JUSTIN Urquhart Stewart co-founded Seven Investment Management 17 years ago at a time when, he says, Jersey was running a very different type of financial services industry: ‘You had a lot of the big old swanky international investment banks and that wasn’t our business and frankly I didn’t want to actually associate ourselves with that.
‘Since then Jersey has had to go through a painful change, but I think a very mature one, to get rid of a lot of that hot money and actually go back to some proper investment stuff. Particularly relating around trust money, international money and not necessarily just tax money trying to find a hidden home because those things, frankly, you don’t want to go near anymore. A lot of banks going one way is a very good reason for us to go the other way.’
Mr Urquhart Stewart’s opinion of Jersey has improved, but are there others in the City who still think the Island is tarnished with the ‘tax haven’ image?
‘Opinion is beginning to change, but the Channel Islands, Jersey especially, must get on the front foot and say this is what we do and we do it really very well. Jersey’s got a very good reputation in terms of regulation, in terms of actually being clear, straightforward and people can trust it. Which is very important if you’re actually involved in investment – not just as a client but as a provider as well.
‘But Jersey also needs to go out and say these are the things we do well. One of the particular elements is trustee expertise, international trustee and charitable expertise. You don’t find that around the world. You find a lot of people claiming to be able to do it. Do they actually understand the detail of being able to operate it successfully? No. Jersey has built up that reputation, it has to go out and sell that and particularly you have to go out and neutralise the negative attitude of the old tax haven which is still going to be there from time to time.’
The headlines are filled with the struggling Brexit negotiations, does he feel Jersey is vulnerable?
Mr Urquhart Stewart echoes other commentators and says that Jersey has to keep on lobbying the UK to ensure it doesn’t get forgotten in the negotiations: ‘But also make sure that the EU really understand how the Bailiwicks work and frankly they don’t. You’ll have to actually go there and keep on telling them, “We’re not a shoddy operation, we’re a really highly regarded, highly successful operation which can be of benefit to the EU”.
‘The bit that frightens me about what’s happening with Brexit, or not happening, is not so much what is happening today, it’s tomorrow’s decisions. So inward investors into Jersey are saying I’m not sure what your position is yet so therefore I’ll hold off, and the same with the City of London. I’ve come across two American corporations in the past year who were saying, “Tell us what the agreement is and we’ll adjust”. Now they’re saying we can’t wait any longer and so those two companies have gone to the Republic of Ireland.
‘What you’re finding is European centres aren’t expecting banks to move lock, stock and barrel. It’s the next development, it’s the next product area and they’ll say that’s jolly good we’ll put that in Amsterdam or Paris and that’s where Jersey needs to make sure it’s on that list because you could find yourself in a good position where, if Britain is going to be stupid and finds itself further offshore, you’ll find yourself almost as being that bridge point, actually being more acceptable to the European Union but not necessarily being completely tied to the UK.’
Trump’s tariff trade war with China, in particular, is sending shock waves around the globe. Surely this alone could cause an economic slowdown?
‘We are dealing with a huge amount of bluff and pomposity. Ignore the President for a second. The global economy is doing quite well, considering where we were ten years ago. The American economy is doing really very well but it’s got an extra boom to it because of the tax cuts he put in, which is going to give corporate margins an extra benefit coming through in the next two or three weeks in the results period. But that may be as good as it gets because they’ve had that extra fillip.
‘The good news is the underlying American economy is functioning, and why that’s important is the old line if America sneezes we catch a cold, if of course we are able to trade and you haven’t got some idiot mucking around with the trade routes, which of course he’s done again. The Chinese have been remarkably patient. The Americans put a ban on various things, they match it. They said we will never initiate anything we will just react. The second lot coming through of 200 billion has really shocked the Chinese because hang on a second, at what stage do we sit down and have a proper conversation over this. So it’s the lack of really in-depth economic knowledge in this administration that worries me.
‘The good news is underneath it, though. The economy, despite the politicians, is going to be doing well. That’s what we have to try and pin our hopes on. There is one word that runs an economy, anywhere in the world, especially in Jersey when you are affected by so many external things – confidence. If you don’t have confidence, nothing happens. We don’t go out and eat, companies don’t invest and more to the point for the likes of Jersey or in terms of the United Kingdom, inward investors don’t come in.
‘Four years ago, the United Kingdom was the third-largest recipient of inward investment – one trillion pounds – it’s not any more. Now a proportion of that will come to Jersey, so Jersey’s got to almost not cut ties but market itself and see itself as saying, “Yes, that’s Britain, yes ,it’s doing its Brexit, but we are doing something separate here and we can actually do something they can’t” .’
The US is in its second-longest bull run, is he nervous that it’s going to end and cause another downturn?
‘The end of a bull run does not mean a crash. What it means is actually you’re going to start to see a change of sentiment and we’re due one, frankly. The good news is that ten years on from the largest financial crash, the global economy is doing quite well.’
But as the Americans start to rein back quantative easing, will it have been enough to repair their economy? ‘The answer is probably yes. In the eurozone the banks are looking a bit dodgy, not just the Italian ones but also Deutsche Bank, so there’s a lot more work to be done there. We are starting to see rates beginning to rise, you’re seeing a position where the fear of these trade tariffs is impacting on commodity prices which are starting to rattle back. Why? Because of the expectation of falling orders next year. So be prepared – it’s a lower, slower world .
‘Yes, you may see some periods of lower growth, you may even see a technical recession but it doesn’t have to be a disaster and again it’s very much how people interpret it. We’ve had a bit of a boom, but now we have to make sure we can manage it to the next stage and make sure people’s money is suitably protected, to make sure that, irrespective of what the stock market is doing, you’ve got a broader range.
‘Stock markets will go through more volatility. That will make people nervous and the trade war will make people more nervous and yes, there will be more pressure. So beware more volatility.
‘Start thinking about your own finances. It’s not just about investing it’s all about financial planning and Jersey for years, with its trustees, has got a great history of doing that planning, whether for charities, for families or even individuals – far ahead of that which you’ll see in the United Kingdom. You can teach the mainland an awful lot about how this should be done on a longer-term basis, not on a short-term transactional basis. Leave that to the spread-betters, that’s why we have horse racing. That’s not investing.’
Following the overseas territories being required to adopt public registers and openly publish the true ownership of companies, does he see the movement building for Jersey and the other Crown Dependencies also having to comply, and, if so, what effect will it have?
‘The best thing is work on the assumption that you are going to have to be open, because that’s where it’s heading. So don’t drag your feet, go with the flow and say yes, it’s going to have to be open, things are going to have to be declared because that’s then how you can enhance your reputation. That may mean that certain companies or individuals will get nervous because they don’t want to be exposed to that, but frankly it’s only going to be a matter of time.
‘You can see which way this is going. The money-laundering issues the world is suffering at the moment are huge and they’re going to continue.
‘London has been the money-laundering centre of the world. They’ve been able to get away with it. Frankly, it’s easier to do some advanced money-laundering in London than it is to open a deposit account. That’s gone far too far. Jersey can say, “Look – we are a good international centre. Yes, you are going to have to declare, but you are getting other benefits for being here. We’re not giving you the benefit of secrecy because actually that’s not going to apply anymore. What you’re going to get is really good-quality reputable operations in running investments in an appropriate and outstanding manner”. That’s what people want.
‘Good regulations managed well is the best advert you can have. Bad regulation is merely something that drags everything down and becomes a business-prevention unit. That’s what attracted us to come to Jersey.’
So looking ahead, where does Mr Urquhart Stewart see opportunities for Jersey?
‘There is a gap in the financial plumbing throughout the whole of the United Kingdom and also in the Bailiwicks. What you’ll find is that a lot of the investment structures tend to be quite short-term. There’s private equity and venture capital, but it’s three years. Five years and it goes wrong. Where is the old exchange where you raise money for five years-plus? So the businesses say I’ve got good shareholders here, I can raise the capital here and I know it’s going to be properly run.
‘If you go back in the history of the United Kingdom and the Channel Islands, there were 45 stock exchanges in 1945. Now most of them were useless, we ended up with seven. I would now argue we haven’t even got one because the London stock exchange doesn’t really handle small businesses. And don’t mention AIM to me because, frankly, it’s a mess and it’s too expensive.
‘Here is the opportunity to establish, not just in the United Kingdom, regional exchanges – but also a Jersey exchange. Not in the old-fashioned mechanism, but by pulling in capital to actually have investment opportunities and it’s self-breeding. Once people sit there and say, “Actually that’s good. I can access money there and it’s quite cheap and, by the way, it’s not just some dodgy offshore place where I don’t know what’s happening, it’s a highly reputable area”.
If you can do that then you start on the back of it, the Jersey index. You have the index which measures, therefore, the effectiveness of the investment market and once you’ve got an index you’ve got some way to measure success; and once you’ve got an index, people like investing in the index so it will actually encourage more growth. So we need to think in a different way.
‘Jersey has been through a huge change. It got rid of the old-fashioned banking structures. It’s still got great strength in all the trustee areas, so build on that, but now use the technology to be able to take it to the next stage.
‘Where do people need to be able to raise capital in a controlled, successful area? That’s Jersey.’
