Saturday, August 31, 2019
Page 17

Endurance counts for dividend funds

Jan Ehrhardt

Juergen Buettner

According to Fidelity International estimates, companies in the U.S., Japan and Europe will pay US$1.24 trillion in dividends to their shareholders in 2016, a distribution policy that is very welcome in the current low or even negative interest environment. But such a policy also leads to a huge demand for dividend stocks, creating an environment that makes some experienced investors a bit nervous, since it often caused problems in the past when too many investors targeted the same asset class at once.

Against this background, the Cayman Islands Journal asked Nick Clay, manager of the Newton Global Income Fund, Daniel Roberts, manager of the Fidelity Global Dividend Fund, and Jan Ehrhardt, manager of the DJE (Dividende & Substanz Fund), how they act under the prevailing conditions.

Interest in dividend stocks is huge and valuation of dividend stocks often rich. Nevertheless, is it currently a good time to invest in dividend funds? (See graph 1)

Ehrhardt: In our view, dividend funds and investing in dividend stocks come closest to the spirit of long-term investing. It involves the identification of good business concepts that will produce regular and rewarding yields. Therefore, we advise to invest continuously in dividend funds.

Clay: With near-zero interest rates unlikely to rise dramatically in the near future, we think that investing in dividend-paying equities – which provide yields that are high compared to other assets – can offer investors the comfort of an attractive income stream in an otherwise low-return environment, and provide a shield against inflation. The current high valuations of many dividend stocks highlight why a passive investment approach based on forecast yield is not appropriate, and why thorough analysis of companies and how they allocate their capital is important. Our strict yield disciplines on the strategy help us to adhere to a valuation discipline on both the buy and sell side.

Daniel Roberts
Daniel Roberts

Roberts: Given the current market environment, dividends are likely to become a bigger component of total returns. While overall market fundamentals and valuations are a cause for concern, there are pockets of value that I am focusing on. I look for companies which have a better chance of sustaining or growing their profits due to enduring competitive advantages such as brands, distribution and regulation, and a willingness to distribute those profits in the form of dividends. These firms appear best placed to navigate the uncertain economic environment.

The combined amount of dividend payments and share buybacks of the S&P 500 Index members currently exceeds the level of the operating earnings. Does that long-term unsustainable situation influence your investment behavior? (see graph 2)

Ehrhardt: We follow that development very closely, but it is important to distinguish when analyzing various sectors. Then it quickly becomes apparent where the vulnerabilities lie. In the case of 8 of 19 sectors, we constantly follow the dividends, plus buybacks exceed the free cash flow. But in the other 11 sectors the free cash flow surpasses these payments to the shareholders. These sectors include technology, pharmaceuticals, telecommunication and commodity companies.

Clay: This highlights the importance of identifying those companies that are well placed to offer a sustainable dividend yield across varied market conditions. Higher yields may be indicative of heig

Nick Clay
Nick Clay

htened risks. For example, in 2007 the global banks made up some of the highest yielding stocks in the world market; following the 2008 financial crisis, earnings for U.S. and European banks fell to such an extent that many of these companies could no longer sustain their payments. By focusing on companies with durable and robust business models, we aim to provide returns that remain relatively stable, even in down markets, as well as the prospect of attractive long-term capital growth.

Roberts: I would concur with the observation that current levels of distribution are unsustainable longer term as companies in aggregate are raising debt to retire equity to fund buybacks. This does influence my investment decision and I keep a close eye on whether individual stocks are over-distributing. Another important point is that a good chunk of the earnings growth in the U.S. market last year came from the retirement of equity through buybacks. If buybacks at these levels are not sustainable, this will have a knock-on effect for earnings growth potential going forward.

Some sectors with traditionally reliable dividend payers like utilities, energy, finance, telecommunications or healthcare are confronted with problems that endanger their dividends. Did you have to adjust your strategy in the light of this environment? (See graph 3)

Ehrhardt: Of course! We rethink our sector allocation 12 times a year. We are underweight in financials, energy and utilities companies for a long time. Why? For example, the oil companies over many years had invested too much, so that large overcapacities have emerged. That affects negatively not only the stock prices, but also the dividend payments. But at the same time other sectors create new solid dividend payers, like for example recently some technology companies.

Clay: In opposition to the consensus view, we do not think there is an economic recovery on the horizon; we think we are experiencing a global slowdown. Therefore, we have positioned the strategy in those companies which we think are more defensive, more durable and less exposed to the economic cycle. Over time, we have built more dollar-bond proxies into the portfolio, playing the theme of a flattening yield curve, which we have witnessed even after the U.S. rate rise.

Roberts: As a bottom-up stock picker, I have not had to change my investment approach as sectors come in and out of favor. The stocks that I do own in the sectors that you mention all meet my investment criteria and I have no concerns on their ability to continue paying dividends.

Stocks of dividend growers historically seem to deliver the best performance. Does this lead to a preference for dividend growth stocks in your investment strategy? (See graph 4)

Jan Ehrhardt
Jan Ehrhardt

Ehrhardt: We also show a performance graph comparable to that one you found on our company website in the section about the investment concept of our dividend fund DJE – Dividende & Substanz. Therefore the clear answer is “Yes.”

Clay: It is important to be very active and select the right stocks: those with sustainable and/or growing dividends, not those with the highest headline payout ratios which may well be dipping into their growth potential in order to maintain dividend levels. The Newton Global Income Fund, for example, outperformed the FTSE World index by 2.7 percent from its inception on Dec. 1 2005 to Dec. 31 2015.

Roberts: Yes, my focus is on the sustainability and growth of dividend payments coupled with downside protection.

Dividend Aristocrats in the U.S. in the past performed better than the overall market. Why have many dividend funds nevertheless had difficulties in beating a benchmark like, for example, the MSCI World Index in the long run? (See graph 5)

Ehrhardt: It is difficult to speak for the competition, but we managed it to beat the world market. This was partly due to our cautious stance in 2008. Especially in very difficult market phases, a fund manager has the chance to generate added value. It is, however, much more difficult to create an outperformance. This partly has to do with a certain cash ratio that funds typically maintain.

Roberts: It is important to highlight the geographic skew that a focus on dividends entails. The skew is away from the U.S. and Japan where headline yields are around 2 percent, and toward regions like Europe and, to a lesser extent, Australia and Asia, where yields are much higher. In the past, the U.S. has comprised as much as 60 percent of the broader MSCI World Index, but only about 40 percent of the High Dividend Yield Index, so a straightforward focus on high dividend yield means a significant underweight to the U.S. Given the extent of the outperformance of U.S. equities, clearly that was been a really significant headwind for dividend strategies and largely explains the underperformance of the High Dividend Yield Index and the broader peer group.

Dividend Aristocrats demonstrated relative strength compared with the overall market during corrections in the past. Does this justify the conclusion that dividend funds are mainly an instrument for defensive investment purposes? (See graph 6)

Ehrhardt: Imagine that you are responsible for a company that increased dividends for 25 years in a row or even longer and you are therefore qualified as a Dividend Aristocrat. This is an incredible track record and it would be a top priority Should you nevertheless decide to cut the dividend, outflows from your stock would be the immediate result. But Dividend Aristocrats usually do not cut their dividends, and investors therefore treat their stocks more like bonds. Thus, it is fair enough to call them defensive.

Clay: Dividends have often been overlooked as a platform for growth. However, thanks to the exceptional power of compounding, the reinvestment of dividends over time can turn equity income into an effective growth strategy for the long-term investor. A recent study illustrated how capital gains accounted for the growth of $1 invested in U.S. equities at the beginning of 1900 to $215 at the end of 2011. However, the additional effect of income and its reinvestment turned that original investment of $1 into £21,978. Accordingly, dividends and their reinvestment accounted for 99 percent of U.S. equity returns over the period.

Further, it is a misconception that dividend-focused funds have to be defensively positioned only. The Newton Global Income strategy in 2005, ‘06 and part ‘07 had a 25 percent overweight to EM and Asia, 35 percent underweight to North America, was overweight in mining, financials, cyclicals. We demonstrated a beta of over 1 to rising markets. Today, we have the opposite. We can and do construct the portfolio to suit the investment backdrop as determined by our investment themes, fundamentals and valuation.

Roberts: Most retail investors would expect a dividend fund to be defensive. However, that does not always pan out if the fund is not focused on the quality and sustainability of the dividend. We saw this in 2008 when a lot of dividend funds were heavily invested in financials and also more recently in resources stocks. It is worth noting that the S&P 500 Dividend Aristocrats index is comprised of quality companies, where quality is defined as the ability of a company to increase dividends every year for the last 25 consecutive years.

It is therefore true that the index does have a natural bias toward the more defensive, less cyclical sectors. However, the Dividend Aristocrat index is not typical of the universe from which dividend funds in general select their stocks, as many dividend funds have an explicit yield target. Funds which have a high headline yield target may be focused less on the quality of the dividend and more on generating an income.

Edie’s Decor: 35 years of a family-owned business

Edie's Decor has expanded its service and products over the years into hard surfaces, customized furnishings, blinds, bedding, valances and draperies.

The seminal moment came as Isaac Edie laid on his bed on a Saturday afternoon, having finished a meeting with his former employer, pondering the future, wondering what he and his wife Rhonda were going to do.

He is reluctant to say too much about the meeting other than “sometimes a negative can turn out to be a positive,” but he remembers the sudden moment of clarity.

“I left the meeting on Saturday and went home. I told my wife about it. I was lying on the bed, talking to her, and suddenly it was like a light being switched on. I understood: ‘I have a skill, I know people and they like my work.’”

He had no money, but it was the beginning – and he has never looked back.

He is not too shy to say it, even if indirectly, but he pegs the 35-year success of the family-owned enterprise that is Edie’s Decor to the unflagging industry of Rhonda, his wife of 42 years, the couple’s four children, a 15-member staff, and a work ethic evident to anyone who cares to look.

‘Training’

Isaac, 62, founded Edie’s Decor following eight years of learning the trade – installing carpets and “doing a bit of everything” – under the late Kent Rankin, founder of Paramount Carpets.

“Mr. Rankin could always find something for me to do: installing drywall, cleaning, anything. I got my training, my foundation” at Paramount, he says.

He and Rhonda met at Paramount, working together five years and marrying in 1974. Not long afterward, he realized he needed to do something more.

“I was having a family. I needed more money. We found the demand for earnings was not keeping pace with the bills, and I was building a house at the same time. So I took an active step of faith and started looking for something different.”

It was a slow beginning. Six months of training with Cable & Wireless, he found, “was not my calling, sitting in front of a switchboard.

“So I started other jobs,” doing some freelance construction and carpet installations – and then came the meeting with his former boss.

Isaac Edie and his daughter Karen Edie-Turner
Isaac Edie and his daughter Karen Edie-Turner

The beginning

“I had no money and no tools. I found the information to get the tools, I did a business plan, including the need for transportation, and I went to the bank.”

Cayman National Bank approved the plan – and the $3,000 loan Isaac sought.

“I bought a plane ticket to Miami,” he says, bought his tools, then found transport locally. “When I returned, I started calling on developers,” people he knew and had worked with.

His Saturday afternoon insight proved prophetic: “They wouldn’t have anyone else do the work, and the doors started to open. I was doing mostly labor services at first, installations, carpets, vinyl sheeting, lots of little things.”

A visiting salesman from the U.S. asked if he would like to sell some carpets. “I started with a few samples, working out of the laundry room” in his new Prospect Park home. “We stored product on the porch, then outgrew it,” and, all at once, Edie’s Decor was born.

“In 1980, we purchased our first building. It was 840 square feet,” on the same No. 64 Eastern Avenue premises where the business stands today, “and on March 12, 1981, we opened and started a retail business,” doing carpets, vinyl, draperies, kitchen and bathroom mats.

The children started to come: Devon in 1976, Karen in 1977, Jonathan in 1980 and Teresa in 1982.

Edie’s Decor rapidly became a full-on family enterprise: Karen, now Karen Edie-Turner, is the company’s accountant and advertising, marketing and human resources manager. She recalls, “We would all come home after school and do homework in the offices, then we played in the carpets. As we got older, we wrote up sales slips and did a little bookkeeping.”

The business quickly outgrew its 840 square feet.

“Early on, we saw the need to expand,” Isaac says, “so [we] built a warehouse in the late ’80s. We worked out of that for a while, then had to expand again in the ‘90s,” driven by rapid economic growth as Cayman’s tourism and financial services industries – and its population – soared.

“In the ‘90s, we got a new warehouse and converted the old one for more showroom space.” The family acquired the adjacent duplex, converting it into a shop and more showroom space.

Rhonda Edie
Rhonda Edie

Expansion

As the company expanded its service and products into hard surfaces, customized furnishings, blinds, bedding, valances and draperies, a new workroom accommodated the additional demand. Rhonda brought in a welter of high-profile international brands – and the work poured in. Isaac and his staff worked 16-hour days.

“Because of the demand, we had 18, 19, maybe 20 staff during some of the larger projects,” he says. The company supplied the materials and labor for the Grand Pavilion hotel, the Great House condominiums, the Marriott and the Hyatt and the original Holiday Inn in 2001.

“We fit out all the rooms, did all the tiles, the carpets, the wallpaper, whatever was required. It was a lot of planning and energy. We would finish and I’d come back to sleep, then get up early to do the orders and set up for the new day.”

For “a good 10 years, 12 years,” Isaac says, he slept four hours a night. “We did the airport, the fire stations in George Town and Cayman Brac. We did UCCI [the University College of the Cayman Islands]. I’m proud of what we did. Some of those floors are still there – the airport, the foyer in the Grand Pavilion and UCCI.”

The last expansion came in 2000 with yet another property acquisition, yielding a total of 12,000 square feet of workrooms and retail space.

It is no surprise to learn that after a dozen years of unremitting pressure, the family felt a little overwhelmed: “It got to be a little much,” Isaac says, “and it changed the way we did business.

“Instead of supplying all the materials and all the labor for everything, we started to do more supply than fitting out,” and that, he says, has given Edie’s Decor and its 15 staff a contemporary sense of identity. “It’s allowed us to have better management, and it encourages some of the installers to take on the jobs.”

Today’s business

Boosting creation of new businesses, promoting local entrepreneurship and employment, and offering a kind of economic springboard for ambitious Caymanians is what drives Isaac today.

“It empowers and boosts the whole small-business community. We do subcontracting, and, for us, it makes ‘HR’ less burdensome,” he says.

Daughter Karen agrees: “We see ourselves as part of the community. We are here for the long haul. We invest in the community. We have only two work permits, so promote local talent and training.”

The family has also gained a solid foundation. Oldest brother Devon is operations manager and works in both IT and flooring sales; Jonathan has a law degree and, though resident in the U.K., is the company’s legal adviser; Teresa manages the flooring department; matriarch Rhonda manages soft furnishings and helps out everyone else as they need it.

“She is the most knowledgeable person in Cayman about blinds, draperies, soft furnishings and window treatments,” Karen says. “In the early years, she was the ‘right-hand man,’ doing administration and working shoulder to shoulder with everyone else.”

For five years, Isaac employed a brother; one of Rhonda’s nephews works in the flooring department; another is an independent installer and subcontractor; Devon’s brother-in-law is involved and even “Aunt Cindy comes in afternoons to help with administration and support,” Karen says.

Isaac eagerly points to two non-“Edie” staff, who, he says, nonetheless qualify as family.

“Angela Bryan has been with us 21 years, in the drapery workroom and upholstery, and Dalton Passley also does draperies. He started six months before Angela, but had a couple of breaks in between. He’s been with us 19 years in total.”

Finally, Isaac and Karen have some ideas for the future: “It’s more for the children to take over,” he says. “Me and Rhonda try to delegate and to pull back, but it’s hard to do, so it will be gradual.”

Karen anticipates changes, but nothing fundamental: “We’ll rebrand and freshen up our image, tweaking some of the ways we operate. We want to keep that family feeling, though.

“We will keep up with what’s going on, but mom and dad have always been very open to our ideas, always very generous,” she says.

And that 35-year-old $3,000 loan from CNB? “Today,” Isaac says, careful not to give away too much, “we started on the front porch in Prospect Park, and now operate out of 12,000 square feet. Our revenues? Well … Cayman National is still our bank and they are very happy.”

Hydes & Son: A family saga and a raconteur

Hydes & Sons

The family must qualify among the oldest in the Cayman Islands. When “Aunt Julia” Hydes passed on Nov. 30 last year, she was 106, Cayman’s oldest citizen and just shy of her late-January birthday.

The Hydes family has been around at least that long. Aunt Julia was Juniour Hydes’s grandmother, and already 44 when he was born in 1963. When he founded Hydes & Son in 1987, she was 68 and watched the company grow.

“And next year is our 30th anniversary,” says Juniour, practiced raconteur, second child and eldest of seven brothers – and while not all of them are involved in the company, most have been at some point, and the family remains the dominant force behind the Printer’s Way provider of roofing services, hurricane shutters, aluminum products, gates, gutters, pool and patio enclosures, window screens and doors.

The list is exhausting, but its origins are humble, starting with Aunt Julia’s son Edmund Hydes – and even that, like much surrounding the Hydes family, is a story.

“I was born Edmond Junior Hydes,” Juniour says, noting the spelling difference between his first name and his father’s. The intention had been to name the first-born son after his father, adding the generational suffix “Jr..” The message to the registry was garbled, however, and the “Jr.” was transposed into a middle name on his passport.

The addition of the letter ‘u,” creating the unique “Juniour,” followed that, further muddling the tale to the point that only the most determined interlocutor can understand what happened.

Juniour’s own son is “John,” and he is a singer and rapper, avoiding any greater confusion in the family annals.

Meanwhile, the list of other family participants in the business is dizzying. “We are the largest in Cayman,” Juniour says. “The Flowers family is older, but there are only three of them.” Isaac Edie’s family at Edie’s Decor rivals the Hydes, but falls just shy.

Juniour followed Sharon, born in 1962, and was himself followed by Ray, born in 1965; Denny, born in 1968; Kurt in 1970; Troy in 1972; Minroy in 1973; and Jonathan in 1978.

Juniour’s son does radio; Denny’s daughter Chelsea and her brother, and Sharon’s son David are at the company. Others have drifted in and out, some have never been interested, and others have never done anything else.

Hydes & Son, Juniour says, was born as an idea in the mid-‘70s “when I was probably 12 years old,” but “it was not actually a business until the ‘80s.

“My dad worked at A.L. Thompson’s and did everything, installing appliances, working in all the departments. I started to work there when I was 13,” Juniour says.

Thompson’s sold windows, and each one came with a screen. Inevitably, when a screen ripped, customers would return, asking for repairs.

“My dad, trying to be helpful, thought he could repair them. He got some mesh and screwdrivers, and tucked them in around the frame, which warped, but he finally got it.”

Word of mouth was quick, Juniour says: “You could get repairs at A.L. Thompson’s,” and Alfred Lawrence himself and his wife Corinne were supportive.

“He asked if he could do repairs on the side and they said ‘sure,’ so he purchased the materials from A.L. and did the work at home.”

Juniour and brother Ray joined the enterprise “with a mitre box, screwdrivers, screws and a hacksaw” and worked under a tree in the back yard.

The big break came when the three received an offer from Harbour Heights, the condominium complex adjacent to Public Beach.

Developers needed between 40 screens and 50 screens, “a big job,” says Juniour, “and the $13.75 we earned was a big, fat paycheck. In two weeks, we were able to get $25 bicycles from Uncle Bill’s,” which still sells bicycles today.

Edmund left A.L. Thompson’s, running a warehouse at Hampstead’s around the corner from the airport Foster’s. Juniour graduated from Triple C and went to work at Foster’s in 1981, one year after it opened, working in each department, rising to general manager and, ultimately, a certified supermarket manager.

Ray moved to Republic Airways, and the three continued fixing screens. They hired a full-time assistant and rented a shop in Industrial Park, and, at last, in 1987, they judged the business had grown sufficiently that they formally established Hydes & Son.

“We all quit our jobs, Foster’s, Hampstead and Republic,” Juniour says. “My wife thought I was nuts.”

In 1988, Hurricane Gilbert hit and Hydes & Son was suddenly swamped.

“It was so difficult. We suffered,” although, he says, “after the rush of work, things started to settle down.” In a sense, it was hard to know which was worse.

“We were scraping. We suffered for several years to get up and going. We realized that screens alone were not sufficient, so we diversified into railings, working in aluminum.”

The three of them pitched a job for builders Arch & Godfrey. The company already had screens, but needed railings at the new Seven Mile Beach Commonwealth condominiums, which opened in 1991.

Naturally, Juniour has a story about the contract. The family was still unfamiliar with railings and needed help: “We looked in the phone book and found a guy out of Hialeah, Florida. He sent some samples down and gave us some advice.

“We were winging it,” Juniour freely confesses, humbly – if still serious. Drawing on his years as a supermarket manager, he recognized that “when some guy asks you something, you gotta tell him something.”

He went into the meeting “blind,” he says, with only minimal information and basic ideas about costs. “Fortunately, we were a little cheaper than the other guys, so I was able to persuade them, and we got the job.”

It was the break they had been seeking. “It was huge, and thousands and thousands of dollars, and 28 years later we took out the railings, refurbished them, stripped the paint, did an even better job and put them all back again.”

The project was a success and, to this day, Arch & Godfrey turns to Hydes & Son for railings in all their developments, which extend to at least 23 condos, office buildings, hotels, specialty projects such as the airport and at least three local schools, shopping malls and even private homes.

“That kept us going, and in 2004 Hurricane Ivan came in and rearranged the island. We were asked if we did roofs, so we found a guy in Florida who did standing seams and aluminum roofing and went into it. We had to get educated, though, and we brought a guy down to train and certify us, and we wound up doing it better than with the original systems.”

Juniour cannot say enough about the “living genius,” an employee from Nicaragua, who worked the machines that shaped roofs and panels out of enormous rolls of aluminum.

After watching the competition struggle to lay a “ridge cap” across the peak of a completed roof – and too often observing the wind strip away the entire roof before the cap could clamp the edges of the sheets in place – the “drunken master,” as Juniour calls him, developed an alternate system. A specially designed ridge cap went on first and workmen slotted the edges of the sheets underneath as they worked.

“We never did it that old way, but with this new way, the caps can’t fall off. We perfected the standing seam roof.”

Like Gilbert before it, Ivan brought plenty of work, boosting staff levels as high as 68, including 15 Texans and “some from Nicaragua.”

Afterward, however, “we took a hit as the recession came.

“It was a struggle. No one was spending, and we weren’t immune to the rest of the world.”

In the last 18 months, however, real estate has picked up, the recession has abated, “residential has gone crazy and things are going really well now.”

Plenty of challenges remain: high-end electronics; security systems at places like South Sound Road’s Boulevard, Camana Bay, the Kimpton Seafire and the proliferation of gated communities; screens and shades, both internal and external are controlled remotely; electronics raise and lower doors.

New materials, and new kinds of gates, trellises, staircases, cable and glass railings, “a lot of high-demand stuff,” requires greater skills and higher prices.

“You have to keep up with new architectural styles, and while it used to cost, say $70 per foot for railings, now it’s $250 for cable and glass rails – and the competition is always there.”

“I have a passion for this, “Juniour says. “One of the brothers said he wasn’t interested, that he didn’t care that much. He didn’t have the same passion. You have to balance it with family, but to this day I have never woken up and regretted having to go to work.

“The day that happens is the day I’ll quit.”

Disrupting human resources in order to rebuild

Chris Bailey, organizer of DisrputHR in Cayman. - Photo: Disrupt Cayman

When May 25 arrives and the “disruptors” start to take the stage at Cayman’s – and the Caribbean’s – first “DisruptHR” event, the staid world of human resources may suddenly look a lot more interesting.

Chris Bailey, organizer of DisrputHR in Cayman. - Photo: Disrupt Cayman
Chris Bailey, organizer of DisrputHR in Cayman. – Photo: Disrupt Cayman

In a video introducing Cayman’s conference at the Harquail Theatre recently, human resources maniac “Tim” confronts an underfed, wan-looking woman leaning against a locker in a back room, staring into her phone.

“You know what the problem is here?” he challenges her, shouting “You care less about this company than even your employees do.”

She continues to stare into her phone, resisting his insistence. Slapping the metal locker, he demands: “Pay attention!” He reflects in a stern aside that “it’s not going to be easy; it’s not going to be pretty” to fix her problems.

He renews the diatribe: “There’s a reason you’re failing,” he says, finally making eye contact as she breaks away from the telephone, “You’re not directing them.”

At last responding, she turns with a cry of desperation: “Yeah … I need to fire them.”

Like TV’s “Bar Rescue” hero Jon Taffer, savior of more than 600 food and beverage outlets across the U.S., Tim indulges no one and accepts no excuses: “I’ll do whatever it takes to turn these companies around.”

Only 19 seconds long, the video is compelling, and offers an advance taste of what “DisruptHR” hopes to offer.

Subtitled “The Rebellious Future of HR,” the conference on May 25 and 26 is advertised as “an information exchange designed to energize, inform and empower executives, business leaders and people in the HR field.”

Chris Bailey, vice president of the Cayman Islands Society of Human Resources Professionals and of recruitment agency CML Offshore Recruitment, is organizing the gathering. He says the business of HR is undergoing a sea change.

“Human resources [or] human capital consulting personnel and the host of other names this department is called has gone through a massive overhaul in the last decade.” He recognizes that the public image of HR has not served it well, and the time is right to, well, disrupt old concepts.

“People want to work for cool companies, but what makes a company cool?” he asks, acknowledging that while a brand like Google or Apple is appealing – “would you turn down a job at Google or Apple?” – it is “the people [in the workplace] that make a company cool.

“The people define the culture and the experience you have daily. The companies that have the lowest turnover and highest engagement levels often tend to have the most committed workforce, all working towards making the company great. The heart of that machine is a finely tuned HR practice.”

“DisruptHR,” he says, is built on the belief that the way we have approached people and talent in the past won’t be the best way to approach [them] in the future.

“Are you ready to start talking about talent in a whole new way?” the DisruptHR brochure asks. “DisruptHR is for you.”

A company’s internal departments – accounts, marketing, IT, facilities and research, for example – need to be, if not subsidiary to HR, constantly mindful of HR’s function and what it is trying to achieve, Bailey says.

“All need to understand the strategic direction and the vision to know why they are doing what they do and how they can help achieve that goal.

“They also have to believe in that goal,” he says, underscoring the need for a “buy-in” from every employee.

“That, my friend, is what makes HR sexy,” Bailey says, employing a description all too rarely associated with “human resources.”

“HR is dull if it is not part of making the above happen. If HR is simply about making sure payroll, pension, healthcare and time sheets are filled in correctly, then it is just an administration function and companies are missing the whole point of what HR can really do.”

DisruptHR has proven to be a globally moveable feast, so popular that it is scheduled to convene in 28 cities on three continents throughout the spring, summer and autumn. Immediately preceding Cayman, gatherings will take place in Calgary (Alberta, Canada), Philadelphia, Regina (Saskatchewan, Canada) and Phoenix. Then the sessions will move to New York, Edmonton and London, eventually visiting venues in Vancouver, Sydney, Melbourne, Lyon and Belgium.

With more than 70 speakers listed as a wide sampling of the caliber of participants, DisruptHR also taps local companies and professionals for each market.

Bailey expects “at least 200 of the island’s HR superheroes” will attend the Harquail conference, “and we have even started attracting registrations from Canada and the other Caribbean islands.”

Jennifer McClure, creator of the Disrupt HR brand
Jennifer McClure, creator of the Disrupt HR brand

Short and to the point

The format is roughly similar to the now-legendary TED Talks, a global set of conferences under the slogan “Ideas Worth Spreading.”

“DirsruptHR,” according to its website, “is a night of short, focused talks from professionals who want to share their ideas on how we can move our talent thinking forward.”

Presentations are short and to the point: “Each speaker will have five minutes to blow your mind,” it says.

The rules prescribe 20 slides, each limited to 15 seconds. “Presentations can be about anything so long as they pertain to talent,” and the audience “is encouraged to interact – clap, laugh, cry, tweet, text. Just play nice,” the admonitions conclude.

Speakers at the Harquail will include Jennifer McClure, Cincinnati-based HR executive recruiter and business coach who, Bailey points out, created the DisruptHR brand, drawing on 25 years of studying best practices for recruiting and retaining talent.

“We invited Jennifer McClure to speak at our HR conference a couple of years ago,” he says. “She has been back and graced us with her presence ever since, even being one of the judges for the Top Employer awards.

“Jennifer is probably one of the most in-demand and influential HR experts in the U.S. and is the creator of the DisruptHR brand.

“The events are a free-for-all for HR folk and others to release a message, and it’s proving very popular. This will be the first event tied to a HR conference, and we did that purely to keep our conference … cutting edge.”

Drawn locally, another speaker will be Samantha Nehra, former president of CISHRP, a 15-year veteran of the HR business, former vice president for people and development at DMS, lecturer at the University College of the Cayman Islands, director of human capital development services at Solutions Inc. and a manager for learning and development at Butterfield Bank.

Today, Nehra is a business coach at Shirlaws, a group of companies advising private enterprise on the dynamics of change. In business for 15 years, Shirlaws advertises Nehra as a “human dynamics wizard, changing the world one behavioral shift at a time.”

More humbly, Nehra simply describes herself as a “recovering HR professional,” who sees an enormous need for change in the business.

“I’ve been slowly trying to build HR again. It needs a refresh and a rethink and more skill sets – around the world.”

Samantha Nehra, business coach
Samantha Nehra, business coach

‘The Force’ is with HR

She echoes Bailey’s suggestion that, at its best, HR resembles “Star Wars”’ “The Force – an energy field created by all living things; it surrounds us, penetrates us, and binds the galaxy together,” he says. “Replace galaxy with company and that’s how important HR is in an organization.”

In fact, Nehra has titled her talk “Awaken The Force,” and jokingly fears she and Bailey are on “a bit of a Star Wars geekathon.”

“I believe the way we have approached traditional HR has many flaws,” Nehra explains. “Business would be a whole lot easier without people – yes, I said that! (and I am a ‘human dynamics expert’), but the fact of the matter is that we need people to make our businesses successful.

“No matter where you work in a business, it’s time to spark some behavioral shifts that can keep changing and evolving at the pace of future demands and trends.

“We say people are the most important asset in our businesses and yet our behavior completely contradicts this. No doubt you have spent a lot of time, money and energy on upgrading all of the technology and software around you, but when was the last time you invested the same to upgrade yourself?

“I know what you are thinking,” she says, already preparing her riposte, “and skills training alone does not count. As humans we are well overdue for an upgrade. Let’s start with ourselves, and get some collective traction, rather than waiting for an HR department to wave their magic wand because, trust me, they haven’t got one.”

One anonymous HR blogger at DisruptHR.wordpress.com lists half-a-dozen sites with similar sentiments, describing it as “the not-so-definitive list of people and companies that I believe are the most disruptive in the HR space:

Chequed.com is making reference checking relevant again through automated, assessment-based reference checks in the cloud.

Fistful of Talent is a great blog for innovative people and ideas in HR.

HRRemix is another great blog for interesting thinking in HR.

HRevolution is a really cool conference happening the day before HR Tech in Chicago, focused around the future of HR.

SmartRecruiters is redefining applicant tracking software business model with their free software, making it easy to hire talent.

Evviva is a pretty cool employment branding firm based in the Bay Area. They focus on building brands through the use of online games.

“If you’re a company that truly understands your value is in your people, then understanding the strategic benefits of good HR is key,” Bailey says. “Sure, we have to have some processes in there, that’s the boring bit, but it’s why those processes are in there that is important.

“In a market such as Cayman where we have a diverse array of talent, attraction, retention and employer branding are very important. At this year’s conference we aim to give insight into how you can improve in all those areas.

“Once you reach a critical mass of employees – the Society of HR Management in the U.S. says this is around 50-70 employees – then you should have a full-time HR person,” he says.

“But what you have them doing is crucial. We can’t all be Google, but we can all have amazing working environments; we can all have engaged staff. And the person who is in charge of making that happen sits at the board table and is a partner with the leaders of the company, who also have to buy into the premise that employee of today needs to feel part of something.”

The DisruptHR website summarizes the ethos in fewer than 30 words: “Are you tired of the same old approach to human resources? Are you ready to start talking about talent in a whole new way? DisruptHR is for you.”

Bailey predicts the conference will have an important impact, and says it will be on social media and “live-streamed” on Cayman Life TV: “With several of the leading HR influences attending, it’s a conference that is going to make waves.”

 

Going ‘off grid’ in the Cayman Islands

Dart Realty and Cayman Solar installed 302 photovoltaic panels that produce 76 kilowatts of renewable energy at 89 Nexus Way in Camana Bay.

A “time of use” scheme joins CUC’s CORE program as an appeal to customers who are increasingly familiar with renewable energy generation not only at the individual and household level, but, increasingly at the corporate level.

For example, the Security Centre, at the Elgin Avenue Roundabout, is designed to be entirely “off grid,” unconnected to CUC, supplying its own heating, cooling and electric power through both solar and geothermal systems.

Individual homes are also going off grid. Security Centre designer Jim Knapp years ago designed his own home to supply its own power. Dart Realty’s off-grid Bela Verde, built by GreenTech founder and CREA chairman James Whittaker, was completed – and sold almost instantly – nine months ago.

Today Whittaker is building new homes, helping with solar systems for Grand Harbour’s 85-unit Periwinkle, and West Bay’s North View, which, he says, will be “energy positive,” generating more power than it consumes, using solar panels, PowerWall storage batteries, low-consumption LED (light emitting diode) lighting and specially designed floors and fans.

He is working on a home in Crystal Harbour and even building a 3MW utility-scale solar array in St. Lucia.

Most of the materials and systems Whittaker uses can be viewed – and purchased – at his new Green Building Center, a 1,000 square foot showcase of all things renewable that opened on March 17 inside A.L. Thompson’s at the Butterfield Roundabout. The new shop replaces the old coffee-break cafe

“We’ve been working on it for about two years,” Whittaker said. “We wanted people to have a place to go where they could see and touch this stuff. A lot of it has been only in the abstract and in magazines before now. There was nowhere to go, for example, for courses, and we will educate people on renewable technology.”

Available are solar panels, power inverters, sustainable materials, battery-storage systems, management systems, eco-friendly flooring and materials, fans, LEDs, salt water batteries “and much more,” he says.

He is also responsible for the installation of Cayman’s largest rooftop solar system, scheduled for commissioning in November when Dart’s Kimpton Seafire Resort and Spa opens.

Designers for the Kimpton and its 62-unit neighboring property, The Residences at Seafire, built to Leadership in Energy and Environmental Design standards. Originally created in 1993 by the Washington, D.C.-based non-profit US Green Building Council, LEED designates four certification levels for new construction – certified, silver, gold and platinum – corresponding to five design categories: sustainable sites, water efficiency, energy and atmosphere, materials and resources, and indoor environmental quality.

The Kimpton’s 503 Sunpower panels will produce 143 kilowatts. The building itself uses purely LED lighting, which produces less heat than standard bulbs, requires less maintenance, uses at least 75 percent less energy, lasts 25 times longer and, by 2027, according to the U.S. Department of Energy, if used sufficiently widely, could save power consumption equivalent to 44 power plants of 1,000MW and $30 billion.

Additionally, according to Dart Realty, the hotel will employ the most-efficient geothermal air-conditioning system in the Cayman Islands.

It also will also employ a large cistern to collect rainwater for irrigation.

Rainwater is also used at Camana Bay’s 18 Forum Lane office building to flush toilets. The new building has the largest rooftop array – 100kW – that CUC allows commercial customers under its CORE program.

Its next-door neighbor, One Nexus Way, will also feature a 100kW rooftop array.

“Camana Bay is growing quickly, but our cost per square foot is diminishing as we introduce more environmentally sound practices such as LED lighting, solar power and rainwater harvesting,” said Chip Ogilvie, senior manager for facilities.

Already the town center in the residential/commercial community boasts seven solar arrays, ranging upward from 18kW, one of them powering the EV charging station – Cayman’s first.

Working group tackles beneficial ownership proposal

Minister Wayne Panton

The political debate over a beneficial ownership registry for Cayman Islands companies is far from over. But in the meantime a new working group, led by the Ministry of Financial Services and Cayman Finance, is working on the technical side of a new centralized system to access beneficial ownership information in Cayman.

The working group “will also be tasked with considering the technical aspects of the system. Once the technical specifications have been established, a tender can then be produced,” Angela Piercy, spokeswoman with the Ministry of Financial Services, said in an email.

“Comprising representatives from Government, Cayman Finance and other industry associations, this group has been working to ensure that Cayman’s regime will continue to meet internationally accepted standards,” she said in a separate statement.

The centralized system is the result of negotiations with the United Kingdom, which has been pressuring the Cayman Islands to create a beneficial ownership registry to make it easier for law enforcement and tax authorities to find out who owns companies in the country.

The working group recently received an explanation from Brac Informatics, a local IT company, describing how the system would be technologically possible.

The proposal, announced by Financial Services Minister Wayne Panton late last year, would not create a central register kept by government. Instead, the idea behind the system is to have a central way for government to access the data kept with financial services companies. Speaking with reporters in December, Mr. Panton said the system would allow government to go into service providers’ databases without their knowledge to access data on ownership when the government gets requests from foreign governments.

“We will be able to reach out and interrogate information from the corporate service providers,” Mr. Panton said.

Jude Scott, CEO for Cayman Finance, said in a recent written statement, “The proposed centralised access technology concept would be non-public, with strictly local access; and maintains the key elements of Cayman’s current effective regime.

“Importantly, the proposed concept is intended to utilise technology to provide more efficient and faster access for appropriate beneficial ownership information requests,” he noted.

“Cayman Finance is working closely with the Cayman Islands Government to provide industry input on the design of such a technology based system enhancement to take into account key elements of such a concept, including security and appropriate access protocols for information,” he said.

Cayman Finance, responding separately to email questions from the Cayman Compass in December, said through a spokeswoman, “The service provider verified beneficial ownership regime in Cayman has often proven itself effective for information exchange and cooperation to support legitimate requests by appropriate overseas authorities.”

The spokeswoman continued, “My understanding is that the Cayman Islands government has quite rightly come to agreement with the U.K. that Cayman’s service provider verified beneficial ownership regime is in line with international standards.

“Cayman’s regime is world-class based on its technical merits. There may be further political rhetoric in the future on the matter, but as long as the U.K. views Cayman’s [beneficial ownership] regime on its merits, they will agree it is a standard setter that should not be forced to change, but rather should be emulated,” she wrote.

“Agreeing with the U.K. that the current Cayman [beneficial ownership] regime combined with some refinements for timing and efficiency is a prudent outcome and will be well received by clients and the industry globally,” she noted.

UK law enforcement comes for a visit

Senior officials with the U.K.’s National Crime Agency and the Foreign and Commonwealth Office visited Cayman in February, according to Ms. Piercy.

“We had an opportunity to explain, in more detail, the merits and potential mechanics of our proposed centralized platform, which would be locally accessed and non-public. This would be an additional enhancement to our current, strong anti money-laundering regime, and would be a similarly effective, viable alternative to the U.K.’s approach of a central register,” Mr. Panton said following the meeting.

The National Crime Agency leads the U.K.’s efforts to fight serious and organized crime. According to the NCA, “We have national and international reach and the mandate and powers to work in partnership with other law enforcement organisations to bring the full weight of the law to bear on serious and organised criminals.”

In a press release after the visit, Premier Alden McLaughlin said, “Government continues to maintain a position of zero tolerance on illicit activity and financial crime.

“Our commitment to the U.K., and to other foreign authorities, is to collaborate and cooperate to ensure that those responsible for illicit activity can be prosecuted in the relevant jurisdictions,” he said.

“Cayman Finance worked closely with the Ministry of Financial Services in preliminary discussions and working groups in the short period leading up to the FCO and NCA visit and endorses Government’s position to maintain and enhance the current effective CSP verified beneficial ownership regime, as well as supporting Government’s proposed concept to further enhance the current system with a technology platform,” Cayman Finance’s Mr. Scott said in a written statement.

“We appreciate the efforts of the Cayman Islands Government in communicating the benefits of our current system in the global fight against financial crime. We are pleased to see that progress is being made and that our existing effective system is receiving appropriate positive international recognition,” he said.

Eric Bush: Cayman’s man in London

Eric Bush and his family head to London later this year.

Over the next three years, Cayman Islands residents are going to be hearing a lot more about what’s going on in the United Kingdom.

Eric Bush, 40, officially takes over as director of the Cayman Islands London Office on July 1, but in recent months he has already been traveling back and forth between the Mother Country and home, formulating a strategy to improve the visibility and usefulness of the four-person office.

The move, which has been described in local media reports as a “demotion” for the chief officer of Premier Alden McLaughlin’s ministry, is one Bush says he made voluntarily, partly for family reasons and partly for the opportunity of Cayman’s senior diplomatic posting.

“Some say I’m having a mid-life crisis,” he jokes.

“I need to remind people of how crucial [the London office] is,” Bush says on a more serious note. “There hasn’t been that engagement with the office in the last couple of years. My intention is to drastically improve that.”

The office spent several years awash in controversy following a U.K. media scandal involving former director Lord Blencathra.

Lord Blencathra, formerly David Maclean of Scotland, faced censure in the House of Lords over drawing a salary from the Cayman office while serving as a peer. He also was targeted for some criticism in Cayman due to the fact that he is not Caymanian.

Following Lord Blencathra’s departure from the position in March 2014, an office staffer who openly feuded with the Scottish lord temporarily took over operations, leading to further uncertainty in the position. Two attempts to advertise the job locally came up empty until Bush threw his hat in the ring.

Bush, who has never lived in Europe, acknowledges he will not have the same direct contacts and access during his three-year contract that Lord Blencathra spent a career in Whitehall developing. However, he believes the London post is not simply a lobbying job and should not be viewed solely as a resource for government in various interactions with the U.K. and the European Union either, although he says that is an important role.

“We can create better opportunities for businesses in the Cayman Islands to partner between the U.K … and EU markets,” he says. “We have a very nice office in the London area that has meeting facilities, a boardroom. Why shouldn’t that be offered to Cayman businesses to assist with local business interests? Small to medium-sized businesses who don’t have a location in the U.K. can use [those facilities].”

Bush says the relationship that once existed between the Cayman Islands Chamber of Commerce and the London office seems to have fizzled in recent years. He believes his European-born wife, Laetitia, will be a “secret weapon” for Cayman in helping to develop that relationship.

“We’re a package deal,” he says. “She’s an attorney. She works for Walkers and she’s also being transferred to the Walkers London office. As it relates to local contacts within the financial services industry in the U.K., she offers that access on the corporate side.”

In addition to business relationships, Bush says the Cayman Islands London Office plays a key role in helping to develop those who are looking to go into business: Cayman’s students.

He estimates there are somewhere around 50 to 100 Caymanian students currently in the U.K. He plans on meeting them during an upcoming reception. He believes the London office can assist those students, to some extent, during their university years, but even more so after they graduate by helping with job placement and training programs.

“What if the London office can facilitate and offer experience whilst they’re in school, during summer breaks or after they graduate?” he says. “They can come back to the Cayman Islands as a total package, with the education and the experience.”

New London office chief Eric Bush and his wife, Laetitia, who works at Walkers, will be a ‘package deal’ when it comes to Cayman’s London office efforts, Bush says.
New London office chief Eric Bush and his wife, Laetitia, who works at Walkers, will be a ‘package deal’ when it comes to Cayman’s London office efforts, Bush says.

Better relationship

One of the key political issues out of the U.K. facing Cayman at the moment is the adoption of some form of beneficial ownership registry or other mechanism that accomplishes the same goal of providing information on the real owners of businesses to the individuals or agencies that require it.

A U.K. delegation met with Cayman’s Premier McLaughlin, Financial Services Minister Wayne Panton and other government officials in February to discuss the “enhancement” of Cayman’s already-existing beneficial ownership regime.

All of Britain’s remaining overseas territories agreed in December that they would implement centralized beneficial ownership registers or “similarly effective systems,” but that access to these systems would not necessarily have to be public. Minister Panton has said government is exploring a centralized information outlet that allows government officials to access beneficial ownership databases of all financial service providers in Cayman.

The system would be accessible from within the ministry’s Department of International Tax Cooperation, Panton said. Contrary to a general registry, he said it would operate by reaching out to financial services companies and their systems rather than by having the firms submit information to a central location.

The differences in the beneficial ownership debate, according to Bush, “come down to who has access, why and how quickly.” He says it appears the U.K. has accepted Cayman’s plan in principle, given agreement on the specific “who and why” issues.

The local government will not be a global trendsetter in this regard, Bush says.

“Cayman has a track record of keeping up and maintaining global best practice,” he says. “When there are global standards that are accepted by the G-20 [group of nations], Cayman is either ahead of the game or falls in line with it. On beneficial ownership, the U.K. has specifically taken a step forward, beyond international standards.”

Getting that message across will require some lobbying, but precisely how Cayman goes about performing the task has not been decided, Bush says.

One group the new London office chief hopes to resurrect is the U.K.’s All-Party Parliamentary Group, British legislators who are chosen as volunteers to help represent Cayman’s message in the House of Commons, House of Lords and to the prime minister. Former group chairman, Tory MP Graham Brady, is helping Cayman re-establish the lobbying effort. Lord Blencathra has also signed on, Bush says.

“I met with him last month and he’s continued to extend his support,” he says. Ideally, the “all-party” group would be made up of all political parties represented in the U.K., Bush says, but he is not sure Cayman will get there immediately.

EU issues

Another issue which could impact Cayman’s lobbying efforts and general operations out of the London office is the June 23 referendum on Britain’s continued membership in the European Union.

Although Cayman does not have a full-time office in Brussels, Belgium, representatives from the London office travel there for EU events and meetings from time to time, and Bush fully expects he will be called upon to do so.

Whether the U.K. voters decide to stay or leave the union, Bush expects the so-called “Brexit,” if approved, would take many years – some have estimated as many as 10 – to accomplish. Cayman will need to maintain a presence there at least for the next several years, he says.

“I don’t think [the situation] will change drastically, even if there is a ‘yes’ to leave the union,” Bush says.

Recently U.K.-based polls reveal that Brits seem to be divided more or less evenly on the topic, with a slight majority favoring remaining in the EU.

Office troubles

Bush, as chief officer of the Home Affairs Ministry in Cayman, became directly involved in the Lord Blencathra “situation” after taking up that post in mid-2013. According to a complaint Lord Blencathra filed, he was left idle for nearly two months in 2013 after statements indicating he was “no longer in charge,” were made by office underlings. The claim was one of several made by Lord Blencathra in the complaint.

“The London office is totally dysfunctional and it will have to be sorted out one way or another before we have a real catastrophe on our hands,” Lord Blencathra wrote in a June 2013 email to Cayman Islands government Chief Officer Dax Basdeo and Cabinet Secretary Samuel Rose. “If the Hon. Premier wants to cancel my contract, then so be it. But if not, then two people in the office must start behaving professionally.”

Angry and sometimes expletive-laced emails that went back and forth between Lord Blencathra, members of the London office staff and the local government in Cayman, revealed a culture of bickering, backbiting and bureaucratic delay in the office that interfered with the territory’s ability to present its message effectively. The former London office director also flagged instances where the situation caused other overseas territories leaders to tell Cayman to “get its act together” and which led the U.K. Foreign and Commonwealth Office to temporarily cut off communications with the U.K. Lord.

Bush took over management of the London office from Basdeo following his move to chief officer of Home Affairs in June 2013. Shortly after, he stepped in to warn one particular staff member, Charles Parchment, about the tone of his emails to Lord Blencathra.

Ironically, it was Bush who ended up informing Lord Blencathra that his contract would not be renewed during a meeting with Premier McLaughlin in March 2014.

As for the office disputes, Bush says it is in the past as far as he is concerned. The staff has remained unchanged since Lord Blencathra’s departure, and Bush says, in a small office, everyone has to perform at top level to succeed.

“I’ve found both Charles [Parchment] and Dennison [Miller] very capable,” Bush says, referring to two of the London office staffers. “Both of them have a wealth of knowledge as it relates to historic issues and the U.K. context.

“For the office to truly fire on all cylinders, everyone has to have the same intention and goal. If I do find issues of non-acceptance, we’ll talk those out.”

Gender equality lacking in global mobility opportunities

Angilynn Chan-Baraud

As soon as she finished her degree qualifications in Canada and embarked on her job search, Angilynn Chan-Baraud began to explore her global mobility options.

She said that is part of the reason why she chose accounting in the first place – because she knew she could work anywhere in the world with those qualifications.

“I didn’t want to have any doors closed to me – that was definitely one of the motivating factors for me during my job search,” Chan-Baraud said. “When I was looking at where I wanted to work, or what I wanted to do, I knew that I definitely wanted to travel. I enjoyed seeing new places and learning about different cultures, and that’s one of the main reasons why I chose to work at PwC. I knew they’re a global network of firms.”

Chan-Baraud, now the business development senior manager at PricewaterhouseCoopers in Cayman, said she knew she wanted to work in financial services and wanted to work in a place that was a hub for the industry. She considered New York, Bermuda and London, before choosing Cayman. She said PwC made the path to international assignments clear with its internal site that lists job postings all over the world.

“The opportunities are endless,” Chan-Baraud said. “It was very easy to move within the network.”

Chan-Baraud said she never felt excluded from the international assignment process because of her gender and that within PwC, “everybody has the same opportunities to apply.”

Globally, however, many women are not given the same opportunities to undertake international assignments as their male colleagues. Companies that neglect to offer opportunities for international assignments to their female employees may be missing out on an increasingly important segment of the talent pool, according to a recent report released by PwC.

To mark International Women’s Day on March 8, PwC released the report “Modern mobility: Moving with purpose.” The survey of almost 4,000 professionals worldwide found that while there are more career-ambitious, educated women entering the workforce than ever, they are not yet afforded the same opportunities for global mobility as their male counterparts. That could be a huge problem for firms, as the report found that 71 percent of female millennials want to work outside their home country during their career, and 64 percent of women said opportunities to undertake international assignments were critical in attracting them to, and keeping them with an employer.

Only 20 percent of current international assignees are women, according to the report.

“We are experiencing a time of unprecedented – and as yet unmet – female demand for international mobility,” said Aiofe Flood, lead researcher of the PwC report. “Women are feeling this inequity in the organizations that they work for.”

Necessary for recruitment, retention

According to the report, employers must address this inequity in order to attract, hire and retain female talent, and to do so they will need to break down the barriers of gender stereotypes that continue to keep women out of the loop when it comes to global mobility opportunities.

“Organizations might hold outdated beliefs that women with children don’t want to work abroad,” the report states, noting that 41 percent of women who said they want to undertake an international assignment are parents, compared with 40 percent of male respondents, indicating that parenthood is no more of a deterrent to moving abroad for women than for men.

Chan-Baraud said that while she did not have a family when she moved to Cayman, she understands there are different challenges when moving abroad with a family. However, she said she thinks the support PwC provides to women with families is equal to the support she received when transitioning abroad.

“In my personal experience with PwC across the globe, there is a focus on work-life balance,” Chan-Baraud said. “We do work hard, but there is also an understanding that family and balance is essential to a well-rounded career and life. Our people are our largest asset, and allowing flexibility to manage our work and home lives are key ingredients to having a productive work force.

“To this day, there are still international assignments and opportunities within the PwC network that have come across my desk. My husband and I have spoken about the potential of moving somewhere else to gain a different experience and lifestyle, not just for my career, but for our family,” Chan-Baraud added.

Partner’s salary not the issue

PwC’s research also found that while men consider women’s concerns of putting their partner’s higher-salary income at risk as the second-highest barrier to female global mobility, 77 percent of women in a dual career couple earn the same or more than their partner.

“This higher income risk may well be a challenge when deploying women, but it will be equally challenging when deploying men,” the report states. “To overcome the barriers to more gender inclusive mobility, international employers must first identify and understand the actual – not assumed – barriers confronting them.”

The report suggests companies use “data analytics” to gain a clearer view of their current mobility and workforce demographics, especially since the research found a number of “glaring disconnects” between what companies say about mobility and diversity and what they actually do in practice.

Around 60 percent of global mobility leaders confirmed to researchers that they have a diversity strategy, but only 22 percent agreed that their organization’s global mobility and diversity strategy were aligned, and the same percentage said they were actively trying to increase their female international mobile populations.

“The majority of employer mobility programmes are being used to develop a succession pipeline of future leaders, yet only a minority are actively trying to increase their female international mobile population,” the report states. “This leadership diversity disconnect must be addressed if international employers are to utilise the full capabilities of their workforce, develop a succession pipeline that reflects the talent within their wider workforce, and reap the benefits that stem from greater leadership diversity.”

Culture change

The first step to achieving a more gender inclusive mobility, the report asserts, is for firms to create a culture of international mobility, by making opportunities to work overseas more transparent, visibly sharing the positive international experiences of past and current assignees, and actively seeking out opportunities to increase their number of mobile women employees.

Fewer than half of the women surveyed in the report, 49 percent, said their organization has enough female role models with successful international assignment experience.

Firms are also not tapping into the population that is most interested in moving abroad. The vast majority of the survey respondents, 74 percent, said they would prefer to complete a mobility experience within the first six years of their career. Yet 33 perfect of organizations do not currently offer early mobility opportunities.

“It is critical that international employers get early mobility right: those that do will have an edge in the war for talent attraction and retention, will be more successful in leveraging millennial mobility demand, and will reap the long-term benefits of developing a more gender-diverse leadership pipeline,” the report states.

Other elements, such as mobile readiness, location, duration, benefits and repatriation are all issues explored in the PwC report, and elements that firms should consider when developing a gender-equal global mobility strategy.

Are innovation and new trends in food production the next big investment theme?

As rolling 10-year annualized returns of industrial commodity investments are producing the largest losses since the Great Depression, investors may want to turn to agricultural commodities and food products, where global demographic trends point to further sustained growth.

But although global trade in food products continues to expand rapidly, the structure and pattern of trade differs significantly by commodity and by region.

The Food and Agriculture Organization of the United Nations predicts that by 2050 the world’s population will reach 9.1 billion, an increase of 34 percent. Almost all of the population growth is confined to developing countries, where large segments of society are elevated from poverty to form growing middle classes.

To feed this larger, wealthier and increasingly urban population, food production will need to increase by 60 percent from a 2005-2007 baseline to 2050, according to an FAO report on the state of the agricultural commodity market.

“An estimated annual average of US$83 billion of net investment in developing country agriculture will be required to deliver this production increase,” the UN organization says.

Not only will a larger global population necessitate the production of more food but consumption habits will also change as incomes in developing and developed countries continue to converge.

Animal proteins and processed food

While the per capita consumption of animal protein and sugar in developed countries has plateaued, income increases and urbanization in developing countries have brought a change in lifestyle and diets.

This includes a shift from a traditional cereal-based diet to a more protein-rich and diversified nutrition, and greater demand for processed and prepared foods.

As a result, the consumption of meats, vegetable oils and sugar, which currently account for 35 percent of the average caloric intake in developing countries (up from 30.1 percent in 2002), will grow further.

The FAO report estimates that between now and 2024 more than 95 percent of consumption growth will be in the developing world.

Vikram Mansharamani, lecturer at Yale University, expects “meat demand to skyrocket, generating inordinate pressure on the entire value chain for animal protein and stressing an already precarious environment.”

In fact, meat production has tripled in the last four decades and is forecasted to double again by 2050.

But, relying on beef, pork and chicken to meet protein demand will come at a significant ecological cost, he wrote in a note in 2015.

Not only will it put a strain on the land that is available for agriculture as livestock production uses about 30 to 40 percent of the world’s arable land. But globally livestock also produces 7.1 gigatonnes of C02-equivalent per year. This represents about 14.5 percent of all anthropogenic greenhouse gas emissions.

According to the FAO, cattle raised for both beef and milk is the animal species responsible for most emissions, representing 65 percent of the livestock sector’s emissions. The figures combine emissions related to feed production and processing, enteric fermentation from ruminants and the use of fossil fuels in the processing and transportation of animal products.

Alternative protein sources

Mansharamani argues that to mitigate the environmental impact of animal protein production we will have to turn away from traditional livestock as a source of protein.

He suggests future alternative protein sources might include insects, lab grown meat, algae and peas.

Protein bars using flour from crickets as a protein base are already available from start-up firm Exo. The company touts crickets as the “gateway bug” and, due to their 65 percent protein content, a more logical protein choice than beef, chicken or salmon.

Meanwhile companies like Beyond Meat and Hampton Creek are producing meat and egg substitutes using pea and soy protein.

Google co-founder Sergey Brin is one of the financial backers of a project that produces animal protein in a different way: by growing burger meat in a lab. These burgers, developed by the University of Maastricht in the Netherlands, are made from bovine stem cells, which are incubated to multiply and take about six weeks to grow into muscle fiber.

Like other protein alternatives, lab-grown burgers have the potential to address concerns about food supply, the environment and animal welfare.

Yet, their true ecological impact will depend on how energy intensive mass-scale production methods are going to be.

Initially at least, the innovation in food production will be about greater choice rather than large-scale disruption of existing methods and dietary habits.

A 2014 report by Lux Research ‘WhooPea: Plant Sources Are Changing the Protein Landscape,’ for instance, concludes the dominance of meat and seafood will wane and alternative protein sources could take up to a third of the market by 2054.

More cultural diversity

The level of innovation in food production shows there is no shortage of potential investment opportunities.

Cayman-based fund manager Michael Kyne of Prairie Wind Advisors is launching a fund in April that will focus on investments in agriculture, food, health and the environment.

In addition to population growth and the growing middle classes in developing countries which change food consumption habits and demand, Kyne sees other food trends within developed markets, where his Harvest One Fund will seek to make investments.

Large scale immigration and accompanying cultural changes, such as a larger Hispanic population in the United States, are already reflected on the supermarket shelves. This has created a surge of new food companies in the last five years and has resulted in existing food producers embracing the trend in an effort to boost growth rates, says Kyne.

He cites the brand Goya from Puerto Rico and the now widely available Sriracha hot sauces as examples.

To make start-ups and smaller companies an interesting investment, Kyne says, he likes to see a business that is very entrepreneurial with little debt and that has a defining advantage over its peers in a new and growing market. In addition, the businesses have to show the ability to stay on top of developments within their industry and evolve with the market.

The cultural change in food preferences extends to restaurant chains. Ethnic food chains have seen the strongest growth in recent years with the most prominent examples in the U.S. being Chipotle, El Pollo Loco and Pollo Tropical. Kyne sees further growth potential in chains that cater to specific cultural offerings and demand for fresh, healthy food.

The market for organic foods in particular has exploded and brought about entire grocery chains like Whole Foods and Fresh Markets. Kyne believes the trend is closely aligned with the desire of an older population to live longer and better than previous generations. Supported by the demographics of an aging society, demand is likely to grow.

When modern technology far outpaces the law

A drone

By Gregg Anderson, VisionQuest

It’s common knowledge that most modern Western governments can be exceedingly slow when it comes to implementing new legislation. This is particularly true in the Cayman Islands, and especially as of late.

As with the emergence of the telephone, the car, the radio and TV, the spread of technological innovation has gotten far ahead of case law.

Maybe more significantly, though, is that current democracy was never devised to move swiftly in the first instance. Democratic legislation, particularly the Westminster model, was premeditated to be methodical, resolute and unhurried.

The case for slow-moving government was initially so that discussions could continue when contentious issues surfaced. After all, in order to successfully represent all people, those people must be given airtime.

Yet while this was certainly a lawful virtue to governments and legislation moving at a turtle’s pace at the time, current enhancements in technology – which simply could not have been foreseen by Cayman’s legislators in prior times – are disputably making that model archaic.

But the fact remains that it’s no longer the 19th century. It’s 2016, and we know by now that technological progress creates more technological progress. We recognize that governments need to be more agile than ever before to stay abreast with what’s become an exceptionally vibrant financial panorama.

Regrettably, though, at a time when technological advance is ubiquitous, our government remains unhurried. In many cases, technology has begun to overtake its ability to regulate.

Given the speed of development in the tech industry – especially in machine learning and artificial intelligence – hardware and software likely will soon outstrip the law in other areas, too.

A disruptive service can be created by a couple of nerds with laptops or tablets, but new laws are born within the scowl of unhurried bureaucracy. And, it takes much time for lawmakers to catch up. Several services are caught in the gap between the two schedules.

Take the following three examples:

Electric cars

Despite the global growing acceptance of electric vehicles permitted to drive on public roads, it took seven years for the traffic regulations allowing electric vehicles to operate on the roads of the Cayman Islands to have been approved by Cabinet in August 2012. Kudos to John Felder for his persistence.

Among the concerns were safety per Vehicle Licensing Director David Dixon, and “the registration and licensing of vehicles was an intricate process and required extensive research on many issues,” per the then Deputy Premier Juliana O’Connor-Connolly.

Driverless vehicles are in the pipeline, but one should not anticipate them being on Cayman’s roads any time soon.

Drones

These unmanned aerial vehicles (UAVs) are now deployed in Cayman’s airspace by children, entrepreneurs and hobbyists. Recently, the Civil Aviation Authority of the Cayman Islands issued new restrictions prohibiting users of small-unmanned aircraft, aka drones, from flying the vehicles near the islands’ airports and the prison.

The main concern is that drones can interfere with airports and security. Individuals who violate the new rules will face prosecution and, if convicted, could be fined up to $6,000 or imprisoned for up to two years.

Furthermore, drones pose a unique threat to privacy, as small, unmanned drones are already inexpensive, and their surveillance capabilities are rapidly evolving. Thus legal and privacy issues are two very important topics that need attention as drone use becomes more popular and commonplace.

Privacy has rapidly become the No. 1 concern among all interests when it comes to drones, especially the ones designed to blend into surroundings. And especially the ones not available to the public are of most concern to lawmakers, special interested groups and private citizens.

Is there anything on our lawmakers’ radar screens about how to deal with this issue? Is the pending Data Protection Law taking this into account? Will it take a similar incident as that where it took a drone literally landing on the lawn of the White House last year for President Obama to start talking about drone regulation?

If someone were hurt on an aircraft or in some other accident caused by a drone, its owner is clearly liable. Or is he/she? And considering that drones aren’t insured vehicles, how would the victims be compensated?

This is why a debate about technology and the law should cover not just important constitutional questions, but also more mundane things like insurance liability.

Airbnb

Peer-to-peer room renting service Airbnb has also created a new category that lacks straightforward legislation.

Late last year, the Hotel Licensing Board clarified that it expects property owners offering the service to pay the same 13 percent tax hotels pay, something they had not been doing.

Property owners must also register, get a trade and business license to rent their rooms, and satisfy requirements that meet health and safety, fire, security and certain accommodation standards, such as the quality of window coverings and furnishings and the maintenance of the buildings. Penalties may include fines or other enforcement.

In addition to legislative inertia, the requirements for liability insurance, building and housing standards, record-keeping, reporting, safety issues etc., could all be show stoppers for this nascent industry.

The relationship between innovation and laws has always been this way. Vehicle sales in the United States preceded the country’s first speed limit for years. And airlines were already selling tickets to civilians by the time the first Air Commerce Act of 1926 was passed.

Mostly, policymakers do not understand modern technology very well, and they’re not anticipating technological disruptions in society. There should be groups dedicated to visualizing all the diverse scenarios that could arise, as is done in the intelligence community, because there will be disruptions, and privacy alone is worth safeguarding.

Unless we want to leave a wide range of legal questions unaddressed, lawmakers should begin to draft legislation that defines the rights and liabilities being created for citizens by the spread of intelligent machines.

About the author: Gregg Anderson is managing director of VisionQuest Management Services Ltd., a boutique management consulting company that provides independent directorships, business, strategy, governance, risk and compliance consulting services.

Recycling and its challenges

Government is working with recycling companies and grocery stores to make it easier for people to drop off cans and bottles, keeping them out of the landfill. – Photo: Charles Duncan

Dart officials unveiled a series of recycling statistics, frequently achieved with the help of local recycler Junk, owned and operated by former MLA, Minister of Education and Deputy Premier Rolston Anglin.

Anglin supplies much of the glass and aluminum to Camana Bay, which crushes nearly 2,000 pounds of the former and 20 pounds of the latter every day.

The glass is used mostly as construction aggregate, in fill or in pavers, building facades and other concrete forms. The low-density, corrosion-resistant metal is generally shipped off island for use in transportation, and window frames.

As Camana Bay turns increasingly to LEDs, fluorescent bulbs are crushed in an Environmental Protection Agency-approved recycling machine, and then shipped to specialty companies the U.S. The practice keeps glass, phosphor, mercury and aluminum out of the George Town Landfill.

Recycling locally, however, is a difficult business. Because Cayman has no factories and no natural consumers to reuse old materials, Anglin says, “we have nothing that even approaches a situation where we can find a mill somewhere and say ‘hey, you are producing 20,000 tons per year and can you give us a fee” for recycled materials.

“So we have to go to other recyclers and sell it to them,” he said, naming Florida’s Sun Recycling, which calls itself “the largest independently owned recycler of construction and demolition material in Florida.”

With 10 locations in Palm Beach, Broward and Dade counties, according to Sun’s website, “we are focused on turning the highly recyclable materials that come into our facilities into usable products.”

Anglin was cynical: “Are they going to accept commodities from other countries? We have to cover operations and shipping, so we have to model our pricing to cover all that.”

The viability of the business depends on razor-thin margins for commodity prices: aluminum cans, cardboard, newspaper, glass and plastic.

Aluminum sells for 26 cents per pound and tin for 3 cents per pound, Anglin says. Because everyone uses it and aluminum is nearly 100 percent recyclable “it’s the only thing you can make money on.” No. 2 plastic sells for 12 cents per pound and cardboard for $90 per ton.

“Cayman produces no aluminum and all the beer is in glass bottles so it all goes straight to Dart’s crusher; they do it for free and it’s mostly just a hauling exercise for us – and there’s lots of water between here and Miami.”

Even the U.S. giants are in trouble. At a 2015 conference recycling executives lamented the fall in commodity prices, although trying to remain optimistic.

Still in the grip of global recession, prices for ferrous scrap took a “dramatic” tumble of around $100 dollars per ton while mills “were getting pressure on the price of finished steel, and the scrap market hadn’t corrected itself,” according to Drew Lammers, manager for Ohio scrap processing firm Cohen.

“We believe we’ve hit the bottom and this market is going to take time to work its way back up,” he said, noting noted that one of Cohen’s largest buyers went from purchasing thousands of tons of ferrous scrap per month from the company to zero tons in January 2015.

“As time goes on, these orders will come back,” he said.

David Steiner, president and CEO of Houston’s Waste Management, said his company hadn’t invested in recycling in the last two years, saying the company had to cover its processing costs. “This is a crisis,” he said.

Ron Mittlestaedt, CEO of Texas-based Waste Connections, said the cost of recycling was two times to three times that of landfill. He pegged recycling costs at $80 per ton versus only $30 per ton for landfill it. The added cost of recycling was not always passed on to customers.

Junk operates seven recycling centers, called “curbside depots,” at local supermarkets. Last year, the company collected 450,000 pounds of material, 60 percent of which came from the depots, Anglin says. Junk kept more than 100,000 tons of waste out of the George Town Landfill.

Contributing to expenses, however, is that someone has to collect, bale, compact and finally ship the material.

“We wanted a 10,000 square foot center and were going to put in a baler and can recycler for US$500,000,” Anglin says. “That’s what you need – a proper center – to be serious about recycling.”

In mid-January, government issued a request for proposals for eight recycling depots across Grand Cayman.

“The successful tenderer must provide all necessary facilities, equipment, labor, insurance, finances and services required to maintain depots, collect, process, and market recyclables … [Government] will share in the revenues received by the successful contractor,” the RFP says.

“The … depots … will accept … paper (including shredded paper, old newspaper and magazines), boxboard, old corrugated cardboard, [plastic types] #1 and … #2, aluminum, metal/tin cans and glass/ceramics.”

Government, the document said, would supply the 10 containers and 240 wheeled bins to collect glass and ceramics, but the bidder would be obliged for all maintenance on both the equipment and the site.

Bids closed Feb 12. Anglin has applied, but no decisions have been made.

Anglin is not sure government understands the economics of local recycling, suggesting it is too expensive for competition and calling on government to subsidize the effort.

“Someone has to pay for waste disposal and waste management,” he says. “Waste costs, and that’s why most countries just dig a hole and throw it in the ground.

“If government cannot make a deal, we are going to get out of the curbside business and stick with our private clients – strata and condos. We are just breaking even. We can’t continue to fund tens of thousands of dollars per month. Government has to subsidize waste management. They did say they would help so we have continued to hang on for the last six months.”

Government will take over recycling

Nancy Barnard, deputy chief officer for policy and planning at the Ministry of Home Affairs, Health and Culture, said, “Discussions are being held to see if the bidder can run the new depot recycling program within the proposed government funding,” conceding that “a smaller island” posed unique challenges.

“Most of the recyclables will need to be shipped off of Grand Cayman to be recycled and this really is not a problem, other than it greatly reduces the net revenue received for the commodities shipped, and thus makes it less attractive for the private sector to get involved in the recycling business.”

She pointed out, however, that even in North America most material is not recycled where it is collected, but must be shipped elsewhere

“The bigger challenge,” Barnard said, “is collecting sufficient materials for a shipment.”

A 40-foot container of baled, recyclable material is needed for a shipment, she said. One bale of aluminum cans weighs 1,000 pounds, and approximately 24 cans make a pound.

“So it takes 24,000 aluminum cans to make a bale, and you typically need 25 bales to fill a sea container, so for one container you would need to collect something like 600,000 cans, which takes a long time just to collect the quantities required to ship something off islands,” Barnard said.

Despite the economics, however, Barnard said government would step in to run a recycling program should the private sector prove unable to sustain the effort.

“If we cannot reach an agreement with the private recycling firms, government is committed to setting up and running the new recycling program operated by the Department of Environmental Health,” she said.

She pointed to long-underway plans for an “Integrated Solid Waste Management System” and the “National Solid Waste Management Strategy,” unwieldy names for a program to “reduce, reuse and recycle” the waste that has expanded the George Town Landfill, started in 1980, to cover, and render useless, nearly 75 acres of prime real estate

The landfill stockpiles 225 tons per day of all types of solid waste and recyclable products. Slightly more than half that total is new solid waste. The landfill manages roughly 56,000 tons of waste per year, with a recycling rate of 14,800 tons per year.

The Department of Environmental Health recurrent annual budget is $8.3 million, $6.5 million of which goes to solid waste management. The budget for the department’s Environmental Health Section is $1.8 million.

“The recycling depot program … will be part of the future Integrated Solid Waste Management System for the Cayman Islands,” Barnard says, funded by garbage collection fees.

At the Department of Environmental Health, Mark Rowlands, assistant director for solid waste, said the time that the Integrated Solid Waste Management System was consuming indicated “the enormity of the situation,” and that it would encompass “planning for the next 50 years and require $100 million worth of equipment.”

The documents, he said, had gone out to the public for commentary, and the next steps “were down to the options we want to pursue, and reviewing operational systems.”

Government was in “final contract negotiations with a local company to remove nearly 2 million tires – roughly “one tire per person per year in the Cayman Islands” – and hoped to see work begin “in the next couple of months.

“We are starting the process of getting rid of the metal,” Rowlands said, referring specifically to “cars, derelict vehicles, trucks and appliances,” while navigating some of the legal issues that dogged past efforts.

He was unable to say however, when work would start: “There is a lot of material and a lot of companies that are interested.”

One giant ice maker and other energy innovations hitting Cayman

In commerical buildings chillers can be used to make ice to store excess daily solar energy.

The idea is ingenious and simple, and while industry has been familiar with it for some time, the idea of a block of ice as a storage battery is just starting to gain public attention.

The concept is startling: solar energy generated during the day powers a freezer, creating an enormous slab of ice. The system cycles water through the block and into the air-conditioning unit, which blows cool air throughout the building, skipping the need for the compressor. As the ice slowly melts through the afternoon, the solar-powered freezer replaces it.

Most electricity consumption is air-conditioning, particularly in hot, humid climates like the Cayman Islands: Estimates range upward of 60 percent of all the power used in a day. Institutions like hospitals or IT offices can demand more, as much as 80 percent of power.

The “CleanTechnica” website likened ice storage to a backyard barbeque:

“Most would agree that it is a bad idea to wait to start making ice cubes until the guests start walking through the door,” author Mark MacCracken observes. “It turns out you need about one pound of ice per person for the party to keep drinks cold …”

A giant refrigerator would be needed to meet the demands, so, MacCracken says, “most people would create ice the night before. To cool an office space for that same person it takes the equivalent cooling of 150-300lbs of ice per person,” and, “as ludicrous as it sounds,” most buildings do not store their own cooling, meaning they generate instantaneous cooling each day, placing enormous – and increasingly expensive – demands on the local electricity grid.

A building, however, “can reduce peak demand by making ice using excess grid energy generated during cheaper, off-peak hours when electricity is plentiful, or when the building has excess solar energy. The ice can then be melted the next day to cool building occupants during expensive peak periods, if the cooling demand cannot be met by onsite generation,” he says.

Next month, Cayman’s first experiment with ice storage starts as Ryan Smith, construction and facilities manager at Health City Cayman Islands, breaks ground on a four-acre, 1 megawatt solar array that will help power the East End hospital’s operations. An ice storage unit inside a 40-foot shipping container is part of the plan.

“The physical work will probably get started at the end of May and be operational by September,” he said. The array, comprising “thousands of panels,” is oversize to meet Health City’s “critical capacity,” leaving nearly half the single megawatt generation to help power the container-based ice storage.

The scheme, he says, essentially “a solar-powered heating/ventilation/air-conditioning system,” will cost between $2 million and $5 million to build, but will save 30 percent of Health City’s power consumption and pay itself off “after about seven years.”

Smith pegs the costs of one kilowatt hour of electricity “close to 20 cents,” considerably less than charged by Caribbean Utilities Corporation, and rejected the idea of selling his solar power to the utility as part of its Consumer Owned Renewable Energy (CORE) program.

CORE program hits a rough patch

The CORE scheme, he said, was “extremely limited for commercial customers,” making it unsuitable for Health City, although Smith said he “would participate if we could.”

CORE itself has run into headwinds as CUC is almost a victim of its own success. Started in 2009, CORE encouraged individuals and businesses to generate their own renewable energy, selling it to CUC, then buying it back at reduced costs as necessary.

The program has gone through several revisions as the limits on the amount of power CUC accepted from CORE were reached, then raised, then raised again.

The price CUC paid to CORE participants for their power declined from an initial 38 cents per kilowatt hour to 30 cents today, some say in discouragement of consumer participation, and prolonging payback periods for investments in solar-generating systems.

CUC now limits CORE to a 4 megawatt aggregate contribution from all sources, but faces a growing clamor to raise the limits again. The program has grown faster than anticipated and the utility fears the transmission and distribution grid cannot safely manage greater renewable contributions.

Critics reject the claim, pointing to systems around the world that routinely accept far more. CUC, they say, seeks to discourage the program, underlining its resistance to alternative energy – they are contractually forbidden to profit from it – and the employment and economic activity the nascent industry generates.

A decision about raising the limit to 5MW was due Feb. 1, but has been delayed.

“The 4MW limit is close to being fully subscribed,” said CUC President Richard Hew. “CUC and [industry overseer] the Electricity Regulatory Authority are currently reviewing the program to determine if there should be a further extension to the available capacity.

“The uptake for CORE has certainly been very positive since its introduction. CUC remains committed to promoting and developing renewable energy as a source of electricity generation,” he said.

James Whittaker, chairman of the Cayman Islands Renewable Energy Association, was modest in his dissent.

“The ERA and CREA have been in consultation, looking at the long-term future, analyzing the cost-benefit of CORE,” he said, describing as dubious CUC’s claim that the grid can handle only minimum renewable contributions.

The CORE cap “is frozen at the moment, but we are thrashing it out. We are trying to get CORE to raise the limit by 1MW for another year.”

He also worries that the imminent start of utility-scale solar generation on a 5MW solar farm in Bodden Town may work against expanding “distributed generation,” small rooftop solar arrays for individual homes and businesses.

“The whole point is that the country needs both,” Whittaker says. “The 5MW give us scale and pricing, but the ‘distributed’ creates jobs and economic activity.”

The start of utility-scale generation has, however, been delayed, at least in the short term. David March is managing partner at Entropy Investment Management, the company building the solar project in Bodden Town. He is also Smith’s engineering partner in the Health City project.

The 22-acre 5MW, $18 million system was approved by the ERA on Oct. 30 after protracted talks among the three parties. Entropy later said it planned groundbreaking for the array in late February, a date the managing director said had slipped due to financing.

“These things always take longer than one thinks. We hope to have the ground breaking in the next few weeks.”

The project, he said, “should take about seven or eight months.”

Both ERA Managing Director Charles Farrington and CUC’s Hew said, however, they expected to commission the array on the original schedule.

“ERA was not given a firm groundbreaking date only a target commercial operation date of October 2016, which ERA understands has not been changed,” Farrington said.

Hew offered a little more insight, suggesting a delay in completion and hoping for a formal announcement this month: “The solar project is on schedule for end of 2016 completion,” he said. “An announcement on the ground breaking will be made in April.”

Ocean power

Similarly, a longstanding proposal for ocean thermal energy conversion appears to have hit another obstacle, throwing doubt on an already nebulous situation.

Baltimore-based OTEC International at least two years ago proposed a 140 feet by 200 feet floating platform one mile off the coast of North Side, exploiting temperature differences between warm surface water and deep-sea currents, driving an on-board turbine, producing between 6MW and 6.5MW of power, delivered to an onshore CUC interconnection.

The technology remains relatively unproven, however, and has not been commercially demonstrated.

OTEC International has missed a handful of local deadlines, most recently a promise to submit to the ERA by the end of March, an agreement with CUC to purchase OTEC-generated power.

In early February OTEC President Eileen O’Rourke told the Journal “significant progress” had been made with CUC, and that OTEC had “provided more data on the project” for an environmental impact assessment by the Department of Environment.

“The company,” she said, “plans to submit the information to DoE within 30 days after the [power purchase agreement]/[impact assessment] documents have been submitted to ERA.

“Ocean Thermal International hopes that all documents will be before the Cayman regulatory authorities in the first quarter of 2016.”

In mid-March, however, she indicated shifting dates: The company was “in the late stages of negotiations with CUC for the [power purchase agreement] and [impact assessment] with the goal of submitting to the ERA in the first or second quarter of 2016,” and pointed to the project’s “reliability, predictability, sustainability and flexibility,” saying “Cayman OTEC could initially provide 6.25MW of annually averaged wholesale electric power to CUC within the first year of operation.”

Farrington, however, said the ERA had seen nothing from the company and did not “have an expectation with a time frame attached.

“The ERA’s most recent information on this proposal as of last week of January 2016 was that OTI and CUC were continuing to discuss a potential PPA [power purchase agreement],” he said.

CUC was noncommittal: “OTEC is still proceeding. They are currently at the PPA and environmental impact assessment drafting stage. They will be presented to the ERA once completed.”

Smart meters and ‘time of use’

Elsewhere, the utility will complete installation of “smart meters” in all 28,000 customer premises by the end of July, enabling clients to micro-manage times and amounts of use.

Initially, episodes of overheating and even combustion occurred throughout the U.S. and Canada when smart meters first appeared prior to 2010, particularly with equipment from North Carolina manufacturer Sensus, which supplies much of CUC’s equipment.

Inaugurating the $5 million replacement program in 2011, CUC initially confronted similar setbacks, but appears to have resolved the problems, positioning the company to launch a much-rumored “time of use” scheme, in which customer costs are reduced during off-peak hours.

“TOU,” employed by utilities through North America, Europe and Australia, refers to cuts in the cost of electricity during non-peak hours. It enables customers to plan power consumption – such as doing laundry at 3:00 a.m. – reducing not only their own costs, but also relieving demand on the grid and enabling smoother load management.

CUC has been looking at a TOU scheme since at least 2015 – and probably earlier. The company has remained tight-lipped, however, saying last April that while its smart meters would enable the company to design a plan, “CUC does not offer time of use rates at this time. By changing its meters to the smart meter type, CUC will be able to consider the introduction of TOU rates in the future.”

In December, the company indicated the plan was moving ahead: “We are aware that some customers have expressed an interest in ‘Time of Use’ rates and we are reviewing.

“However, CUC is not about to make any announcement on the subject at this time.”

Finally, last week, the company reiterated its position, but did not deny plans for the scheme: “CUC is always exploring new rate structures. However, we do not have anything to report on this right now.”

One of the things a TOU scheme may boost is overnight charging of Cayman’s growing fleet of electric vehicles.

Electric vehicles and Tesla ascendant

A Tesla electric vehicle at the newest charging station in Bodden Town.

John Felder, president of Cayman Automotive and the island’s only vendor of electric vehicles, says nearly 35 of the cars are on local roads, with another two on the Brac. That total, he says, almost quadruples the 10 in the Bahamas. He predicts steady, if gradual, growth as he launches imports of U.S.-built Tesla cars.

Already, he has sold at least three, including Tesla’s latest design – an SUV boasting a startling gull-wing design – and two “S” models: The P-85 “performance” sedan will be the first right-hand drive electric vehicle in the Caribbean, he says.

The cars are expensive – the SUV tops $100,000. Nonetheless, Felder believes a local market exists, and anticipates moving 10 units per year.

“We service everything we sell,” he says, which includes Chevy and Ford EVs and hybrids, as well as China-made, Japan-made and U.S.-made combustion-engine cars and trucks. An authorized Tesla mechanic will visit Cayman every six months or, Felder says, “as needed” when a vehicle requires maintenance.

However, on March 31 in Los Angeles, Tesla chief Elon Musk announced a potential “game changer”: a four-door EV sedan priced at US$35,000, described by the CEO as an effort to bring electric cars to the masses.

The car will travel 215 miles on a single charge.

While the “Model 3” will not be delivered until next year, Felder said he had already ordered two: “This one vehicle is a game changer,” he said, hoping Musk would not boost the price in the face of furious demand. “A Tesla that you can purchase for under $40k is clearly going to make an impact on the market.”

Since 2012, Felder has opened 10 charging stations around Grand Cayman, stretching from East End’s Wyndam Hotel to West Bay’s Cayman Motor Museum. Grand Harbour – next door to the Cayman Automotive showroom – boasts another as does Hurley’s, Governors Square and Camana Bay. Next on the schedule is Kaibo, to be followed by Kirk Supermarket, HealthCity and unserved Foster’s locations in George Town, Savannah and East End.

On March 17, Felder joined owners of Bodden Town’s Lorna’s Rubis – MLA and Minister of Community Affairs, Youth and Sports Osbourne Bodden and his son Alexis – and Umar Michla, managing director of Tesla’s overseas distributor Royal Imperial U.K., to open the first combination petrol and charging station in the Caribbean.

“They called me and asked,” said Felder. “These guys are sharp; they don’t miss a trick. They have the Fish Shack there, a liquor store and a convenience store, so while you’re spending 20 minutes topping-up your charge, you’re going to have a drink and maybe something to eat.”

At the opening, Minister Bodden said he hoped to boost a “greener Cayman,” while son Alexis said “we thought it a good idea to jump on board. We spoke to parent company Rubis, they did not have a problem with it.”

Consolidating the appeal of the new service, Lorna’s top-ups are free, raising the specter that, with a little planning, electric vehicle owners may never again have to pay for fuel.

If they do, however, CUC’s TOU scheme could further reduce the at-home costs of between $3.50 and $4 for an overnight charge.

Commodities: Lessons from a 100-year history

By Juergen Buettner

Increasing demand and a shrinking supply ensure long-term rising commodity prices – at least that is the theory. But the reality is different, with consequences for the investment strategy.

Commodity prices always go up in the long run. For those who get in contact with commodities directly only when refueling their vehicle, the everyday experiences seem to confirm this assumption. In the past, the average fuel prices mostly went up. Only in the last year have motorists become aware that the prices can also fall considerably. Strictly speaking, not only oil and petrol suffered losses, but also commodities across the board.

Overall, the price decline after the bull market from 2001 to 2008, when commodity prices exploded, recently reached historic levels. According to Bank of America Merrill Lynch, the annualized 10-year rolling total return from commodities at the beginning of the year was minus 5.1 percent, the lowest since 1938. Moreover, the commodity futures price index CRB, which currently consists of 19 commodities, in February reached its lowest level since 1973.

The myth of rising prices

Even more disastrous is the result for base metals and crude oil on a real basis. Based on prices rebased to 2015 price levels, using historic U.S. inflation figures, virtually all base metals as well as oil are now trading at prices below their long-term real averages since 1915. Some look particularly cheap – the prices of aluminum and nickel, for example, are significantly below their long-term real average prices, according to data based on calculations of Metal Bulletin Research in a recent study published by Unicredit Bank.

That is an astounding result, since it strongly contrasts with the thesis usually hammered into our heads that commodity prices in the long run always go up. All the more so as the argument used by proponents to underpin their assumption sounds convincing by referring to a steadily increasing demand coupled with continuously falling supply.

But these results are really surprising only for those who do not deal with economic theory. The academic belief in general is that prices of goods in real terms are heading down eventually. This is due to improved efficiency through technological advances, substitution and supply increases in case prices rise too much. Ultimately, it is therefore mankind, with inventiveness and flexibility, who keeps the prices in check. Current examples include the strong expansion of shale oil production or the increased use of renewable energies.

In the light of the above, investors who do not want to risk their capital carelessly should, in particular, look at the 100-year commodity price chart in real terms, since two extremely important conclusions can be derived from it. The first results from the realization that commodity prices in the long term on a price-adjusted basis become cheaper rather than more expensive. Those who understand that will see commodities in a different light and not automatically consider them a real long-term investment.

Low prices encourage speculators

The second important finding is that by looking at the charts since 1915, short-term investors can feel encouraged to try their luck in betting on base metals. This attitude can build on two points: First, the raw materials’ inherent volatility, and second, the low basis the prices reached recently.

With regard to point one, Unicredit points at real prices that have fallen just as often as they have risen in any 10-year period during the observation time. Hence, commodities offer a volatile environment just as speculators like it. In this light, Andrew Cole, principal analyst at Metal Bulletin Research, concludes, “I understand that traditionally the value of commodities lies in portfolio diversification, but this analysis suggests they might deliver their best returns as a well-timed cyclical investment.”

The second point derives its significance from prices, which in the cases of base metals and oil have traded below their long-term averages since 1915. That is so low that the likelihood became relatively high that the next move would go up, especially since commodity prices usually tend to show cyclical fluctuations.

This, by the way, also fits with the usual course of a commodity cycle. With regard to mining shares, this cycle has four phases, according to Bank of America Merrill Lynch. The analysts at the U.S. investment bank currently see the cycle in phase two, the consolidation phase. This is followed by the earnings-driven phase, in which a favorable supply and demand situation not only leads to rising commodity prices, but also to growing profits of the producers.

Investors who agree with that conclusion put money into the sector. Interestingly, commodities recently showed a strong sign of life. The index of the London Metal Exchange, for example, is now trading even higher than at the beginning of the year – a trend that could continue since the supply growth in industrial metals has slowed considerably in recent months, as the analysts of the ANZ Bank explain.

Historically, commodity bear markets last long periods

Anyone who wants to earn money with raw materials in the long run will probably also need strong nerves. The end of volatile price fluctuations is not in sight, and thus an environment remains in which money can be made with commodities with well-timed investments. Unfortunately, however, studies show how extremely difficult it is for most investors to find the right timing for short-term investments. Noteworthy in that respect are data from Ned Davis Research. According to their calculations, the five secular commodity bear markets since 1814 lasted on average 22.5 years. If history repeats itself, the current bear market initiated in July 2008 would still have a long way to go.

However, hope comes from the amount of losses we have already seen, since these losses have exceeded the historical average of minus 53.7 percent, but there are no clear signals. This fits with a commodity sector where traditionally divergent fundamental factors often occur simultaneously – a phenomenon that contributes to the verdict that commodities are a playground for market-timers and a very tricky area for long-term investors.

Fantasy sports drives US to review gambling laws

Those who monitor online gambling predict that daily fantasy sports, such as FanDuel, the most visible current iteration of online betting, may very well win wide legal acceptance in the foreseeable future. - Photo: Andrew Harrer/Bloomberg

By Frank Bentayou

Urged by hordes of sports fans throughout the country, the United States is struggling, legal jurisdiction by jurisdiction, over whether to loosen gambling rules tracing back to North America’s Puritan settlement almost four centuries ago.

Just 18 months after the Puritans established the Massachusetts Bay Colony in 1629, pious leaders issued the continent’s first recorded gambling edict:

“It is … ordered that all persons whatsoever that have cards, dice or tables in their houses, shall make away with them before the next court under pain of punishment.”

Ever since, the United States has been alternately rejecting and embracing the culture of wagering. First the colonies, then the young nation, permitted but then outlawed horse racing and betting parlors through the 18th and 19th centuries. In the 20th century, it both celebrated and abhorred the “numbers racket” as well as the high- and low-rollers’ mecca of Las Vegas.

“We’ve had a constant push-pull since the beginning,” says Colorado-based gambling expert Charles Humphrey, whose blogs on gambling-law-us.com, draw thousands of devotees. (In 2006, Humphrey sued CBS, ESPN and other sponsors of fantasy sports games, which he claimed were illegal online gambling. The case was dismissed.)

Humphrey and other online gambling experts can point to decades of back-and-forth acceptance and rejection in the country of wagering, from religious, social and moral forces, business interests and, especially, government and law enforcement.

America’s historical uncertainty about gambling is mirrored worldwide, as Humphrey points out, now that a new wagering juggernaut sits in the room – the Internet. Online betting looks like the latest force driving the U.S. to accept a more laissez-faire stance toward what the Puritans sought to quash.

Based on his and others’ close monitoring of federal and all 50 states’ laws – many of them now under scrutiny – Humphrey predicts that daily fantasy sports, the most visible current iteration of online betting, may very well win wide legal acceptance in the foreseeable future.

Beyond that, the seemingly unstoppable success of companies like FanDuel and DraftKings will probably guide many other kinds of now-forbidden online betting models toward success in the future. As the U.S. grows more tolerant of the alliance between technology and wagering, look for the notion that instant wealth stands as close as the nearest keyboard, to sweep across time zones and seize the world’s attention.

Many roadblocks remain

For historical and political reasons, gambling laws in the U.S. are mostly a function of state preference. That means that even among the more populous states, say New York, Illinois and California, online betting confronts completely different legal realities. Virginia, Florida and Texas, for example, have quite different legal interpretations and politics. The state and regional differences make firm predictions about the shape of future laws all but impossible.

Virginia, for instance, in March became the first state to rule daily fantasy sports legal. At the same time, Nevada’s Gaming Policy Committee, which arguably has the most experience overseeing gambling operations, made it known that it would relish the role of leader in future U.S. regulatory policy. The committee is made up of state government officials and gaming company executives.

In response, DraftKings CEO Jason Robins said, “Now the fantasy sports industry is ready to join hands with Nevada to figure out a common-sense regulatory framework to allow companies to safely and responsibly operate” in the state most connected to wagering.

The Associated Press reported that small businesses providing fantasy sports are lobbying to prevent legislation in New York that would make licensing there too expensive for everyone but giants DraftKings and FanDuel.

The group Small Business of Fantasy Sports says the $500,000 licensing fee in pending legislation would keep out the “mom and pop type businesses” that make up most of the industry.

They also object to a proposed 15 percent tax on revenue, suggesting 5 percent instead.
Meanwhile, DraftKings and FanDuel agreed with the state attorney general to stop taking bets in New York while lawmakers consider legalizing the games.

Whatever individual states decide to do, the federal government retains some legal jurisdiction over the medium (the Internet) that permits gambling opportunities to reach every village. The federal government has exercised that power, to the point of once convicting and jailing a high-tech gambling entrepreneur, Jay Cohen. From his office in Antigua, Cohen operated World Sports Exchange, or WSEX.com, an online sports gambling site.

In 1988, a federal prosecutor in New York charged Cohen and others with violating a 1961 U.S. law called the Wire Act, which aimed at regulating international gambling sources that used electronic means to reach American consumers. While “the Wire” originally focused on using telephone or telegraph communications to facilitate betting, courts included the Internet in the same category.

Cohen was not the only enforcement target, and some of those indicted with him brazenly ignored the charges and remained abroad, mostly in the Caribbean. Others traveled to New York, surrendered, pleaded guilty and paid modest fines. Cohen sought to challenge the U.S. government and went to trial.

His decision cost him almost 18 months of incarceration, as it happens, in a federal prison in Las Vegas, the gambling capital of North America, and months more of probation.

Later, after Cohen had served his sentence, Congress passed a more specific federal law that addresses Internet transmission of gambling sites.

A shortcoming in that law, called the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), is that legal opinions vary as to what constitutes “gambling.”

Ryan Huss, left, and Rishi Nangia, co-founders of Syde, a fantasy sports platform. Smaller companies in the exploding fantasy sports industry say they could be shut out of doing business in some states by legislation that is actually intended to recognize the games’ legality. - Photo: AP
Ryan Huss, left, and Rishi Nangia, co-founders of Syde, a fantasy sports platform. Smaller companies in the exploding fantasy sports industry say they could be shut out of doing business in some states by legislation that is actually intended to recognize the games’ legality. – Photo: AP

Win by skill or chance, that is the question

Marc Edelman, an associate professor of law at City University of New York’s Baruch College and one of the nation’s preeminent experts on online gambling and fantasy sports, points out that “the legal situation is somewhat different in every state in the U.S.”

Among the states that regulate or outlaw betting, most use distinct descriptions of what they are rendering illegal. Games of pure chance – like lotteries, for instance – unless the states themselves operate them, are less likely to pass legal muster than games of pure skill – like athletic competitions in which participants stand to win cash or valuable rewards.

Edelman, who like Humphrey closely monitors the wording of each state’s gambling laws, also notes that some statutes establish an almost mathematical ratio of skill to chance to determine legality. This much skill, this much chance, and it’s not gambling. Add a little more randomness, and the activity becomes an unlawful act. There’s no evidence state legislators are working together to jointly define where to draw the line between skill and chance.

Legal Sports Reports, a fantasy sports industry periodical, published a U.S. map on March 29 that showed only three states, Virginia, Indiana and Kansas, have legalized daily fantasy sports betting. Seven – Georgia, West Virginia, Wisconsin, New Mexico, Arizona, Washington and Hawaii – had their legislative initiatives to legalize stalled or rejected. And some 18 have active bills to legalize wagering moving through their legislatures.

That final category included large states like New York, Massachusetts, Florida, Illinois and California. The issue of whether skill or chance remains the prominent role is a key consideration in those states.

Daily fantasy sports certainly require of winners that they exercise skill in choosing a team’s competing personnel and then managing their rosters. Participants are known to spend weeks reviewing the statistical profiles of each team player they draft, so they can put the most skillful on their figurative fields of play.

But no one can predict player injuries, suspensions or other interruptions that occur simply because humans are human. “So chance always plays some kind of role,” Edelman says.

Irrespective of their vagueness about chance vs. skill, the two big daily fantasy sports companies got themselves in a pickle last fall. Just as they were spending millions on TV and print advertising in 2015, as they fought to climb higher in public awareness, news of a scandal broke. A DraftKings employee won big – $350,000 – placing second in FanDuel’s National Football League Sunday Millions competition.

Media immediately questioned the integrity of businesses whose own insiders could freely compete against the paying customers each company was seeking. The average FanDuel gamer might ask, “What chance do I have if a DraftKings employee, with all his access to information, wins a big prize?”

“It made it seem like the game was rigged,” Humphrey says. But did that scare away participants in the following Sunday’s football games competition? Not in the least. Both companies actually recorded their best weekend ever financially following what was widely expected to be a public relations nightmare for the fantasy sports outfits.

The way the events unfolded in October 2015 had magazines like Fortune wondering whether the industry was charmed.

Edelman, who studies daily fantasy sports like a Biblical scholar, emphatically rejects the idea that the industry possesses some magical quality. Beyond his university job, he serves as a consultant to fantasy sports endeavors (but not, he says, to FanDuel and DraftKings) and their investors, and he specifically warns them not to behave as aggressively in the online betting marketplace as FanDuel and DraftKings have.

He remembers well what happened to Jay Cohen a few years back and suggests a criminal indictment could materialize again depending upon the U.S. Justice Department’s interpretation of “what constitutes gambling,” the same issue many U.S. states cannot seem to decide.

Politics plays a role too

Just because the Internet reaches every computer, iPad or smartphone the same way does not give online gamblers the same legal rights in different jurisdictions. That’s true with fantasy sports players as well as online poker players. Edelman points out that “there’s a handful of states that allow poker, many more that consider it illegal.”

Nevada has embraced all manner of gaming for decades. Neighboring Utah permits no such thing. Most U.S. states market their own or regional lotteries – pure games of chance, where winners of huge fortunes are determined by purchasing a numbered ticket that pays off if a mechanical device randomly selects their numbers. Lotteries are big revenue sources for the states. Thoroughbred tracks and jai alai frontons also permit pari-mutuel betting in many states but are outlawed in others.

In addition, the U.S. has almost 500 lawful Native American casinos or other gaming sites in 28 states that tribes operate. The $30 billion in annual revenue they rake in comprises more that 40 percent of the gambling take in the U.S.

The political implications of those Indian casinos is significant as well. Edelman points out that the states with those facilities (and the political lobbies such high stakes interests represent) have been more likely to interpret daily fantasy sports as depending on chance, not skill, raising the gambling bar.

“Native Americans are opposed to daily fantasy sports because they see it as a competitor to their own gaming industry,” Edelman says.

Will online gambling continue to spread worldwide?

Day-to-day politics aside, Edelman considers England to be a guide to America in certain public policy, including the countries’ tolerance to gambling.

“America has a history of landing behind England,” he says. “But it’s moved far more slowly than England while going toward the same place. In England now, sports betting is available and legal in many forms.” He predicts that, in time, the U.S. will also embrace such gambling.

Humphrey also casts his vote for legal online betting in the future – he just will not venture a guess of when. He also thinks executives at the big fantasy sports companies are taking huge legal risks in continuing to operate their fantasy games as they do. In an email response to questions, he said, “I think all [daily fantasy sports] bets are illegal under many state and local and federal laws and that the executives of the companies who are the key players in this industry should be criminally charged with promoting illegal gambling.

“You ask why the government should care. The answer is simple: It is against the law. People want to bet on a game because it makes watching the game more interesting. Also, it is easy to become addicted to sports gambling.”

Humphrey’s last point goes beyond what the Puritan elders posted back in 1631. It gets at the main reasons there are laws restricting gambling at all levels of American government. It’s attractive and illegal because of its glamour, lack of transparency and, often, its corruption. Even gamblers know the industry’s “sharks” take advantage of its vulnerable “fish,” convincing them to give up their money willingly in the far-fetched hope they’ll score big.

Les Bernal, national director of Stop Predatory Gambling, a Washington, D.C., nonprofit, has noted that most daily fantasy sports winners are sports experts with intense data-processing expertise. One result: The poor, hungry “fish,” many of whom may be gambling addicts, drain their bank accounts and piddle away their resources under the delusion they will win.

In public proclamations, Stop Predatory Gambling often reminds citizens that society ends up paying for the financial collapse of losing gamblers, including the cost of social and legal services they require when they wipe out their resources. Meanwhile, a tiny few become wealthier with each wager.

That said, daily fantasy sports has continued to grow as the eagerness of fans to make bets outweighs caution, and as professional sports leagues make financial investments in the industry in the hopes gambling will strengthen their team franchises. So, 385 years after the Puritans expressed dire consequences, gambling still plays a prominent role in society.

CoCo bonds all the rage

By Brendalee Scott-Novak, Butterfield

The first six weeks of 2016 witnessed a wave of credit losses across fixed income markets. Most notable was the broad-based selloff in contingent convertible bonds commonly known as CoCos. The market’s shudder appeared to be driven partly by a European Banking Authority year-end report that sought to clarify potential triggers for restrictions on distributions.

A direct corollary of this newfound knowledge was heightened awareness of the significant risks inherent in these hybrid securities of Europe’s least capitalized banks. Even as markets continue to roil from the oil shock, a confirmed slow down in China and nosedive in corporate earnings, the recent news mounted further concerns on banks’ ability to make their coupon payments on CoCos. Spreads within this $150 billion sector increased from 445bps to 636bps above three-month LIBOR, endangering the market for this high yielding debt.

So what is this credit sector that sparked such panic and led industry titans to be gasping for air? According to Bloomberg, CoCos are securities similar to traditional convertible bonds having a strike price. This strike price is the value of the shares when the bond converts into equity. The difference between a CoCo and a traditional convertible bond is the existence of another price, which is typically higher than the strike price. This additional stock price must be reached before an investor has the right to make the conversion from bond to equity. This is referred to as the “upside contingency.” CoCos are typically perpetual bonds and are the first debt security in line to absorb losses when the bank fails to meet its capital requirements.

Financial institutions choosing to undergird their capital structure can issue 1.5 percent Additional Tier 1 (AT1s) or 2 percent Additional Tier 2 (AT2s) CoCo bonds. While Tier 2 CoCo bonds are designed to absorb losses only, Tier 1 CoCos may have their coupon canceled, maturity extended or complete loss of capital including a non-viability option, should capital levels fall below the required threshold. Yielding some of the most attractive returns within the debt market, CoCos exhibit negative convexity given the limited upside and potential for unlimited losses. Investors of AT1s will receive coupon payments but cannot be compensated for missed payments via higher distribution when the bank is profitable, as in the case of equity holders. Coupon payments on CoCos are therefore heavily dependent on capital levels, as banks stand subject to restrictions on earnings distribution should total capital fall below the sum of Pillar 1, Pillar 2 and other combined capital buffers.

Given the perceived risks inherent in these types of securities, why do they continue to garner oversubscription upon issuance? Following the credit crisis of 2008, CoCos were created to preserve capital in a distressed lender, shifting the burden of failure from taxpayers to investors. Should a bank face insurmountable losses, this contingent form of capital will bolster a bank’s capital, diluting existing shares at the trigger point. By simply canceling outstanding coupon payments, CoCos can aid banks avoid a default. Although these securities remain some of the most expensive form of debt in the capital structure, they have somehow become a panacea for banks struggling with dividend payouts, shrinking operations and thin profit margins. As regulators mandate capital buffers to unsustainable levels, banks are relying on these complex securities to fill regulatory gaps, while investors, hungry in their search for yields, are finding much relief given the negative interest rate environment.

Issuing contingent convertible bonds is more advantageous to companies than issuing traditional convertibles. If the option is not exercised, shares are excluded from the company’s calculation of diluted earnings. This accounting advantage may be short-lived, however, as the Financial and Accounting Standards Board’s Emerging Issues Task Force has proposed an accounting rule change that would eliminate this accounting advantage.

Given the tripartite crossfire from divergent interpretation among national regulators, banks’ expected actions on guidance versus sanctioned Pillar 2 requirements and the elevated cost of CoCos, what is the future for this sector? It is estimated that the market for contingent convertibles points may double to more than 240 billion euros (US$271 billion) by 2020 as regulators up the ante on higher and more restrictive capital requirements.

The European Commission’s recent suggestions to provide some protection to holders of AT1 capital notes is indicative of the pressure to make investment in CoCos easier. The recent panic is also testament of investors’ lack of certainty on the optionality intrinsic to CoCos and the factors that qualify for coupon cancellation. These ongoing uncertainties, three years into their existence, point to even further volatility as markets adjust to reflect the different levels of risk our changing environment has fashioned.

European regulators are now faced with the daunting task of creating greater transparency, clarity and consistency transcending national borders, if these hybrid securities are to become a mainstay in protecting taxpayers.

Disclaimer: The views expressed are the opinions of the writer and while believed reliable may differ from the views of Butterfield Bank (Cayman) Ltd. The bank accepts no liability for errors or actions taken on the basis of this information.

Statistics and Data Source: Bloomberg LP., BCA Research, Federal Reserve

Loans, gifts and graft: CIFA and CONCACAF’s Panama connections

The $600,000 loan agreement between Forward Sports and the Cayman Islands Football Association was ostensibly concluded to assist with the construction of the National Training Center. - Photo: Matt Lamers
The $600,000 loan agreement between Forward Sports and the Cayman Islands Football Association was ostensibly concluded to assist with the construction of the National Training Center. - Photo: Matt Lamers

A Panamanian company set up by Canover Watson that was allegedly used to receive a $1.1 million bribe payment from Traffic Sports to Jeffrey Webb is the same entity that had a controversial $600,000 loan agreement with the Cayman Islands Football Association, documents reveal.

Forward Sports International Management Inc. granted a $600,000 unsecured loan to CIFA, according to the loan agreement dated Dec. 31, 2013.

The agreement, which was signed by Bruce Blake on behalf of CIFA and nominee company secretary Irina Abrego de Espinosa on behalf of Forward Sports International, included a seven-year repayment plan at an interest rate of 1 percent above U.S. prime, or 4.25 percent.

In 2015 the loan was controversially re-designated by the Cayman Islands Football Association as a “gift” from Forward Sports. As a result, CIFA’s audit firm Rankin Berkower refused to sign off on the football association’s financial accounts and reported the case to police.

Pakistan-based Forward Sports is one of the largest manufacturers of footballs in the world and maker of the Brazuca, the football used in the 2014 World Cup Finals.

Shakeel Khawaja, who at the time was a global sales manager for Forward Sports (pvt) Ltd., Sialkot, Pakistan, told The Cayman Islands Journal that Watson had helped set up a company in Panama under the Forward name with the objective of using the entity as a distribution company for Forward Sports products in Central America and the Caribbean.

However, Khawaja says he was not aware until late 2014 that in addition to Forward Sports Inc., Watson had created a related entity, Forward Sports International Management. Khawaja claims he never made a payment to CIFA and was not aware of such a payment. He also says he never had signature authority over the company’s bank accounts.

Emails from Watson to Asiaciti Trust, the corporate service provider that set up the companies, show that Watson instructed the Panamanian nominee directors of the entities and received their invoices. Watson is also named on Asiaciti’s internal company application form for Forward Sports as the main contact person, but his name does not appear as a director or shareholder.

Instead, stock certificates show the shareholders of Forward Sports Inc. are Shakeel Khawaja (51 percent) and Green Day Foundation (49 percent), an entity that Khwaja says he was unaware of until he requested the company’s constituting documents from Watson in November 2014.

An organizational structure generated by service provider Asiaciti shows Green Day Foundation was created using two Asiaciti entities, Latam Foundation Services Inc. and Latam Council Services, respectively, as founder and foundation council, presumably in an effort to preserve the anonymity of the owner or owners.

However, Watson informed Khawaja in a phone conversation in August 2015 that he [Watson] is the owner of Green Day, Khawaja claims. He says, until then Watson had acted as if he was representing the interests of other investors.

Traffic Sports alleged bribe for Jeffrey Webb

Panama-based company Forward Sports appears also to be implicated in the indictment of former CONCACAF president Jeffrey Webb, as the entity that received a $1.1 million bribe payment for Webb from Traffic Sports.

The superseding indictment of Webb alleges he instructed former CONCACAF General Secretary Enrique Sanz to solicit a bribe from Traffic Sports for the award of a $15.5 million contract for the exclusive worldwide commercial rights for the 2013 edition of the Gold Cup and the 2013-14 and 2014-15 seasons of the CONCACAF Champions League.

When Webb and Sanz discussed the best ways to effectuate the bribe payment, the indictment alleges, Webb decided to use an overseas company that manufactured soccer uniforms and soccer balls. It noted a close associate of Webb, co-conspirator #24, had a connection to “Soccer Uniform Company A.”

“Webb eventually instructed [Sanz] to submit a false invoice to Traffic USA for $1.1 million to be paid to Soccer Uniform Company A, which [Sanz] did,” the indictment alleges.

“On or about December 4, 2013, the $1.1 million bribe payment for Jeffrey Webb was made by wire transfer from Traffic International’s account at Delta National Bank & Trust in Miami, to a Wells Fargo correspondent account in New York, New York, for credit to an account in the name of Soccer Uniform Company A at Capital Bank in Panama City, Panama.”

Forward Sports (Panama), which was created on the instruction of Watson, had an account with Capital Bank, according to an organizational structure diagram generated by Asiaciti.

Co-conspirator #24 is described in the indictment as a high-ranking official of one of FIFA’s national member associations, an official of FIFA and CFU, and a businessman. Watson was the treasurer of the Cayman Islands Football Association at the time Forward Sports in Panama loaned $600,000 to CIFA. He was also a vice president of the Caribbean Football Union and a member of FIFA’s Audit and Compliance Committee.

Football connections

Khawaja says he met Watson and Blake, the CIFA vice president at the time, in May 2012 after the FIFA Congress in Budapest. Both Watson and Blake “showed great interest” in purchasing footballs, shirts and other sporting goods from Forward Sports for the grassroots programs of CIFA and the Caribbean Football Union.

At a presentation later that year in London set up to inspect samples of the customized products, Watson and Blake wanted to arrange free deliveries in the form of sponsorship agreements with CIFA and CFU, Khawaja claims.
When he informed them that the company’s finances would not allow for that, Khawaja says, Watson promised orders of $750,000 per year from CFU and Blake promised $150,000 in purchases of goods per year from CIFA for the period of the sponsorship agreement.

“These promises were not kept,” Khawaja says.

Instead of the $2.7 million the company budgeted for over the three years, it made only $800,000. According to unaudited accounts for Forward Sports Inc., which was renamed Gol Sports Management in July 2014, the company did pay more than $150,000 in cash sponsorships and more than $200,000 in equipment sponsorships between July 2013 and October 2014 to various football associations across the Caribbean, including Cayman.

For instance, Forward Sports entered into a $100,000 cash sponsorship with the Central American Football Association (UNCAF) on the recommendation of Watson, the company’s former sales manager says. This sponsorship agreement further included the supply of sportswear and sporting equipment for a retail value of $120,000 per year.

According to Khawaja, Blake and Watson put Forward Sports in contact with a local company to sell football shirts of the Cayman Islands National Team, footballs and other fan merchandise on island to generate extra revenue, and Watson later became involved in setting up companies under the name Forward Sports.

He says, “In October 2012, Mr. Watson suggested to establish a distribution company in Cayman under the name Forward Sports to distribute CIFA and CFU replica products to Cayman and the entire Caribbean region. Because we did not have the financial means for the startup, I asked Mr. Watson if he could find an investor who would be a partner and 49 percent shareholder, as well as managing director for the company.”

Watson promised he would take care of it, and during Khawaja’s next visit to Cayman in 2012, he was presented with photocopies of the memorandum and articles of association and the certificate of incorporation of a Cayman company named Forward Sports International. He also received the minutes of the first meeting of the board of directors, the register of directors and officers and the register of members.

The problem, according to Khawaja, was that the constituting documents were drafted without his consent and knowledge. When he inspected the documents, he found that in addition to himself, Joscelyn Morgan was named as a company director and shareholder. “This happened without my consent or knowledge,” Khawaja says.

“The constituting documents were compiled without my consent and knowledge. I was not aware that a certificate of incorporation had been issued. The minutes of the meeting were compiled without my knowledge or consent. There is no date on the document. It mentions incorrectly that I had participated in a telephone conference. That was not the case.”

When he complained about these issues to Watson, Khawaja says, Watson assured him that he “need not worry” because it was “only necessary for the paperwork” and “had no legal implications for [Khawaja].”

Forward Sports Cayman was incorporated on Nov. 15, 2012, with its registered office at Admiral Financial Centre – Canover Watson’s office. One day later, Forward Sports signed a sponsorship agreement with the Caribbean Football Union, the organization for which Watson acted as a vice president.

The sponsorship agreement with the Cayman Islands Football Association was concluded one month earlier in October 2012.

The whereabouts of Joscelyn Morgan, the director of Forward Sports International (Cayman), are unknown. He left the Cayman Islands in 2014 and is wanted for questioning by police in connection with an investigation into Advanced Integrated Systems Ltd., another Cayman company, which prosecutors allege was a front for Watson’s and Webb’s interests in a

Cayman Islands public healthcare contract known as CarePay.
Watson and Webb were accused of jointly siphoning millions of dollars from the CarePay contract.

In the CarePay case, it was alleged that Morgan and another close Webb associate, Eldon Rankin, were used as “sham” frontmen to cover up the involvement of Webb and Watson in AIS Cayman.

Watson informed Khawaja in an email on Nov. 3, 2014, that “Forward Sports Cayman Islands was not active – never started operations as we decided to set up in Panama instead.”

Khawaja acknowledges that the Panamanian entity was set up as a distribution company for Forward mainly to sell UNCAF replica products in those markets, but he says that he did he know anything about the loan agreement with CIFA until he was informed about it by the company’s auditors last year, nor does he know where the $600,000 for the loan to the Cayman Islands Football Association came from and whether the amount of the loan was actually paid out.

The loan scheme

The Forward Sports loan mirrors a similar $600,000 loan by another Panamanian company, Cartan International Inc. This loan had the same terms as the Forward Sports loan and was signed on the same day, Dec. 31, 2013, by the same people – Blake on behalf of CIFA and Abrego on behalf of Cartan.

The companies Forward Sports Inc., Forward Sports International Management, Green Day Foundation, Cartan International Inc. and Cartan International Management Inc. were all set up at the same time, around May 23, 2013, using the same organizational structure and the same nominee directors.

CONCACAF sued Cartan’s parent company Cartan Tours and related entities Elmore Sports Group and iSports Marketing, as well as the company’s owner, David Elmore, and former sales manager and executive vice president Daniel Gamba in December 2015. CONCACAF alleged that Cartan obtained a contract to arrange all of the football confederation’s travel and event logistics at inflated prices because “it had a secret deal with Webb and Sanz to pay them off.”

Panama’s company register reveals that Gamba and Elmore are named as directors of Cartan International but not of Cartan International Management, effectively replicating the setup of Forward Sports that saw Khawaja as a director of Forward Sports Inc. but not of Forward Sports International Management Inc.

According to the CONCACAF writ, “Elmore admitted to the auditors [of CIFA] that Cartan made a charitable donation of $600,000 to CIFA in 2013, but apparently denied any affiliation with Cartan International, a company incorporated in Panama on May 23, 2013.

“Elmore further stated that Cartan does not have an account or office location in Panama, but that the money was wired from a U.S. bank account,” CONCACAF stated.

Neither the Cartan nor the Forward Sports sponsorship was ever publicized, as would be typical in these circumstances.

CIFA’s financial statements also did not name the companies that extended the loan, even after the loan was re-designated as a gift, mentioning only “two private companies” that are “strategic partners.”

In its writ, CONCACAF claimed “that is because it was not a gift at all, but yet another form of graft and illicit dealing between defendants and Webb.”

In Forward’s case, another possibility could be that the $600,000 loan to CIFA was related to the $1.1 million alleged bribe payment from Traffic to Webb that, according to the U.S. indictment of the former CONCACAF president, was allegedly paid to the Panamanian soccer uniform maker.

In February, CONCACAF and Cartan settled their lawsuit out of court. Webb pleaded guilty to racketeering conspiracy, three counts of wire fraud conspiracy and three counts of money laundering conspiracy in November 2015. He is awaiting sentencing in the United States.

The loans to CIFA are still under investigation by the Anti-Corruption Unit of the Royal Cayman Islands Police Service.

Watson was sentenced to seven years in prison in February after he was found guilty of five of six criminal charges in connection with the CarePay hospital contract investigation. He has filed an appeal in the case.

South Sound, Seven Mile Beach property ‘on fire,’ inland still lags

The consensus appears unanimous: Real estate brokers say things are great, and anyone checking out the market must agree that they are.

WaterColours has only six units remaining of the 60 original 3,600-square-foot residences. Also, the 62 homes in the 10-story tower at the Kimpton Seafire Resort and Spa are going fast – and, according to brokers, for a record $1,700 per square foot. The building boom in South Sound threatens to overwhelm the two-lane South Sound Road, but National Roads Authority plans mean it probably will not. And the 44 three-story residences at the $110 million Stone Island, on a private peninsula near the Yacht Club, are poised to break ground later this year.

Jeremy Hurst, president, and broker/owner of International Realty Group, says the numbers are powerful and climbing.

“Basically, we’re seeing growth of 11 percent in property transfers in 2014-2015, a volume of CI$600 million,” he says, outpacing the 2008 high of $560 million.

“In 2010,” he said, the depths of the global recession, “that dropped to $300 million, but now “we have recovered, I think it’s safe to say.”

While the accompanying graph suggests that the $632 million in property transfers/sales volume in 2011 appears to have outpaced all other years, Hurst points out that a one-off event pushed that number.

“The 2011 figures were skewed upwards by the sale of the Stan Thomas properties to Dart,” he says – the old Marriott Courtyard – now rebuilt as the Kimpton Seafire – and properties in and around Salt Creek north of the hotel.

The volume is set to drive the entire economy after four-year doldrums. Real estate broker/owner of Coldwell Banker, J.C. Calhoun, observes that the sense of relief is almost palpable.

“People are even buying raw land again just because the market has improved,” he said. “Local people have some money now,” and residential purchases are driving restaurants, furniture stores, restaurant suppliers and taxi drivers.

“It takes a year or two of tourist-related income to give local people the opportunity to take a loan, buy a car, upgrade their home, get some appliances, and it’s all starting to happen now.”

He describes the essence of “trickle-down economics,” which has run into ideological headwinds in economies as large as that of the U.S., but is much more effective and immediate in a small community like the Cayman Islands.

Tourist-arrival numbers underline Calhoun’s point.

The 2015 total for cruise ship tourists, who each spend approximately $100 per day, was 1.7 million, outpacing last year’s 1.6 million, itself the highest since 2007’s pre-recession 1.7 million, a tick less than last year, although not as high as the record 1.9 million in 2006.

Passengers who arrive by air and who use hotels, regularly patronize restaurants, rent cars and, ultimately buy properties, hit a 15-year high of 385,378 in 2015. The next closest was 382,816 in 2014, the highest since 2000 (354,087).

“We’ve seen a lot of people, mostly from the U.S., North America in general, and they are surprised. Prices here are now higher than in, say, Florida or even Austin, Texas,” says Kim Lund, broker/owner at Re/Max Cayman Islands.

More than 75 percent of 2015 air arrivals, almost 292,000, were from the United States; 24,300, or 6.3 percent, were from Canada; and 8.9 percent, nearly 34,300, were from Europe. The balance, roughly 9 percent, or 35,028, were from elsewhere, which, incidentally, included a single arrival from Algeria.

“The U.S. has a huge impact, especially in Seven Mile Beach, and new people are coming in, renting and buying,” Lund says, “and we get the benefit of them seeing the amount of works, the progress being made here, a lot of new developments – the port, the airport, downtown.”

Renovations to the port and downtown are in early planning stages, so changes remain pending, but the sense of movement is infectious, Lund says.

“The feeling, then, is ‘we can wait’ or ‘we can do it now’ and most of the smarter people know that the longer they wait, things get more expensive,” so they are buying now.
“We are only starting to see price appreciation, just on the wholesale or larger level.”

The Ritz-Carlton, Grand Cayman, he says, has completed work on five residences at 7 South, and they are selling between $1,500 per square foot and $2,000 per square foot, fully $300 to $800 per square foot more than previous standards. The last sale was in December, a US$3.35 million three-bedroom residence that sold at US$1,041 per square foot.

The Kimpton “is a whole new pricing paradigm,” he says, pointing to more expensive construction costs, relatively limited supply balanced against growing demand, a desire for healthy profits by developers and a willingness on the part of a younger breed of investors to pay top dollar.

“There’s a lot of confidence,” Hurst says, pointing, like Lund, to a sense of burgeoning development.

“The private sector and government are working toward economic recovery. Health City is expanding medical tourism, which is bringing confidence to the country that we are not reliant on one or two sectors.

“Cayman Enterprise City will bring other investors. Neither of these has reached its potential,” he says, but both are fueling a buoyant market.

Health City has announced a $25 million capital investment program this year, with another several million dollars of private investment – a commercial center and hotel – nearby. The hospital’s accreditation in April by the U.S. Joint Commission International has cleared the path for international patient traffic to begin in earnest.

CEC is scheduled to break ground in the second half of this year near Fairbanks Prison on the first of two $25 million gateway buildings, kicking off a 20-year multiphase, $300 million project to build an 850,000-square-foot Special Economic Zone.

“We also have a balanced budget,” Hurst says, “which is an enormous accomplishment, offering a firm economic footing.

“Crime statistics suggest we’ve managed to control some of the outbursts from a few years ago, and government is now facing the unemployment issue.

“There’s a lot happening and as we get the fundamentals right, investors and developers are keen to be here,” he says.

Previously sleepy South Sound is experiencing frenetic development of its own: Stefan Baraud’s six-condominium Shore Club is sold out; Davenport Development’s 56-condo Vela Phase I is also sold out, Phase II’s 56 condos are half gone, and another 56 condos in Phase III are in the planning stages.

Naul Bodden has already sold eight of his 24 residences at Tides, a 1.6-acre beachfront development near the South Sound Cemetery. Groundbreaking is in June with completion scheduled for September 2017.

Rene Hislop is selling a 9-acre development site next to the 40 acres already sold to China’s Dating Investments for 30 condos and a shopping center. The builders are contemplating Phase II.

Planners at the National Roads Authority also point to the 91-acre Adagio Community Development residential site west of Old Crewe Road, comprising 20 lots for “multi-family dwelling units,” and a residential development of eight multi-family units on Bel Air Drive.

“The coastline is a popular location,” Hurst says, “and you don’t necessarily need to be right on the water.”

At the other end of that western-shore coastline is West Bay’s Boggy Sands development, 20, three-bedroom 2,400-square-foot condominiums with a clubhouse and two swimming pools on 2.4 acres near Boggy Sands Road. Priced between $885,000 and $1 million, construction started on May 1 last year, with phase 1 now completed. Developers Coen Coleman Ltd say only eight units remain.

Meanwhile, Calhoun laments a dramatically diminished inventory of South Sound residential units priced between $500,000 and $1 million, selling only three the area in the last four months. He knows of only one more remaining.

“South Sound is on fire. They are more in the nature of residences than rentals,” he says, pointing to older developments like Seaview and Oceana on the northern part of South Sound Road and nearer to downtown. They are running $1.5 million and up.

“Down South Sound and ‘around the corner’ are Bela and other stuff, across the street from the beach, with new granite and all the bells and whistles,” Calhoun says. “They are the equivalent of what used to be the average two-bedroom unit on Seven Mile Beach.”

As residential development expands, he predicts it will start “pushing out” into the Eastern Districts – including Ironwood and Dart’s Barefoot Beach.

“There’s been a lot of buzz that will push it further afield,” Calhoun says. “We have older customers who want to know, for example, how good our medical facilities are. They are a hot button for them. The fact that they are world-class does no harm. Even if they are as much as an hour away, it’s all right. It’s the knowledge they are there.”

Inland development is a distinct market from coastline real estate, Calhoun says, touching on St. James Point at Beach Bay. He says land sales are moving in Frank Sound and East End, and near the beaches at Cayman Kai: “There is a lot more interest in buying land, which ultimately will be used for single-family dwellings.”

Hurst says Beach Bay is shaping up to be a significant attraction. “The architecture – with high ceilings – is highly stylized, a whole new dimension, unlike anything we have seen in the Caribbean.”

Its 93 residences will attract a younger set of investors, ready to pay anything from $1 million up to $3 million, he says.

Elsewhere in the interior, Calhoun says, price increases have not yet mirrored coastal areas. “It’s the only area lagging,” he says, explaining that it was overbuilt and over-financed as long ago as Hurricane Ivan in 2004, resulting in a “fairly substantial number of properties in forced sales,” as owners default on bank loans, a hangover from the recession.

He estimates 200 properties, or 12 percent of CIREBA listings, currently listed as “forced sales,” and names locations like Patrick’s Island, West Bay, Savannah and Prospect, “anything not on the water.”

“Because of the improvement of our economy in general,” Calhoun says, those properties “are now being absorbed more rapidly” than in the past two years.

“Based on increasing absorption rates, it may be less than a year before we see price appreciation in the better inland properties,” but until they are gone, few increases are likely in the interior.

Lund expects to see movement, albeit slowly, in the Eastern Districts, near Health City and Frank Sound’s Ironwood development, which he describes as a “whole other area for residences and medical tourism,” although it will take another two or three years to spark that market.

“Expansion will be one phase after another, as demand dictates and one phase drives the next,” he says.

Commercial development, all three agree, has been largely overtaken by Dart Enterprises, offering not just the Kimpton Seafire Hotel, but 18 Forum Lane, its adjacent sister building, tentatively dubbed 18 Forum Lane South, boasting a 20,000-square-foot landscaped courtyard between the two, a massive road-building, realignment and tunnel scheme, and an elevated platform stretching from Seven Mile Beach and a new hotel into Camana Bay Town Centre.

“Commercial always follows residential,” Calhoun says because, for starters, “without roads, you don’t get commercial.

“Commercial has started to show some improvement, but there is not much downtown, and it won’t improve until they fix it. A lot of improvements are needed: traffic and parking need to be addressed, but Camana Bay has already killed downtown George Town. They need another plan.”

He underscores the point, noting that energy costs in Camana Bay offices are half those in older downtown buildings.

Hurst agrees that Dart has changed the commercial market entirely. “Dart has a different economic basis for its own development. They don’t need external financing.”

Elsewhere, he says, “the cruise dock has brought a little more certainty to downtown, but it’s too soon” to predict what may happen.

However, Hurst says, “Butterfield House was sold to a local law firm, and Mary Street’s Zephyr House has had lobby, reception-area and external renovations.”

Cricket Square has gained permission for phase five, a $20 million, six-story, 120,000-square-foot office building with parking for nearly 1,000 next to the Shedden Road Rubis station. Opening is expected in 2018.

Like his “one phase drives the next” prediction for the eastern districts, Lund observes that “in the next five years, you are going to see more and greater changes in Cayman than you have seen in the last 10 years and 20 years, and that will create a lot more attention and interest in Cayman, more tourism and more residential.

“It will be a huge difference and it’s already started. Not many have noticed it just yet.”

Zika virus spawns economic dangers through the Americas

A municipal health worker sprays insecticide in a junkyard in Joao Pessoa, Brazil, to combat the Aedes aegypti mosquito that transmits the Zika virus. - Photo: AP
A municipal health worker sprays insecticide in a junkyard in Joao Pessoa, Brazil, to combat the Aedes aegypti mosquito that transmits the Zika virus. - Photo: AP

Frank Bentayou

The spread of the Zika virus, a growing medical threat through much of the Americas, demands “urgent action” from regional governments to help control the potential economic damage an epidemic could cause, according to the World Bank and other institutions.

The international financial group aimed at decreasing poverty and urging economic growth among poorer populations has predicted that even with an immediate coordinated effort, costs likely will hit US$3.5 billion in the Caribbean and Latin America this year in prevention and medical-care expenses.

Beyond that, visitor-dependent economies could lose billions more in tourist revenue as North Americans and Europeans shy away from what they may perceive as a danger zone.

Without a well coordinated response to nip any epidemic in the bud, World Bank President Jim Yong Kim said, the economic damage could smack the region with far greater costs.

In fact, the World Bank computed that countries where the cases of the virus have been confirmed or where it is expected to spread could suffer a $63.9 billion drop in international tourism as travelers reconsider visiting places with high Zika risk.

The $3.5 billion figure represents less than 0.1 percent of the region’s Gross Domestic Product. But the higher figure totals almost a full 1 percent of GDP, if the World Bank figures are accurate. A tourism shortfall of $11 billion is estimated as the share of lost visitor revenue the Caribbean region alone might suffer.

World Bank commitment

Whatever the extent of any future health crisis, Kim said in February, “The World Bank stands ready to support the countries affected.”

The institution has committed US$150 million to help countries combat the burgeoning mosquito-borne virus that has been linked to skin rashes and influenza-like symptoms including fever and joint pain, perhaps weeks of illness for those infected, and, most dreadful, possibly grave birth defects among children of women who become infected during early pregnancy.

Chief among the defects thought to be a consequence to the newborns of infected mothers is microcephaly (a fatal or severely crippling malformation of the baby’s head) as well as other neurological disorders, including Guillain-Barre syndrome.

The U.S. Centers for Disease Control and Prevention currently has medical teams in Brazil, where the possible link between birth defects and Zika surfaced, examining the evidence. For now there is no vaccine against Zika, nor any treatment. Plus, infections frequently go undetected since the antibody test is far from perfect.

The World Health Organization, which has been researching the consequences of Zika and the implications of a pandemic, said the region’s vulnerability meets the conditions for a “Public Health Emergency of International Concern.”

That’s because transmission of the virus from one host to another comes courtesy of an ancient human enemy, one that also transmits other pathogens, including malaria and dengue fever – the mosquito. The moist climate that prevails from the Southeast United States, across parts of Mexico and the Caribbean and through much of Central and South America is just right for these buzzing, biting insects. Zika virus is transmitted to people primarily through the bite of an infected Aedes species mosquito, the same mosquitoes that spread dengue and chikungunya viruses.

A man stands outside on his balcony as soldiers fumigate inside his home in Havana. Cuban President Raul Castro recently dispatched 9,000 soldiers to help keep the Zika virus out of Cuba. - Photo: AP
A man stands outside on his balcony as soldiers fumigate inside his home in Havana. Cuban President Raul Castro recently dispatched 9,000 soldiers to help keep the Zika virus out of Cuba. – Photo: AP

No travel restrictions – yet

An emergency committee convened by the WHO saw no reason at this time to restrict travel or trade to prevent the spread of Zika virus, but restrictions could emerge if infections in Caribbean and Latin American destinations get out of hand, according to the international organization.

“If an epidemic got to the point where groups were issuing warnings or restrictions to travel, you could consider that the economic cost of any virus outbreak might skyrocket,” a spokeswoman for the CDC said. “Caribbean nations, especially, are highly dependent economically on tourism.”

News of the disease’s spread has tourism departments concerned. Siegfried Victorina, Curacao’s minister of public health, reported that over three weeks in February, the island’s incidence of Zika infection rose from four cases to 35. None of the ill were pregnant women, Victorina noted. But the rapid proportional increase suggests there could be many more cases in short order.

“Consider that there is a growing pool of people in a tight geographic region, an island, who are infected,” explained Mexican epidemiologist Dr. Carlos Ruiz. “They bear the virus in their bloodstream. Mosquitos bite them and then move on to other, not-yet-infected people. And so it spreads.

“That’s how an epidemic gets rolling,” Ruiz said in an email exchange. “So if it gets a foothold in the islands, soon many people may have this infection. That’s the arc of an epidemic. As the word gets out, people in Canada or the U.K. or the U.S. question whether to go to that island for a vacation.”

The WHO in recent weeks has issued travel warnings for 25 countries, including Brazil, site of the 2016 Summer Olympics. With all of this in play, it is no surprise that Dr. Margaret Chan, director-general of WHO, said Zika had progressed from “a mild threat to one of alarming proportions.”

Worldwide attention

Week by week, more and more potential travelers in the Western Hemisphere have become aware of possible dangers of infection. Some athletes and sports fans worldwide have gone on record saying they might forgo the 2016 Olympic Summer Games in Brazil, which has recorded the greatest numbers of infections.

The WHO warns that every nation in the hemisphere will confront Zika victims over time. Mosquitos are not solely creatures of the rain forest. A Chicago resident can get a mosquito bite in Costa Rica and then carry the infection home.

In the U.S., states along the southern border have been the most hard-hit in North America. At the end of February, Florida’s total was approaching 30, all among people who had traveled abroad within the hemisphere.

In late January, U.S. health officials brought President Barack Obama up to date on the virus and its potency. A White House statement said, “The President was briefed on the potential economic and developmental impacts of the Zika virus spreading in the Western Hemisphere.” Clearly, world leaders are taking the illness seriously.

In February, Obama requested more than $1.8 billion in emergency funding from Congress to fight an outbreak of the virus.

Nonprofit aid organizations, including the Red Cross, have committed millions to research, efforts to eradicate mosquitos, treatment and community education to help spread information about protection from the virus.

People line up to see a doctor at a medical center in Caracas, Venezuela. Preventing the Zika virus's spread in the absence of a public campaign in the country, where the healthcare system is near collapse, means that the people most at risk don't even know about the virus. - Photo: AP
People line up to see a doctor at a medical center in Caracas, Venezuela. Preventing the Zika virus’s spread in the absence of a public campaign in the country, where the healthcare system is near collapse, means that the people most at risk don’t even know about the virus. – Photo: AP

The message at large: travelers beware

Virtually everywhere Zika has surfaced, government sources and health activists have been distributing information on how to avoid becoming a victim. Mostly, it includes this advice:

  • Cover exposed skin by wearing long-sleeve shirts, long pants and hats.
  • Use an appropriate insect repellent, including DEET, Picaridin, Bayrepel and icaridin, oil of lemon eucalyptus or IR3535.
  • Use permethrin-treated clothing and gear, including boots, pants, socks, and tents (do not use permethrin directly on skin).
  • Stay and sleep in air-conditioned or screened rooms.
  • Sleep under a net if you are exposed to the outdoors.
  • Use insect repellent that contains 20 percent or more DEET for protection that lasts up to several hours.
  • Empty, clean or cover containers that can hold water, such as buckets, flower pots or tires, places mosquitoes can breed.
  • Also, since researchers have new evidence that Zika can spread via sexual contact, travelers should use precautions in that regard too.

None of those are terribly expensive protections, but they are reminders of a considerable risk and could influence eager holiday seekers to make different plans.

Airlines on board

Airlines are also responding to the anxiety some flyers feel about travel. United Airlines said it would refund or waive the extra fees customers pay to change their flights to Zika-affected areas. American Airlines offered a more limited response.

NBC News reported that an American Airlines spokesperson said, “We will allow a customer to receive a refund if they provide a doctor’s note stating that they are unable to travel to one of the following cities due to their pregnancy; San Salvador, San Pedro Sula, Tegucigalpa, Panama City, Guatemala City.”

In addition, Grupo LATAM, Latin America’s largest airline, said it would not charge pregnant travelers for cancellation or flight-change fees for travel to affected countries.

None of the airlines agreed to share estimates of how much these new policies would cost them, but they are by no means free to the carriers and are considered a new cost of doing business.

Meanwhile, the CDC issued and has continued to update a list of nations pregnant women should avoid visiting because of Zika outbreaks. Here’s the list:

In the Caribbean: Aruba, Barbados, Bonaire, Curaçao, Dominican Republic, Guadeloupe, Haiti, Jamaica, Martinique, Puerto Rico, St. Martin, U.S. Virgin Islands

In Central America: Mexico, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama

In South America: Bolivia, Brazil, Colombia, Ecuador, French Guiana, Guyana, Paraguay, Suriname, Venezuela.

Paying the local freight

Caribbean and Latin American governments are now struggling to put measures in place to eradicate mosquitos and prepare their medical facilities for treatment – and possible quarantine – of increasing numbers of infected residents and visitors. The one thing they agree on is that it is too early to set aside sufficient financing for such an effort.

A policy statement from the Ministry of Health in Barbados said government workers were fumigating mosquito breeding grounds and cleaning up pockets of stagnant water as well as offering medical support to anyone who fears infection.

In Kingston, the Jamaican minister of health, Horace Dalley, made public a long list of responses the government has instituted to protect citizens and visitors from Zika.

“We have heightened our fever and rash surveillance in the area and the entire country,” Dalley said.

On a recent Saturday, workers visited 1,894 households near an infection site for “fever surveillance and interviews” and to enhance public awareness.

Beyond that, “A fogging blitz began in the community on the same night that the results were received. This means fogging for three consecutive nights and repeating this weekly for the next three weeks.”

Moreover, Jamaica has set up an island-wide surveillance system to monitor all fever and rash cases, neurological syndromes and congenital malformations that could suggest infection by the Zika virus. Such widespread vigilance – along with support the nation has sought from the Caribbean Public Health Agency, the CDC and WHO and its Pan-American counterpart, PAHO – is a vital national service, the health ministry said.

The U.S. Virgin Islands Department of Health, too, notes it is working with world-class health consultants on ways to minimize mosquito habitat and identify and isolate any Zika outbreaks as quickly as possible. “The stakes are high,” a communiqué from the health department said.

Since the first news broke of the Zika virus’s dangers, Dr. Samuel Williams-Rodriguez, the Cayman Islands acting medical officer of health, has made information available on the government website.

By late February, there still had been no reported Zika infection in the Cayman Islands, perhaps a credit to its long-standing mosquito-eradication program.

Litigation: Skype messages show Caledonian’s trading activity in penny stock frauds

OTC Markets Group warns investors with a skull and crossbones symbol to take extra care when investing in certain securities.
OTC Markets Group warns investors with a skull and crossbones symbol to take extra care when investing in certain securities.

Documents submitted by the U.S. Securities and Exchange Commission to a U.S. court in February have shed new light on the involvement of Caledonian executives and clients in trading securities used in four penny stock manipulation fraud schemes.

The SEC claims the evidence paints a picture of “Caledonian knowingly, or at least recklessly, assisting its clients in carrying out their pump-and-dump schemes.”

Hinting at potential criminal charges for those involved, the SEC says the documents “will also prove beneficial to the ongoing law enforcement investigations of these matters and others.”

The securities regulator submitted the documents to support a settlement with the liquidators of Caledonian Bank and its brokerage Caledonian Securities. The records include a 3,346-page transcript of Skype conversations between representatives of Caledonian and its client Legacy Global Markets.

According to the SEC, the Skype messages “demonstrate that high-level employees at Caledonian executed the relevant trades with clear awareness of their customers’ highly suspicious pattern of selling large blocks of penny stocks for companies with no significant trading history or revenues, simultaneously with huge spikes in the volume and price of those penny stocks. These transactions – which, again, related to companies with no assets, operations, or revenues – netted approximately $38 million in proceeds.”

Caledonian went into bankruptcy in February 2015, days after the U.S. Securities and Exchange Commission filed a lawsuit against Caledonian Bank, Caledonian Securities and three other broker-dealers in Belize and Panama in connection with sham stock offerings and penny stock pump-and-dump schemes that allegedly netted the orchestrators of the fraud US$75 million.

Caledonian and its co-defendants Clearwater Securities Inc. and Legacy Global Markets SA in Belize and Verdmont Capital SA in Panama are accused of offering stocks for sale to investors in the United States without the required registration of the shares for public sale.

In pump-and-dump schemes, a stock is hyped to increase the share price with false or misleading press releases, SEC filings and other statements. This can, for example, include the announcement of a purported purchase of a mining plot, the prospective acquisition of a company or any other potentially value-increasing transaction.

The schemes often use stock promoters who attempt to push the stock price with telemarketing and aggressive “boiler room” sales techniques, mass email campaigns or paid-for favorable blog and news coverage of the company and its stock.

The shares are then “dumped” on the public at inflated prices. When it transpires that the company is effectively worthless and has no valid prospects of generating any revenue and profits, the share price collapses.

Caledonian has not denied trading in the four penny stocks but argued that it only did so on behalf of its clients.

In its filing, the securities regulator said at least one high-level Caledonian employee knew that a client’s trades coincided with highly optimistic press releases – or pumps – for the relevant securities. “Moreover, Caledonian employees deleted messages with the relevant clients on more than one occasion, thereby attempting to conceal their activities; traveled to Panama to visit one client; and bragged to that client – mid pump – that Caledonian’s ‘system makes it pretty easy.’”

The Commission argues that Caledonian benefited from the illegal activity by preserving its relationship with its client and earning commissions.

“Caledonian participated in that illegal activity by selling the relevant securities in its name on four separate occasions in the face of increasingly suspicious trading activity. Moreover, Caledonian’s recent document production indicates that Caledonian was complicit in its clients’ fraud, and that it took significant efforts to please its clients and support their efforts, making the imposition of a larger amount of disgorgement even more appropriate,” the SEC said.

District Judge William Pauley III in the Southern District of New York who had criticized the SEC for its handling of the case earlier, instructed the regulator that any proposed settlement between the securities regulator and the liquidators of Caledonian “should address any discussions between Caledonian and the SEC about the beneficial ownership of the shares Caledonian sold” when it is submitted to the U.S. court.

Caledonian’s clients

The documents that Caledonian produced through the Cayman Islands Monetary Authority as part of the settlement process now show, the SEC said, that the Caledonian customers involved with the four relevant securities were Titan Secuities, Philip Kueber, Clearwater, Legacy Global and Bennington Law.

As previously reported by The Cayman Islands Journal, offshore brokerages Titan International Securities and Legacy Global Markets and its president Brian de Wit were among six individuals and corporate defendants indicted in September 2014 for allegedly orchestrating a $500 million offshore asset protection scheme, securities fraud and money laundering. The indictment also alleged that Legacy’s de Wit actively manipulated the share price of penny stock Cannabis-Rx, Inc.

A superseding indictment released in July 2015 added Phil Kueber and accused him of fraudulently manipulating the stock of more than 40 U.S. publicly traded companies and then transferring, through attorney escrow accounts associated with five offshore law firms, approximately $300 million in fraudulent proceeds into accounts in the U.S. and Canada controlled by Gregg Mulholland, another defendant in the case.

According to the superseding indictment, Mulholland bought Legacy Global Markets in February 2012 and secretly owned and controlled the broker from 2012 until September 2014. Mulholland, a dual U.S.-Canadian citizen, was arrested in June 2015 at Phoenix International Airport during a layover on his flight from Canada to Mexico.

Kueber, who allegedly controlled Caledonian co-defendant Clearwater, surrendered to U.S. authorities in August 2015, one month after being charged in the superseding indictment. He pleaded guilty in September.

In contrast to this case, which was based to a large extent on the work of an undercover FBI investigator, the Caledonian suit was developed through FINRA referrals and market data reflecting the role of Caledonian and Verdmont as a seller in numerous suspected penny stock manipulations.

From 2012 through 2015, the SEC received 114 FINRA referrals for Caledonian in connection with the potential manipulation of penny stocks.

The SEC says in its filing that Clearwater and Legacy Global were the primary Caledonian customers that traded in the four manipulated securities named in the lawsuit – Swingplane Ventures, Goff Corp., Nostra Energy and Xuamnii Inc.

Caledonian terminated the accounts of Clearwater and Legacy Global in March 2014, six months before their indictment in the Belize case.

Skype messages

The Skype messages in the filing reflect significant trading activity by Legacy Global.

According to the SEC, Brian de Wit placed Legacy’s trading instruction for the four stocks in question with the managing director of Caledonian Securities. A managing director of Caledonian’s parent company, Caledonian Global Financial Services, also participated in Skype communications with Legacy Global. Neither individual was identified by name, but Nathaniel Orr-Depner was managing director of Caledonian Securities Ltd.

The regulator claims the Skype communications show Caledonian was fully aware of the pump-and-dump schemes and facilitated Legacy Global in its efforts to capitalize on those schemes.

One example for Caledonian’s alleged complicity in the trades is the communication about the Swingplane stock.

In mid-October 2012, Caledonian informed Legacy’s de Wit that Swingplane’s stock was rejected by RBC because it had never traded. Three days later, after the first trade in the stock, de Wit asked Caledonian to redeposit the stock.

On Nov. 28, 2012, Caledonian informed de Wit that Swingplane’s stock had been deposited via RBC with the Depository Trust Company, which enabled it to be traded electronically without the physical delivery of the stock certificates.

When the Caledonian employee reported to de Wit that Legacy Global Markets was “now long 42,700,000” shares of Swingplane, de Wit responded: “I can imagine that [Swingplane] will be a go in Dec. or Jan.”

De Wit made this prediction at a time when the stock had traded only once for 22,000 shares and about one month after Swingplane changed its business model from selling golf apparel to mining in Chile.

By Jan. 21, 2013, the stock had traded only on four days for a total of 161,177 shares. However, on Jan. 22, correctly predicted by de Wit, 15 million Swingplane shares were traded in 305 trades in a single day. About 3.5 million shares were traded on orders by Legacy.

The following day, Caledonian sent Legacy a Swingplane press release about the company’s acquisition of certain mining concessions in Chile. On Jan. 23, about 88 million Swingplane shares were traded, approximately 14.5 million of those by Caledonian.

After de Wit asked Caledonian who he could use to bid 1 million Swingplane shares, two Caledonian employees responded but deleted their messages, the SEC said.

“By this time, as evidenced by the Skype transcript, a high-level Caledonian employee was aware that (1) its client deposited shares in a stock with virtually no trading history and predicted the month when its trading volume would explode, (2) the uptick in volume preceded a company press release by a day, and (3) the same client, which had deposited a huge block of Swingplane shares, wanted to buy shares in the midst of selling, a common tactic used in pump and dumps,” the SEC said. “In the midst of all this activity, two Caledonian employees deleted their Skype messages to the relevant client, but still continued to carry out orders.”

The next day, Caledonian informed de Wit that “as of last night, SWVI, Swingplane Ventures, was marked Caveat Emptor by OTC market. Can you please advise or update us on this? I appreciate the understanding of our concern.”

OTC markets group identifies shares with a skull and crossbones symbol to warn investors that they should take extra care when investing in such a security.

At the same time, Caledonian attached a second Swingplane press release which purported the company would acquire another property “with significant potential to further develop current, near surface high grade copper+/-gold mine mineralization identifies in multiple veins into a larger commercial operation.”

One minute after forwarding the press release, the Caledonian employee sent a message to de Wit and immediately deleted it, the SEC said. De Wit responded, “you gotta show me how to remove messages.”

The Caledonian employee instructed de Wit to “right click.” This was followed by more buying instructions by Legacy.

In one instance, the SEC said, Caledonian informed de Wit that he had bought 1.1 million Swingplane shares at $0.37 and sold 1.1 million shares at the same price: “Flat for scratch.” This type of transaction would raise red flags because it potentially constitutes a wash trade – a form of market manipulation that makes it appear that there is more trading activity and demand for a stock than there actually is.

The defendants in the SEC action and their clients collectively distributed 122 million shares in Swingplane for sale proceeds of about $31 million. Within three months, Swingplane’s share price had fallen from $0.90 per share to $0.04.

Additonal Skype communications between Caledonian and Legacy reflected the trading activity in Norstra, Goff and Xumanii.

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