Where are we? The answer, it seems, is right back where we started. The office for national statistics has recently published the latest figures for UK GDP. At the end of Q2 2014 that figure stands at GBP393.5bn. At the end of Q1 2008 the same figure was GBP392.8bn. In other words after 25 quarters the UK economy has finally recovered to pre-crisis levels. We were told that the recovery would be slow – and it has been – far slower, in fact, than the recoveries from both the 1979 (10 quarters) and 1990 (16 quarters) downturns. The downturn, from peak to trough, was much deeper than previously, with the economy shedding 7.2 per cent of GDP since 2008 compared to 5.9 per cent in the 1979 downturn and just 2.4 per cent post 1990.
So, as we return to normality (?) I thought it might be a good time to take stock and look at where we are as an offshore finance industry. Are we back where we started?
I spent a great deal of time before, during and now, it seems, after the global financial crisis talking, writing and presenting on the need for us, as an offshore finance offering, to diversify. That is both in terms of new product (and the political and regulatory framework that supports it) but perhaps more importantly new markets and jurisdictions. I have considered in detail the unstoppable economic growth of Jim O'Neil's BRICs, MINTs and the Next 11. Now I find myself focusing more and more upon the emerging African economies that occupied 11 of the top 20 global GDP growth spots in 2013.
Focussing on new markets and ensuring we have appropriate footholds in growth economies is of vital importance but, when I evaluate my own marketing initiatives – which include Hong Kong, Shanghai, Singapore, Mumbai, Delhi, Moscow and Tel Aviv – there is one jurisdiction that is more prevalent than all of the others combined and has been so since before the GFC – London, with 27 business development trips in 2013.
Unsurprisingly that trend tracks through to actual workflows too. In the case of my own practice, which is probably more emerging market focussed than some, more than 70 per cent of the transactional work flow comes via banks, financial institutions and other intermediaries in and around London. Whether we like it or not, our fortunes are inexorably linked to the City – not necessarily as a generator of trade, transactions and wealth but as a conduit for the very emerging markets we are seeking to develop.
So, how has the better than expected performance of the UK economy affected us? Are we, too, back where we started? Difficult to say. As law firms helping to structure deals or resolve issues we tend to be at the front end of any transactional uptick and it takes time for the funding and ancillary services that might involve other sectors of the market to wash through. Economic indicators and statistics are usually at least 12 months behind the market.
This is borne out by the comparative data for the financial services sector for the end of Q1 2013 and the end of Q1 2014. Value of banking deposits down 10.25 per cent (155.1bn to 139.2bn). Net asset value of Funds under administration down 4.87 per cent (205.3bn to 195.3bn). Total Funds under investment management down 2.2 per cent (22.7bn to 22.2bn). Number of regulated Funds down 4.16 per cent (1,395 to 1,337) and total number of live companies down 0.27 per cent (32,790 to 32,701). In fact the only increase, and it is a substantial one, is in the number of unregulated Funds, up 8.15 per cent (184 to 199).
So does all this make for fairly grim reading? Well, not really. The figures need to be considered in the wider context of an increasingly co-dependent international economy. Against global trends the banking, fund and investment management figures have actually been fairly robust. The simple fact is that since the second quarter of 2013 there has been a substantial increase in transactional activity resulting in higher levels of optimism and a general pick up in levels of business activity. Particularly telling has been the widespread recruitment by corporate and commercial teams in law firms across the jurisdiction. I expect this uptick to track through to the statistics in due course.
So what sort of transactional and advisory work are we seeing in our team? A snapshot follows:
Regulatory. It is perhaps no great surprise that regulatory advisory workflows are strong. We continue to advise on a number of AIFMD, FATCA and sanction based issues. Our regulatory team are also advising a number of banks in relation to capital adequacy, ring-fencing and licence consolidation issues. We are also advising two banking groups in relation to establishing a presence in the jurisdiction.
Real Estate. London property continues to dominate the headlines whilst real estate finance, refinance and acquisition remain extremely buoyant. The principal issue for market participants appears to be an undersupply of high end London commercial properties to add to portfolios.
Fund Finance. It is very encouraging to see funds looking to deploy capital. Capital call facilities, bridging finance and related transaction volumes have been high for the last 12 months.
IPOs. The IPO market continues to perform well despite valuation concerns and the equity capital markets group are currently advising four emerging market groups on main market and AIM debuts.
Workouts. As economic conditions have improved we have started to see more portfolio deals being done and generally a move away from enforcement scenarios.
Final Thought. Not once during all of the emerging markets presentations I made during the downturn did anyone ask me my views on the US economy. It was then, and remains, the world's largest economy and the engine room of the global trade juggernaut. As I write I see headlines noting a strong spring bounce back from the US economy with annualised growth of 4 per cent for 2014. Further growth is expected in 2015. Ignore the developed economies and particularly the US at your peril.
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