How Offshore Law Firms Have Stepped Up To The Challenges Of 2020: Q&A With Kate Hodson – Finance and Banking – Hong Kong – Mondaq News Alerts

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With the US China trade war, US elections, civil unrest inHong Kong and a global pandemic, 2020 posed enormous challenges forthe investment fund industry in the Asia-Pacific region.

In this interview, excerpts of which originally appeared inAsian Legal Business, Ogier partner and head of ESG Funds in HongKong Kate Hodson discusses how offshore law firms have stepped upto meet this changing business landscape, the ramping up ofregulations, and the growing momentum around ESG.

It's hard to look back at 2020 without focusing on theimpacts of Covid-19. At the start of the year there were liquidityconcerns and a significant number of projects put on hold, withmany of our China deals stalling. However, as lockdowns eased andthe asset management industry in Asia adjusted to "the newnormal", activity quickly resumed. The tech industry inparticular proved very resilient and there were a number ofpandemic-induced opportunities such as in healthcare and thoseindustries benefiting from changing purchasing patterns, with ahuge shift to online spending. However, other key trendsevolved irrespective of the pandemic including increased regulationand the emergence of new forms of fund vehicles.

During my 11 years with Ogier I have seen the team kept busywith increased layering of regulation for funds and asset managers,including in respect of AML, FATCA and CRS, Economic Substance,data protection and so on. 2020 saw a new development in theprivate equity space with private funds domiciled in the CaymanIslands and British Virgin Islands becoming subject to regulation.The new legislation was a result of certain EU and otherinternational recommendations and was developed to align the BVIand Cayman Islands investment fund regulatory regime with otherjurisdictions. In terms of new fund vehicles, Hong Kong andSingapore have been increasingly competing as a funds domicile withHong Kong introducing the new limited partnership fund regime andthe Singapore VCC becoming available.

Despite the increasing choice available to managers in terms offund domicile, we continue to see a strong interest in CaymanIslands fund structures with our 13-strong investment funds team inHong Kong remaining extremely busy for 2020. We have also startedto see more interest in BVI funds and managers in the last 6 monthsas we see some managers accessing differences in regulatorytreatment for their particular structures.

Another key trend has been the momentum around ESG. This hasstarted to translate into new funds products arising in Asia whichincorporate ESG in some form. We have also seen a number ofmanagers indicating interest to bring more ESG strategies to themarket. This reflects a diversification in the sustainableinvestment product bank away from fixed income. Beyond newproducts, we are seeing a number of things happening in the fundsindustry related to ESG, including a spree of hiring individualswith experience in sustainable finance. This is not just into assetmanagement firms but also banks and accounting firms. There hasalso been increased opportunities for new partnerships andco-operations such as in the form of blended finance and NGOsworking with asset managers on fund launches.

We see ESG as a long-term trend as substantiated by thecommitments seen at the levels of government, as well asregulators. As an example, both Hong Kong and Singapore havestarted a consultation process with regards to guiding the assetmanagement industry on climate disclosures and are competitivelypositioning themselves as Asia's green financial centres. Infact, the SFC in Hong Kong is proposing to introduce measures torequire HK licensed fund managers to consider climate related risksin their investment and risk management processes.

The headwinds this last year have been unprecedented, with theglobal impacts of the pandemic, the chaos surrounding the USelections, continued tensions around the US/China trade war,political unrest in Hong Kong and the introduction of the Hong Kongnational security law, to name a few. This has put certainstrategies under particular pressure whilst benefiting others. Italso drove high levels of innovation and adaption with many firmsseeing staff move to remote working for much of the year. Thecircumstances highlighted those with the strongest contingencyplans and technology solutions, with others quickly investing tomeet their technology needs. Operational due diligence also had togo-online in order for deals to be able to push ahead with travelrestrictions in place and social distancing limitations.

Given the significant number of regulatory changes at the startof the year it was important to continue to reach clients andsupport their needs as efficiently as possible. Technology was verymuch at the forefront of the solutions. We were quick to move toonline seminars, rolling out educational series at the start of theyear and continued to deliver these over the course of the year.Further, Ogier's IT infrastructure and common use of testedplatforms allowed us to facilitate a timely move to remote workingand online deal completion.

Ogier has been using an electronic signature product for sometime now and we were able to roll this out to clients who wereunable to provide wet ink signatures. Fortunately, the CaymanIslands has been well placed to adjust to the move to the signatureof documents in electronic form having introduced the CaymanIslands Electronic Transactions Act in 2003.

A key aspect of delivering to clients this year was also seen inthe high levels of collaboration between the offshore law firms aswe came together to ensure that the raft of new regulatory changesfor the funds industry in the BVI and Cayman Islands was dissectedand disseminated in a clear and as consistent manner as possible tosupport the industry. It was very much an industry firstmentality and this was particularly important with clients under somany other strains this last year. The funds team at Ogier alsomade an important new hire in Dave Sherwin to lead a dedicatedregulatory practice in Cayman. Clients have been benefitingfrom this dedicated regulatory support.

Whilst there have been many downsides to the lack offace-to-face interactions in the industry there has also been aresulting efficiency benefit. As an example, we have beenable to attend more conferences this last year than ever before andacross a wider number of jurisdictions as we have been able to doso from the comfort of our homes and offices. However, onlineforums don't offer the same networking opportunities and soextra efforts have been required to stay connected and to continueto expand our connections.

I am sure that to a fund manager it feels like every year, a newfund regulation. Keeping up with all the developments can be a fulltime job. However, one important takeaway is the adaptability ofthe industry. When FATCA and CRS first came out there was a realconcern about how firms would cope with the requirements. However,that seems a long distant memory now and has become a relativelystandard process for funds, largely taken care of by fundadministrators.

One new type of regulation that has perhaps taken managers bysurprise in the APAC region is the gradual introduction of climatechange regulation. Legal frameworks have begun to reflectsupport for the transition to a low carbon economy and thistransition is expected to have a major impact on financial marketsand products in the near to medium term.

The two key offshore regulatory changes affecting our Hong Kongfunds practice was the new regulatory regimes for BVI and Caymanclosed ended fund vehicles. In Asia these have been two of the mostpopular jurisdictions for private equity, venture capital, realestate and credit funds and so the changes affected a significantportion of funds in the closed ended space. Despite the newobligations of having to become registered with a regulator, we sawvery little interest to move out of these jurisdictions to avoidregulation. Rather, most in-scope entities have chosen to registerwith the BVI and Cayman regulators.

Through the process of registration it became apparent thatthere were a lot of Cayman funds out there over 12,200closed-ended entities registered by the August 2020 deadline. Inaddition, there are more than 11,600 open ended hedge fundsregistered with CIMA. Whilst the introduction of the new regimesinitially might have been seen as a bit of shake-up, once againmanagers have adapted. We haven't seen this as detractingfrom the continued interest in Cayman and the BVI for fund set-up,although there is now perhaps a slight uptake in drilling into therespective regulatory treatment of different vehicles in eachjurisdiction.

The start of 2021 has demonstrated a significant amount of pentup activity and we are experiencing a very busy January with asignificant number of new fund launches kicking off and newenquiries. We are cautiously optimistic about the 2021pipeline.

I would expect to see greater levels of sustainable investmentin 2021. In Standard Chartered Private Bank's SustainableInvesting Review 2020 report, a survey of around 1,000 investorswith a focus on affluent and HNW investors in Singapore, Hong Kong,the UAE and the UK, found that 90% of respondents in Asia said theyare interested in sustainable investments and 42% plan to investbetween 5% and 15% in this area over the next 3 years. The pandemichas accelerated and highlighted the importance of sustainabilityand ESG factors as a business strategy for some of the world'slargest companies and this is not a momentum I expect to slow evenas we come out of the pandemic.

Another key trend is likely to be China focused activity withthe further opening up of China to foreign investment, allowingforeign firms to take majority stake ownerships in securities andfund management firms.

Offshore law firms, like any law firm, need to be innovative andforward thinking. Just as is the case for the businesses we advise,law firms need to consider how they build resilience to ensuresustainability. We have an active focus on D&I, the environmentand wellness, in addition to our investment in technology andclient services. The environment has become a particularlybig focus for us. We are building an environmental managementsystem for the firm and have hired a head of sustainability to leadthis process. As an example of innovation, Ogier created anentirely new service line during the pandemic which sets it apart,namely Ogier Global's ESG and Impact Advisory business. Thisservice line, which offers bespoke ESG and Impact design,integration, and implementation solutions, supports clients tonavigate ESG goals and requirements and to leverage the landscapeof sustainable investing opportunities.

Originally Published by Ogier, February 2021

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How Offshore Law Firms Have Stepped Up To The Challenges Of 2020: Q&A With Kate Hodson - Finance and Banking - Hong Kong - Mondaq News Alerts