The land of opportunity

Written by: Jon Watkins Posted: 02/09/2019

BL64_US cover imageAs Asia stalls on the road to dominating the global wealth markets, the US is re-emerging as the market of choice for many trust companies. Should more Channel Islands operators be chasing the ‘American dream’? And what are the pitfalls?

after the financial crisis of 2008, much attention was thrust upon Asia’s emerging markets as the world’s wealth management experts searched for new areas of growth. In some respects, these markets haven’t disappointed.

China has seen the greatest growth in billionaires of any country – from just 16 in 2006, the country was home to 373 billionaires by 2018, with an accumulated wealth of $1.2trn. In the same year, the growth rate of billionaires in Asia Pacific was three times that of the US. 

However, China’s economic growth has failed to meet expectations and, as a result, the region’s expected dominance of the world’s wealth stage hasn’t quite come to fruition. And now the US is seeing renewed appeal as the leading centre of wealth creation.

“Ten years ago, when the economists were making their presentations, they would show graphs predicting the future GDP of the US versus that of China – and it showed that sometime around now, China would have overcome the US in terms of total economic wealth,” says Bart Deconinck, Executive Chairman elect at trust, corporate and fund services specialist Zedra. “But it hasn’t happened. China’s economy is still at less than half the US economy. 

“We simply haven’t seen the numbers we were told we would see. They said there was going to be GDP growth of 9%. Then they told us it would be more like 6% and, if you actually look at the import/export figures, which are really the only figures you cannot manipulate, the reality is the economy is at 3%-4%.”

The US has done a fantastic job of recovering from the financial crisis of 2008, Deconinck adds, pointing out that California and Texas would likely rank among the 10 biggest economies in the world in their own right. He cites strong GDP figures, rising wages and an energy revolution driven by the development of shale gas as factors in America’s re-emergence as a strong economy and leading centre of wealth creation.  

Zedra has been preparing for this for some time. “We started with a very careful move into the US two years ago, opening our office in Miami,” Deconinck says. “That’s given us a handle on US processes and, in the foreseeable future, we will ramp that up considerably by creating our own domestic presence there, servicing trust structures in the US. That’s an area that we see is growing very fast. It’s where wealth is accumulating.

“The second thing we’re looking at is the funds space – private equity funds, real estate funds, specialised funds. We hope we can land an acquisition in the next six months with regards to that.”

Going global

Deconinck is not alone in his view of the US as once again being a land of opportunity. Jersey Finance is also ramping up its activities in the region, in line with a policy over the past 12 years or so to internationalise its business and reduce its reliance on the UK and Europe. The industry body has been pretty successful in doing that, with a focus on the Gulf Cooperation Council countries, Hong Kong and, to a lesser extent, Africa, says Joe Moynihan, its CEO. 

Although it hadn’t focused that much on the US, a number of Jersey’s financial services firms have been doing business on behalf of US customers in the more recent past. In light of that, Jersey Finance will launch a New York presence with a focus on the funds space in autumn 2019.

Its aim was to make the market aware of Jersey’s ability to act as a conduit, either for investment into Europe and the UK or to attract investors from those jurisdictions, particularly in the alternative investments area – private equity, real estate, infrastructure – and with a focus on institutional investors.

“That route is now pretty well tried and tested and, given the amount of fund management centred in the US, it was felt there was still a significant opportunity for us to do more business,” Moynihan says. 

“The US is responsible for 50% of the global asset management generally and we think that percentage is even higher in the alternative space. So we got approval to set up an office there, we have identified premises, we have begun recruitment and we expect to have the office formally up and running in October.”

One business already up and running in the US is JTC. Michelle Le Herissier heads the company’s operations in South Dakota, one of four states that have modern trust laws – the others being Delaware, Nevada and Wyoming. JTC set up in South Dakota in 2017 to offer trust administration services and has sales teams in Miami and New York.  

Le Herissier says JTC was drawn to the region by a number of appealing factors. “The trust laws are very flexible but also the taxes for non-US residents are great – so it has the appeal of traditional offshore centres such as the Channel Islands and the Isle of Man. It’s just gained traction that I don’t think anyone could have foreseen and it’s fantastic that people are wanting to do business here.”

Everyone’s interested

Will the US’s continued growth as a wealth centre drive other Channel Islands businesses to build their activities there too? 

Deconinck certainly thinks so. “Particularly in the funds space, we’re seeing a lot of interest from the main islands operators and there are some targets that the investment bankers are promoting,” he says. “As always, everyone does the same analysis and research, so when some players start to move, others do too. 

“From our perspective, I’m glad we did our analysis two years ago and opened a Miami office. At the time, we didn’t have the firepower to make a big acquisition, but we do now, so that’s an exciting move for us.”

Moynihan agrees: “It’s fair to say we are seeing a rise in the number of Jersey-based firms ramping up their activity in the US. A number of our firms have carried out acquisitions there. Because our firms are now much bigger operators and much more global, quite a number of them now have US subsidiaries or US affiliate offices. 

“And we think that us raising the profile of Jersey off the back of our US office will also raise the profile of our local providers.”

The challenges

Despite the appeal of the US market and despite the opportunities it offers, entering the market is not without its challenges. Deconinck points to the legal environment as the biggest hurdle. “Every state has different statutes on the books, every state has a different regulatory framework, some have different ownership rules – in Delaware, you can’t have foreign control of trust companies. That is the challenge for businesses looking to operate across the US,” he says.

“You need to be pretty focused and very clear about what your proposition is,” adds Moynihan. “It’s a question of going in with your eyes open, but for the professional players that get their proposition right, there will be opportunity. The opportunities are clearly big. We are excited to see the growth of Channel Islands operators in the region in the coming years.” 

EXPERT VIEW

BL64_US_ChrisJehanChristopher Jehan, Chairman of the Guernsey Investment & Funds Association (GIFA), says Guernsey is picking up business from the US 

"Guernsey’s financial services policy framework has identified the United States as a key primary market for the island, and GIFA has also identified it as a market for renewed focus. There has already been some success with the US market for Guernsey’s funds industry. 

"Guernsey is home to the fourth highest number of funds and securities sold into the US under Regulation D Private Placement, outside of the US and Canada.

"The island is now seeking to capitalise on that success, especially given that one of the traditional jurisdictions used by US fund managers, the Cayman Islands, is facing the triple threat of implementing economic substance, a less-than-favourable report from the Caribbean Financial Action Task Force, and a public register of beneficial ownership being forced on it by the UK Parliament.

"More recently, Guernsey has become home to structures that were formerly domiciled in Delaware but are now seeking to escape the punitive Global Intangible Low-Taxed Income regime, implemented by the Trump administration."


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