14 ASIAN LEGAL BUSINESS – NOVEMBER 2023 WWW.LEGALBUSINESSONLINE.COM Another year of slow growth and insufficient economic recovery is coming to an end against the backdrop of continued conflict in Russia/Ukraine and Israel/Palestine, heightened tensions between the U.S. and China, rising inflation and interest rates and calls for decreased globalisation and increased cross-border regulation. Offshore business hubs such as the Cayman Islands, British Virgin Islands (BVI) and Bermuda have not been spared of the repercussions of this global “growth winter.” Despite this, offshore lawyers in Asia expect a busy 2024, given the region’s long-standing track record of steady offshore investments and the promise of an expedited market recovery. “Whilst investors seem set to begin next year with a similarly cautious outlook to that which we have seen during 2023, there is still a large amount of dry powder in Asia, and regional LPs appear positive on the mid/long term outlook for the region. Regional economic growth for 2024 is also expected to be a considerable contributor to annual global growth,” says David Nelson, a Hong Kong-based partner at offshore firm Ogier. “We may see an uptick in private M&A through in 2024 if some of the concerns and challenges, especially around cost of financing and asset value, ease off,” he adds. Indeed, an uptick in Asia is anticipated in the coming year, with the International Monetary Fund calling the Asia-Pacific region a global bright spot in 2024, placing it on track to contribute to about two-thirds of global growth in the year. However, law firms in offshore markets will have to deal with increased regulatory scrutiny, shifting market preferences, and competition from onshore and mid-shore markets to be able to drive growth in 2024. MORE COMPETITION Anthony McKenzie, Singapore managing partner at Carey Olsen, says competition from onshore centres like Singapore and Hong Kong is certainly increasing. “In recent years, we have seen new ‘Cayman-style’ structuring options (such as the Singapore VCC and HK openended fund company) together with global regulatory reforms and shifts in market preference that have resulted in offshore jurisdictions seeing competition from onshore and mid-shore jurisdictions,” McKenzie says. In 2020, Singapore’s Variable Capital Companies Act (VCC) came into force, establishing a fund structure that allows for the parking of large pools of capital in low-taxed, discreet packages under a regime scrutinised by the Monetary Authority of Singapore. Hong Kong also amended its ‘open-ended fund company’ regime to make it more attractive. These alternate funding models have attracted more money in the asset and wealth management sectors into Singapore and Hong Kong, in direct competition with offshore centres. Carey Olsen’s Hong Kong managing partner, Michael Padarin, adds that clients are more likely now to conduct an independent jurisdictional analysis and due diligence, comparing options available in Singapore and Hong Kong to those in offshore centres. “Whilst we continue to assist clients on offshore fund formation projects, we are very aware that clients are coming to the process with a much more open mindset in terms of domicile, and part of our role now generally also involves facilitating introductions to domestic providers to allow clients to run their jurisdictional analysis and due diligence process,” Padarin says. But, he maintains that most of these companies decide to go offshore, even after such an analysis. “Having done their diligence, we are seeing the vast majority of clients 2024: THE OFFSHORE VIEW Offshore law firms have had a challenging 2023, with stiffer regulations, increased onshore competition from “Cayman-style” funds and slow M&A recovery holding back growth. Law firm leaders talk about some of their big themes for 2024, including the advent of financial technology and digital asset regulations, the rise in competition from “onshore” centres like Singapore and Hong Kong, and the potential for emerging areas like ESG and AI to grow in importance. BY NIMITT DIXIT OFFSHORE “We have seen a change in the nature of enquiries and a change in the attitude towards offshore regulation around virtual/digital asset services. There is now an increasing perception that in order to do business with reputable institutions and regulated clients, virtual/digital asset service providers themselves need to demonstrate credibility through reputable regulation.” — Anthony McKenzie, Carey Olsen
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