The growing importance of South East Asia to the global economy was a key factor behind Walkers’ decision to open an office in Singapore in 2009. Three years on, Walkers is the largest offshore firm in Singapore with 10 lawyers practising finance, restructuring, investment funds, corporate and trusts work.
Singapore, being the economic and trade hub of South East Asia, was the obvious choice for Walkers’ second office in Asia. Boasting an extraordinary infrastructure, advanced business community and a regulatory environment that welcomes new business, the city-state has long been recognised as one of the best places in which to do business, leading the World Bank’s ‘Ease of Doing Business’ rankings for the past six years1.
Leading international law firms have been based here for many years, and the heightened pace of liberalisation of the legal market in Singapore has led to many more opening their doors over the past three years.
These international firms, together with the financial institutions, asset managers and corporations throughout the region, all expect a full service from offshore counsel and view the role of offshore counsel as not merely ancillary, but one that adds substantive value.
The simple ability to meet with instructing counsel and clients, and be available to join a structuring meeting or conference call on short notice, is vital to assist all parties in achieving their goals and is particularly prized in Singapore where relationships are all-important and commitment to the jurisdiction is highly regarded.
As a leading international financial centre, Cayman plays a significant role in supporting economic growth throughout the emerging economies of South East Asia. Cayman Islands entities remain a leading conduit of financial flows into ASEAN economies.
These financial flows provide much needed capital which is often inaccessible to local borrowers, or otherwise unavailable in domestic markets. Regionally, the deployment of this capital facilitates trade, stimulates job growth and the development of infrastructure, and supports the development of the energy sector which is so critical to the global economy.
Of course, the Cayman Islands is not the only IFC looking to expand its footprint across South East Asia and take advantage of the opportunities presented by regional economic growth. Competing IFCs, notably Bermuda and the British Virgin Islands, are already leading jurisdictions in their own right, facilitating and servicing demand within South East Asia for the services of IFCs.
The Cayman Islands was arguably a latecomer to the region, and consequently faces stiff competition from these jurisdictions. Cayman will need to invest and innovate to maintain its position as a leading IFC in the region.
From an investment funds perspective, Cayman remains the clear jurisdiction of choice for fund managers in South East Asia. Indeed, it is rare to see any other jurisdiction being even mooted for the standard hedge fund or private equity structure being established by either local or international fund managers.
The ability to pool and deploy capital from investors in multiple jurisdictions, in a tax-neutral Cayman vehicle, together with the tremendous infrastructure which supports the Cayman Islands product, both from CIMA and from the large pool of talented professionals, identifies Cayman as the clear market leader for investment funds.
While Cayman should continue to lead the way as the domicile of choice for investment funds, this does not mean that the Cayman model is not under threat. The sophistication of the major Asian economies has allowed them to develop rapidly growing investment management businesses, and the regulatory and governmental authorities throughout the region are enviously eyeing the success of Cayman and other IFCs.
While no product has yet been developed to rival that of the Cayman offering, there is no doubt that Asian fund products are being drafted with a view to competing with the Cayman product in future. Indeed, certain types of Singaporean investment fund vehicles are already being used in structures in Singapore and the region.
In addition, fund managers and industry participants continue to take a keen interest in developments both within the Cayman Islands and in jurisdictions which can affect the Cayman Islands. A combination of international pressure on IFCs generally (however unfounded), recent corporate governance initiatives, and additional regulation such as the recent master fund registration regime, have been greeted with mixed reviews. This is certainly no time for the Cayman Islands to be resting on its laurels.
In the past few years, Singapore has grown not just as a leading wealth management centre in Asia but also globally. With assets under management of US$550 billion in 20112, Singapore is now the second largest offshore private banking centre in the world after Switzerland.
With a significant proportion of regional wealth remaining privately held, issues such as business succession, and the transition of wealth from one generation to another, are of critical importance to families in South East Asia. Cayman Islands trusts offer a solution to these issues, allowing wealthy families to plan their succession needs in a way that will minimise intra family disputes. User friendly trust legislation, tax neutrality and political stability are all factors that make Cayman attractive as a jurisdiction in which to establish a trust for Asian clients.
The diaspora of wealthy Asians is an undeniable trend. Limited opportunities in their home countries, and a preference for their children to be educated overseas, often lead wealthy families to acquire substantial assets in multiple jurisdictions. For Asian families with assets in multiple jurisdictions, the convenience of a planned ownership structure that allows them to manage their assets from a single point of reference (without getting into issues of double taxation) makes for a highly sensible and persuasive ultimate ownership structure.
Therefore, although partnerships, foundations, companies and insurance products may form part of a cross-border succession structure, Cayman Islands trusts are the ideal ultimate holding vehicles for many of these succession structures. Cayman’s Star Trust, for example, has generated interest among regional clients because of its ability to offer larger South Asian families the opportunity to manage the beneficiaries rights against the family’s larger objectives.
While the usefulness of Cayman trusts as a tool to protect and manage wealth is clear, a quick survey of the Asian market reveals that it has not achieved its full potential in terms of market uptake. Reasons for this include the lack of awareness of the product, and the perception of the Cayman Islands within South East Asia as an expensive jurisdiction in which to do business. That perception may change as the market matures and acknowledges the importance of tailor made trust structures designed with the client’s needs in mind.
Finance and corporate
Already one of the leading sources of foreign direct investment into ASEAN, Cayman remains an attractive jurisdiction for many types of cross-border financings and corporate transactions in South East Asia.
Cayman entities continue to be popular as holding companies within the corporate structures of privately-held Asian companies, and as such they regularly feature as borrowers or providers of credit support for indebtedness incurred by these companies. Lenders continue to see Cayman as a creditor-friendly jurisdiction, and security provided by Cayman companies is a typical feature of bank financings throughout the region.
This financing activity is often provided for the acquisition or development of energy, infrastructure and telecommunications assets, critically supporting the growth of the so called “real economy” and ensuring that Cayman entities continue to have a prominent role in facilitating access to the credit which supports regional trade and economic activity and stimulates job growth.
In addition to featuring in secured bank financings, Cayman’s prominence as a leading IFC in South East Asia extends to other areas, including aircraft financing, cross-border M&A activity and joint ventures.
Notably, with regional airlines having recently announced record aircraft orders, the demand for Cayman companies as purchasers, owners and lessors of aircraft is expected to continue. Add to that a resurgence of activity in the private jet market in Asia, fuelled by the rapidly rising number of high net-worth individuals, and Cayman can expect to continue to be the jurisdiction of choice for private and commercial aircraft financings in South East Asia.
On corporate transactions, Cayman’s reputation as a jurisdiction that recognises the rights of shareholder’s, as well as the ability to tailor documents to include bespoke arrangements which will give effect to agreements reached between joint venture partners, makes Cayman an attractive place in which to establish a joint venture vehicle.
While Cayman is already a leading contributor to ASEAN growth, considerable work remains to be done to ensure that the jurisdiction is able to maintain and enhance its competitive position in South East Asia. The danger of falling behind competing IFCs is real.
The success of these competing IFCs is not just down to their historic commitment to the region. Critically, competing jurisdictions have managed to keep the costs of doing business at levels acceptable to Asian clients, as well as promote and encourage the provision of offshore legal and professional services outside of the home jurisdiction. Competing IFCs have benefited tremendously from actively taking their jurisdiction’s offering to the market where the client does its business.
Cayman’s ability to retain its position as a leading IFC in South East Asia will depend on its ability to broaden its regional appeal. Three factors remain critical to broadening the jurisdictions’ appeal – minimising cost, adopting a flexible and pragmatic approach to business, and innovation through legislative and policy changes.
The perception of Cayman as one of the more expensive IFCs in which to do business presents significant challenges for the jurisdiction in the region, making it less attractive than certain of its competitors for a large proportion of cost sensitive Asian clients. It will be critical to ensure that the cost of doing business in Cayman does not increase if the jurisdiction is to continue to compete throughout the region.
While a key factor in the choice of jurisdiction, cost is not the only factor. Doing business within ASEAN raises a unique set of challenges. These challenges are made even more profound by the realisation that the diversity and size within ASEAN itself makes it impossible to adopt a uniform approach to business and risk throughout the region. If Cayman is to position itself as the leading IFC in South East Asia it will be critical that service providers adopt a flexible and pragmatic approach to regional business, adapting current business practices to meet the needs of the market, where appropriate.
The government and private sector also have critical roles to play. Proposed legislative changes relating to the practice of law outside of Cayman, as well as a genuine partnership between the public and private sector, would enable industry participants to more credibly and effectively take the Cayman offering to new markets in ASEAN, significantly enhancing Cayman’s ability to compete.