Monthly Archives: March 2016

Real assets – a once in a lifetime opportunity

March 31st, 2016 by

At the Jersey Finance Funds Conference last week we heard from Bill Hughes, head of real assets at Legal and General Investment on the rise of real assets as an investment opportunity. He acknowledged that real estate and infrastructure have traditionally been seen as the ‘poor cousin’ of other asset classes but with the world changing rapidly around us there has never been a better time to look at investing in real assets.

He said opportunities, particularly in the UK, are increasing not decreasing and this is due to the increasing importance of relations between the public sector and private capital. Real assets are important and appealing due to investors and investment funds de-risking and large pension funds thinking about flight to stable assets. There is an illiquidity premium on real assets and also inflation matching characteristics that make them ideal investments in an uncertain world.

However, there are funding sources pulling out. A lack of public money is leaving some projects looking for finance. Banks are pulling out of much of the market. Bill thinks this is a ‘once in a lifetime opportunity for private capital to invest in social infrastructure’. This is infrastructure that is crucial to society – hospitals, schools, prisons, transport and energy infrastructure. Its importance (and therefore value as a real asset) is not going anywhere anytime soon.

We are at a point, according to Bill, where most social assets, and especially those needed to be built in the next 10 years, can be owned by the private sector. Renewables, HS2 rail stations etc all still need building.

Legal and General also see huge potential in the build to rent sector. The UK has a housing shortfall of hundreds of thousands of homes every year. Elsewhere in Europe the build to rent sector is booming and L&G think there is an opportunity to develop professionalised rental property in UK cities – a fantastic opportunity for real estate funds, a traditional strength of the Jersey finance industry.

In fact, L&G’s issue is not finding capital for projects; it is finding projects for the ‘wall of capital’ ready to invest in the sector. But, like anything else, there is the looming shadow of Brexit. Decisions are being delayed, according to Bill, to wait and see what the future will hold.

OECD looks to simplify international tax

March 17th, 2016 by

Addressing the recent Jersey Finance Funds Conference, Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, said that co-operation was at the heart of international tax matters. Looking back seven or eight years, Pascal noted that it was ‘angry people in the street’ that had kick-started tax reform. Governments needed to react and the sense of voters was that governments were letting businesses and the rich avoid paying tax by using weaknesses in international tax laws.

The OECD are on the side of growth, but they also want to ensure tax is paid in the most appropriate place. For them, avoiding double taxation is as crucial as ensuring tax is paid in the right jurisdiction. Pascal began by discussing the first key measure, tax transparency. With all but one OECD country signed up to exchanging tax information and all but four ready to move to automatic exchange it showed, he said, that international finance centres like Jersey were already participating in a new, more positive international tax community.

The introduction of BEPS, he said, was another positive. ‘People on the streets want corporations and the rich to pay tax, in their jurisdiction, and why shouldn’t they?’ he said. BEPS’ introduction will ensure companies must have ‘substance’ in a jurisdiction in order to effectively claim domicile there. It will be uncomfortable, he said, for companies that have benefited from globalisation without restriction or regulation, but necessary to the future growth of the global economy.

In the panel session that followed Pascal’s talk there were some concerns raised. While Jersey is seen as an example of a jurisdiction that will flourish under the new rules, with businesses relocating to the island and employing staff and utilising office space and other service providers (in other words giving themselves substance) there are areas where more clarity is needed.

Debt, for example, was highlighted as something that needed to be kept at top of mind. Simon Witney, the chairman of the BVCA Legal and Technical Committee, said that, as it stands currently, BEPS has the potential to penalise companies using debt to grow their businesses and complicate the use of debt by international businesses.

There might be a pause in development however, for the Brexit referendum to run its course, but overall the view of the conference was that the post BEPS world will be full of opportunities for Jersey.

Brexit and Trump fail to dampen optimism of funds industry

March 9th, 2016 by

The Jersey Finance Funds Conference, held in London each year, is a good barometer of the health of the funds sector in Jersey and indeed globally. This year conversation, both in the panel sessions and in the breaks, was dominated by industry specific issues, particularly tax co-operation and BEPS, but also by the impending referendum on Brexit and the surprising success of Donald Trump’s candidacy for presidential office.

Uncertainty caused by the twin pillars of Britain leaving the EU and who knows what happening in the States is not welcomed by business, so most statements during the day came with a big caveat. Geoff Cook summed it up when he asked if the political situation was ‘more complicated or just plain crazy?’

But, despite having one eye on future uncertainty, funds practitioners in Jersey and London are optimistic for the future. The value of funds in Jersey has increased by 15%, the island is well set with agreements in place for third country status cementing positive relations with the EU and with OECD experts welcoming the island’s approach to BEPS.

It was stressed several times during the day, none more so than by Ben Robins of the Jersey Funds Association that in a world where international business is expected to have real substance where it pays tax that Jersey, with its network of international finance businesses, skilled practitioners and competent and consistent regulators and lawmakers is well set to benefit in the modern international business community.

BBC journalist Nick Robinson presented another challenge for the international finance community by highlighting the resurgence of grass-roots politics. Whether it is Jeremy Corbyn in the UK or Donald Trump or Bernie Sanders in the US, anti-establishment politicians are gaining support with ‘average’ voters. ‘How do you maintain wealth creation through developing the finance industry when voters don’t think it is working for them?’ was the question posed by Robinson which will be a key challenge for international finance in 2016.