Whole new world

As London and New York lose their status as leading financial centres,
Peter Bubenzer asks: should offshore firms look to pastures new?

Whole new world With the evident rise of the Brazil, Russia, India and China (Bric) economies, it is apparent that there are ­significant opportunities for international law firms in non-traditional markets. The question is how to access that work.

The rapid rise of these new economies, the enormous flows of investment into them and the growing flows of investment from them into Western and other ­developed economies present ­significant opportunities to the offshore world, which acts as a transition point for the efficient movement of capital between investors and investment opportunities.

Following the onshore world

Over several years the preferred course to access this new business has been to ­establish a presence in the major cities in the developing countries. For example there was Allen & Overy’s plans to establish in Sao Paolo following ­Clifford Chance and others, the establishment by magic circle and Wall Street firms in Moscow, Shanghai and Beijing, and a longstanding effort to obtain access to the Indian legal ­market.

This route has also been followed in the offshore world. For example, offshore firm Conyers Dill & Pearman has launched in Moscow with another stating its intentions to ­follow suit.

However, given the challenges of ­obtaining access to such markets and staffing in such locations, an alternative route for ­offshore firms has been to ­consider leveraging offices and contacts in the ­traditional financial centres – for example, New York, London and Hong Kong – from which law and accounting firms advise investors in these new economies.

While estimates for 2008 and 2009 are likely to be moderated due to recent events in the international financial markets, the Middle East is still expected to show positive GDP growth.

The sovereign wealth funds of the world are collectively estimated to have assets in the aggregate of $3trn (£1.88trn). The largest include the Abu Dhabi Investment Authority at $875bn (£548.16bn), Saudi Arabia at $300bn (£187.94bn), Kuwait at $250bn (£156.62bn) and Qatar at $50bn (£31.32bn).

With the rise in Islamic finance, the ­complexity and sophistication of the ­financial markets and products available there, along with the wealth available for investment, a flood of international banks and leading UK, US and international law firms have been attracted to the Gulf region.

These have been followed by a handful of offshore law firms looking to provide legal services with regard to the jurisdictions that they represent and the supporting fiduciary and administration services required for the efficient operation of ­offshore vehicles.

Dubai is one of the key financial centres in the Middle East with an increasingly ­sophisticated investment infrastructure.

Renowned as a destination for the ­preservation of substantial private wealth, Switzerland is well-known as a country from which significant ­international investment is made, based on that ­private wealth.

Indeed, it is not only a secure and trusted jurisdiction for private wealth from the ­traditional regions of Western Europe, North America and the Gulf but, more recently, it has become part of the solution for the management of private wealth from Russia, Eastern Europe and China.

The Swiss market has not seen the arrival of a significant number of international firms, whether offshore or onshore, but it is expected that in due course more firms will want to take advantage of the opportunities to respond to their clients and their advisers locally in this sophisticated marketplace.

Switching points

Both Switzerland and Dubai are ‘switching points’ for the management and investment of wealth, whether corporate and institutional or private. For each of these countries, bankers, accountants, lawyers and other advisers are comfortable with the careful use of appropriate offshore structures and ­jurisdictions for the efficient investment and transfer of that wealth.

However, the fork in the road is the ­interesting question of whether one believes that these international businesses and clients need access to the offshore world on the ground in the developing Bric centres or whether leveraging longstanding ­relationships in all of the major switching points provides more choice and immediate delivery of services.

With increasing diversification away from traditional financial centres such as London, Hong Kong and New York, it is likely that any international firm will look to major investment centres such as Zurich and Dubai to effectively service their clients.

Inevitably, even for those who do not do so at first, this will eventually be followed by moves directly into the new powerhouse Bric economies. At some point, the two roads will meet again and in the meantime, it will be interesting to see how the two approaches work for the offshore sector.
As ever, but at a respectful distance, the offshore world will continue to follow the larger onshore law firms and financial ­institutions.

Peter Bubenzer is group managing partner at Appleby