Mourant Ozannes Partner Richard de Basto discussed the firm’s view of the economy and plans for 2011.
Where do you currently see the economy?
The world economy seems to have stabilised post-credit crunch. Moderate growth is expected in the US and Europe and higher growth in developing economies. Appetite for risk has, to some degree, returned. However, risks and concerns remain and new ones are developing. In the US, unemployment remains near 10 per cent and there are increasing concerns about the levels of federal debt and, more recently, state and local public debt.
In the UK, there are concerns about the government spending cuts and VAT increases and whether this will lead to a double dip recession. In the euro area, some countries are faring reasonably well (in particular, Germany) but concerns remain about sovereign default for the PIIGS (and the impact this will have on the banks and other investors holding that sovereign debt).
In Asia, the growth prospects are higher but as these economies are largely export driven, problems in their export markets will obviously have a significant negative impact. There are also a number of concerns affecting the global economy such as increases in commodity prices (and the related fall in value of the US dollar) and inflation pressures generally. In addition, there are continuing concerns about geo-political issues such as North Korea (with their recent belligerence), a nuclear Iran (and Israel’s response), the Afghanistan Pakistan region and terrorism generally.
How does that affect business sentiment in the Cayman Islands?
Business sentiment has improved in Cayman in the last year as the economic position in the world (and especially the USA) has improved since 2008/9. The mass redemptions/liquidations of hedge funds at the end of 2008 have slowed significantly and there is increasing activity on new fund formations. Public debt markets show signs of thawing (although it is still early days and the risks highlighted above remain).
The Cayman government seems to be busy helping to promote Cayman overseas with the opening of a Cayman office in Hong Kong, making increased efforts to attract business to Cayman from India, the Middle East and Asia and ensuring Cayman is able to continue to attract international business (for example, being on the OECD White List and signing more tax information exchange agreements).
However, further work is needed on our infrastructure, the public schools project, and the training needs of Caymanians to ensure the kind of social stability and staffing levels that will allow Cayman to develop. On this, we are encouraged by the recent discussion of changes to the immigration policies such as a shortened absence period for personnel affected by the term-limit and with various development projects such as the waste disposal facility and two major port projects.
How does the situation now compare to your outlook one year ago?
Much has changed in the last 12 months. As stated above, the global economic outlook and sentiment have improved but risks also remain. In the course of 2009, the focus was on short-term fixes for the immediate problems such as stimulus packages, bail outs, quantitative easing, guarantees of indebtedness. The focus has, to some extent, now shifted to the longer-term issues with significant austerity packages introduced in, for example, Ireland, Greece and the UK, and witness the rise of the Tea Party movement in the US in the last 12 months.
How is this impacting your business?
Our volume of business decreased significantly with the credit crunch (apart from our insolvency work). However, as stated above, we are seeing continuing growth in new fund formations and a thawing of international capital markets. We anticipate that as there is further improvement and growth in the world, there will be increasing work for us on the funds and finance sides. We also expect stabilisation of the economy to be a trigger for increasing amounts of credit crunch related litigation.
How would you assess the future of offshore in the Cayman Islands?
Cayman remains a very attractive jurisdiction to conduct business for a number of well known reasons. In the longer term, the prospects for Cayman are very good for a number of reasons, including:
- the popularity of Cayman entities in emerging markets (in particular China, the Middle East and South America);
- as emerging markets develop, there will be increasing numbers of financial products, and investors, globally that will require a large international capital markets to marry the two and Cayman is very well placed to capture a significant proportion of that work; and
- Cayman is the jurisdiction of choice for the vast majority of hedge funds and alternative investment vehicles and the market for investors in these types of vehicles is growing and is potentially huge.
The threats to Cayman’s long-term position are:
(i) Hostility to “tax havens” as they are seen as an easy political target. However, we think that the general mood on this is changing as the benefits of international financial centres become more widely known. We are a founder member of the International Financial Centre Forum which seeks to provide authoritative and balanced information about the roles of international financial centres in the global economy. Further details of the IFC Forum can be found at www.ifcforum.org.
(ii) Increasing regulation (for example, the AIFM Directive in Europe and Dodd/Frank in the US).
(iii) Other international financial centres. However, Cayman is, by far, the leading international financial centre and, provided we remain a flexible and business friendly jurisdiction, there is no reason to think why any other international financial centre would take our crown.
What are Mourant Ozannes’ plans are for next year?
One of the strategic priorities of Mourant Ozannes is to grow our Cayman practice significantly. We will achieve this in several ways. The first is by recruiting and developing first class personnel in our core areas (for example, we have recently made two lateral partnership hires and are also continuing our three successful programmes for recruiting Caymanians: articled clerks, interns and scholarships).
Secondly, we are looking to grow the products we offer and have, for example, recently established a dedicated trust department dealing with contentious and non-contentious matters.
Thirdly, we will continue to look at new geographical markets to expand in (for example, we will be increasing our Cayman offering in London/Jersey).
Are there any other issues that your business is concerned with, going forward?
We will need larger premises in order to accommodate our future growth plans and have recently signed on to become the anchor tenant in one of Camana Bay’s newest buildings, which shall be ready for us in 2012.