The pandemic wallet
2020 was, as one private client advisor frankly said, “a crappy year”, not only for public health but also for companies who had to reconfigure to cope with the dramatic change in economic decisions.
25 November 2020
After three months of a stay-at-home order, Cayman opened for business again in the summer, with offices, hotels and restaurants now largely back to normal. The authorities have kept the virus out of the community by clamping down on international travel, with no one allowed in without completing 14 days in quarantine. The measures have been so effective that the world’s wealthy are now queuing up to buy property and make their homes in the idyllic, Covid-free, community.
“We do realise how lucky we are to be in a bubble in terms of community spread,” says Henry Mander, head of the Cayman and BVI trusts practice at Harneys. “We were all able to work from home during lockdown from March to June, but we have generally all returned to our offices. We see the struggles in the hospitality industry and are aware that financial services needs to step up.”
The government has reacted quickly to put its wealth management industry at the heart of a recovery plan, with the dearth of tourism creating a big hole in the islands’ finances. In October, Cayman launched its Global Citizenship Concierge Programme, targeting digital nomads with the offer of remote working in Cayman for up to two years. The hope is that some might be tempted to pursue citizenship long-term; only those with incomes above $100,000 need apply.
“This is really about getting people here and giving them certain rights so that they can later apply for permanent residency,” says Mander. “It highlights how, in the offshore world, the interests of the public sector and the private sector are very much aligned, which is why we are able to get the laws in place that we think are important. Even before Covid we had started to see family offices moving here and high net worth individuals coming because of the high standard of our laws.”
Andrew Needham, director at Genesis Trust & Corporate Services, says the global pandemic has only strengthened the appeal of relocating to Cayman: “People have got fed up with living in cities, the commuting, pollution and the lack of outside space and fresh air, so there are a lot of people making enquiries about moving or having a second home here,” he says. “The new global citizenship programme has already had about 70 applicants, and our property market continues to go through the roof, despite Covid.”
Business, too, has rebounded quickly after the drop-off at the start of the year. “Inevitably, like everywhere else, initially there was a great deal of uncertainty and business went quiet around March,” says Andrew Miller, partner at Bedell Cristin. “It has been busier and busier ever since. Where clients had been putting things on hold, they now seem to have decided that things may not return to normality until well into next year and so they may as well get on with things. I have since been very busy with work as varied as the relocation of a family office to Cayman, setting up foundation structures and establishing a sizeable philanthropic structure, as well as plenty of new trusts related work too. Added to this has been all the now necessary related advice on issues such as economic substance and beneficial ownership.”
Again, the pandemic has played into Cayman’s hands, as wealthy clients the world over have focused on wealth planning. Mander says: “The fact that we are all mortal, spending all this time with our families, has really got people to engage more with wealth structuring. People have been moving across the line with things that they have been thinking about for a while, including some long overdue restructuring.”
Alan Milgate, partner at Rawlinson & Hunter, says: “This year has been all about a flight to quality. Covid hit and people thought they should be making a will. The number of wills written this year is at a record high, with people thinking about their own mortality and pushing forward with plans that they may have had on hold. Cayman’s strength has allowed us to really benefit from that, and we have been better than our competitors at maintaining visibility even though we can’t fly to see people.”
On 6 October, Cayman was removed from the EU’s list of non-cooperative tax jurisdictions after revising its legislation on private funds to the satisfaction of EU finance ministers. Cayman professionals say it was always clear that the blacklisting would be temporary, and no practicable penalties or banking restrictions were ever imposed, so the impact on workflows was negligible.
“Clients that were coming to me in March felt that it wasn’t going to continue, so they carried on,” says Milgate. “It didn’t have an impact because we reacted well and remediated the issue. People didn’t make different jurisdictional decisions, though they did put things on hold. Now, we are starting to see an uptick on the structuring side, which may well have happened anyway.”
Nevertheless, the swift reaction of the Cayman government to addressing EU concerns was widely welcomed, and it is good news that the episode is over. The focus can once again return to attracting HNWIs and family offices to the islands, which means continuing to refresh and update legislation to keep the jurisdiction attractive.
Maxine Bodden, of counsel in the trusts and private client team at Maples and Calder, says: “The Cayman Islands has a record of enacting innovative and far-sighted legislation in the wealth management sector, and a wide offering of expert service providers who can assist stakeholders with an efficient and effective strategy to establish or move structures to the jurisdiction. The government also continues to demonstrate responsiveness to the needs of the financial industry, and there is a broad ongoing commitment to enact further legislation as needed in the trust arena, including in consultation with local professionals.”
Mander says: “The great thing about Cayman is we have a geographic scope that is really enviable. Cayman law trusts are the ones used the most in the world, even where the trustee is not in Cayman, the family is not in Cayman, and there is sometimes no Cayman nexus whatsoever.”
Looking forward, Cayman looks well placed to continue capitalising on that position into next year. Dominic Lawton-Smith, director of Family Office Services at Crestbridge, says: “On the family office services side, while it has been a very challenging year for maintaining normal family relationships over long distances, Covid hasn’t changed the macro themes that drive demand for the services we provide. For instance, more than half of what I do now has a strong US nexus and this trend has been increasing for some time. I’m also seeing a lot more hybrid work, by discipline and jurisdiction, so working closely with other professionals in other countries continues to increase in importance, which is very welcome.”
He adds: “Cayman’s role as a crossroads for compliant capital is extremely valuable. There is more and more emphasis on economic substance, which has been very good for Cayman because it is a jurisdiction where people increasingly want to live, for lots of reasons including its strong and rapidly improving infrastructure. Another driver of demand is from US-based families with international interests who require institutional grade structures that are appropriate for family use, fully transparent, compliant and providing legitimate privacy.”
When things start moving again, there is space in Cayman for new residents and the wealthy will be welcomed.
Miller says: “We are seeing an increasing number of wealthy individuals and families actually moving to the Cayman Islands, meaning an increase in high-end immigration and property work, often spinning off into wealth structuring of their international assets. Most of these have been Canadians or from the US, but also some from the likes of Monaco and Switzerland.”
Not being able to travel has forced the islands’ professionals to connect with clients in new ways, but the jury is out on just how much things will ultimately return to normal.
“In the private client space, people crave that face-to-face contact,” says Milgate. “The willingness of people to meet, even in October, was very real and lots of clients were very keen to find safe ways of doing that. Video is great but does not allow that same relationship. Some people have been happy to start setting up structures but do not want to finalise anything until we can meet in person; that long-term trusting relationship is so important.”
The jurisdiction is nothing if not nimble, with 2020 forcing professionals to up their game to keep in touch with clients in far-flung places without the ability to travel. Bodden says agility is the shape of things to come: “Practitioners and service providers must have the ability to be forward looking and able to quickly adapt, because clients will increasingly require faster but accurate responses and advice.”
Cayman had a year of highs and lows in 2020 but has proved it is prepared to face whatever 2021 has in store.
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