“Regulation is another tool in the investment adviser’s box and can help make sure there are no blind spots that you are going into.” Brian Doohan “Inflation is real and the US government is not going to fix it,” she said. “Keep an eye on inflation as it is much higher than the governments or markets are indicating and where there is that disconnect there is a place you can lose a lot of money. “There is potentially some big change ahead. Could the next round of QE be in the form of defence spending? Maybe—add it to your thought processes.” Another controversial idea was mooted by Morgan Creek Capital Management founder Mark Yusko, who told delegates that the fallout from the bear market in commodities will likely extend to the insolvency of at least one European bank, although growth will rebound in key emerging markets, he said. Yusko outlined a series of “game-changers” for the funds business. He said he expects the relentless bear market in commodities since 2011 to come to a head with the messy bankruptcy of one or more commodity trading companies resulting the unwinding of complex derivative transactions. “These will cause huge losses in the European banking industry and push one or more European banks into insolvency,” he said. The contraction in US manufacturing is indicative of a recession and growth will surprise on the downside, Yusko also predicted, adding that he felt the December rate rise did not come soon enough. The market will be begging for QE4, he said, with inflation expectations well below the pre-QE triggers and indicating deflation on a massive scale. “Realising that the end of the hydrocarbon era is approaching more rapidly than expected, Saudi will abdicate its role as swing producer and let the US do that,” Yusko said. Regulatory matters The perceived wisdom that regulation is destroying the alternative investment business was challenged during a panel at the CAIS event. Brian Doohan, chief compliance officer at Commonfund, said feedback from delegates this year suggested that regulation was helping to drive the industry forward. “Regulation is another tool in the investment adviser’s box and can help make sure there are no blind spots that you are going into or any gaping holes in your investment philosophy,” Doohan said. From a Cayman Islands perspective, Hayden Isbister, partner and head of corporate at Mourant Ozannes, said certain regulations and legislation introduced in the past couple of years would fall into that category, notably the Directors Registration and Licensing Law and the Cayman Islands Monetary Authority (CIMA’s) Statement of Guidance on Corporate Governance, introduced in 2014. “These have certainly helped the industry move forward, particularly on the corporate governance side,” Isbister said. CIMA advocates regulation but not over-regulation and Garth Ebanks, deputy head of the Investments and Securities Division, said 68 CAYMAN FUNDS | 2016 the authority is committed to continuing to focus on communication and consultation with its stakeholders, to ensure that regulation has a positive impact on the financial services industry. For hedge funds, regulation can be used to positive effect, by preempting unintended consequences and by engaging with regulators to improve relations. “There is a definite business incentive to getting your policies and procedures right, and investors expect cutting-edge best practice,” said Lisa Stanton, in-house counsel at Darsana Capital Partners. “But any policy you adopt has to fit your business. It has to work for you.” Business tourism is opportunity for Cayman The key drivers of Cayman’s economy should not be viewed in isolation but in a more holistic way in recognition of the fact that they are all interlinked, Chris Duggan, vice president, Dart Enterprises, told Cayman Funds magazine at the Cayman Alternative Investment Summit. Dart Enterprises is one of the key supporters of the conference, which is now an annual event in the Cayman calendar. Duggan said that while alternative investments and the financial services industry is not a core part of what Dart Enterprises does, the organisation, which is set to invest billions more in the Cayman Islands over the next decade, understands the importance of the sector to Cayman and that success in this sector boosts the economy in many more ways. “Dart recognises the importance of the alternative investments industry to the Cayman Islands but also the importance of the Cayman Islands to that sector,” Duggan said. “We want to do whatever we can to grow that industry locally and globally. It is a critical driver of the economy here.” In November this year, Dart will unveil a new 263-room Kimpton hotel plus almost 60 for-sale condominiums. Duggan stresses that projects such as this will drive tourism and help grow the financial services industry on Cayman—and the two things go very much hand in hand. “People talk about the different types of tourism: health tourism or sports tourism, but one of the biggest forms we have is financial services tourism,” Duggan said. “It injects so much into the economy. A conference such as this also helps fill the hotels and restaurants. Each sector of the economy drives another, you can’t look it in isolation.” Duggan, a former president of the Chamber of Commerce on Cayman, also commented on some of the long-term risks faced by the Cayman Islands, especially given its reliance on financial services. Misinformed comments from politicians and others in the US or the UK that refer to Cayman as a tax haven can be problematic, he admitted. He said it was the duty of everyone familiar with the Cayman Islands to help dispel such myths and added that bodies such as Cayman Finance are doing a good job of leading a coordinated approach to such attacks. “They are a threat and it can be difficult to dispel myths,” he said. “But you have to handle them as they come up, and the likes of Cayman Finance is doing a great job in giving us a unified voice.” Planning for the next CAIS is already underway, with the dates February 16 to 17, 2017, pencilled in for next year’s event.
Cayman Funds 2016
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