £120bn of pension fund investment undertaken through corporate structures is estimated to be quite different – around half is from USA-based institutions, 20% from the UK and 30% from other EU countries.
So why is Jersey such a sensible choice for tax-exempt institutional investment, and what benefits does the man on the street gain from their pensions funds being invested in this way?
Exploring views on the differences between Jersey and onshore jurisdictions in attracting institutional investment, the report found that having a proportionate regulatory regime such as that in Jersey was considered to deliver a high level of benefit (62% of respondents), whilst having access to a skilled labour force, in particular in alternative assets such as private equity and real estate expertise, was also highly beneficial (40%).
What also came across strongly was that Jersey’s tax neutrality is a critical requirement for the success of the industry and investor interests.
A tax-neutral location enables tax-exempt investors to pool their assets with investors from different countries within a fund or vehicle without risking their tax-exempt status. It’s a simple, transparent environment that ensures such investors don’t incur an additional layer of tax or significant administrative costs.
In addition, a tax neutral platform facilitates investment in a broader range of funds, assets and locations than would be possible through onshore funds. Diversification of portfolios can be very attractive in a volatile stock market or when fixed-income investments offer low returns.
Combined, these benefits ultimately mean better returns on investments and that’s good news for the circa 60m pension fund members of Jersey structures.
This research helps illustrate that there is a considerable amount of institutional activity done through Jersey – around a fifth of all Jersey’s funds and corporate work is attributable to institutional investment activity, mainly pensions work.
Moreover, this work is truly global, and is helping to deliver better returns on pension funds that ultimately benefits millions of people in their retirement.
The full ‘Jersey for Institutional Investment’ report is available here.
Geoff Cook is CEO of Jersey Finance
Jersey Finance, which is run as a not-for-profit marketing organisation, was formed in 2001 to represent and promote Jersey as an international financial centre of excellence. It is funded by members of the local finance industry and the States of Jersey Government, and has offices in Jersey, Dubai, Hong Kong, representation in London, as well as virtual offices in Shanghai and Mumbai.
Jersey is one of the world’s leading international finance centres. Reliability, political and economic stability, and a sophisticated and comprehensive infrastructure of laws have kept Jersey at the forefront of global finance for over 50 years. The industry’s primary focus is in the key sectors of banking, fund services, wealth management and capital markets, including the specialist sectors of Islamic finance and philanthropy. This comprehensive range of products and services, combined with a highly-skilled expert workforce and award-winning credentials, gives an unparalleled welcome to global investors.