Cayman infrastructure fund going on companies register

Cayman Islands businessman and former political candidate Derrington “Bo” Miller said Monday that he’s willing to bet local citizens and residents want to invest in their own island before keeping money in a low-return bank account or sending funds offshore for someone else to speculate on the markets.  

Mr. Miller is so confident of that, he’s planning to register the creation of the Cayman Investment and Infrastructure Fund within the next week in the local register of companies, with an eye toward funding several high-profile and much-needed capital infrastructure projects.  

Ideas for an infrastructure fund for the islands have been kicked around for a number of years, including by Mr. Miller most recently on the campaign trail last year. Basically, such a fund seeks to create a facility for private sector-driven investment that could be used to pay for a number of public projects, including a new airport, a cruise port and the remediation of the George Town landfill, among others.  

Mr. Miller’s proposed fund would function like a public-private partnership, but with a few adjustments. It requires the formation of a “parent company” – the infrastructure fund – to manage other projects individually as they receive investor interest. 

The initial investments managed by the infrastructure fund would be used to build the project, and recurring costs would be funded out of revenue streams, whether existing or new, created for the project. In the case of a cruise port, for example, passenger fees might be increased to help pay for the project operations and raise money needed to pay dividends to investors.  

The key for such a proposal to work, according to Mr. Miller, is that government entities must be willing to give up a measure of control – and revenue – from what would essentially be public sector projects.  

“The funding mechanism is what we’re going to own,” Mr. Miller said. “Government only has to give up part of the operation and management [of the project]. 

“The government will regulate us, just how they regulate the other entities today. It depends on how we structure [each] deal. If we go on the [Cayman Islands] stock exchange, we definitely will register with the Cayman Islands Monetary Authority.”  

At the end of the project’s useful life, government will still own the “bricks and mortar” – buildings, runways, cruise docks – whatever is constructed. The important part, Mr. Miller said, will be convincing would-be investors that the projects they fund will be managed correctly and within budget.  

“The private sector is not too keen on investing in [entities] where the government retains full control of the operations,” he said. “The government is not known to run businesses very well. That’s the problem we have with garbage right now [referring to the George Town landfill].”  

Investment rules for the fund are still being ironed out, but Mr. Miller proposes setting a 10 percent limit for any one project as the maximum amount a person or entity can invest. 

“We want anybody to be able to invest … that’s why we put a 10 percent limit on it. No one party or one person can control more than 10 percent,” he said. “But the first people who are given the opportunity to invest are local residents; it doesn’t matter if you have a red passport, green one or blue one.”  

Mr. Miller said he came up with ideas for such an infrastructure investment fund after the U.K. ordered Cayman to halt any further long-term borrowing until it got its finances in order. That ban on long-term borrowing is expected to be in place for at least the next two government budget years.  

In addition, banks locally and internationally have become increasingly more stringent with borrowing requirements in the wake of the 2008 financial markets collapse, Mr. Miller said.  

What has made matters worse in Cayman, Mr. Miller said, is that successive governments have refused to invest in needed infrastructure during the good times.  

“The rate of development over the past 40 years far outpaced the investment in the infrastructure necessary to support it,” Mr. Miller said in a draft case for the establishment of the infrastructure fund issued in September 2013. “To compound the issue, the impact fees from development were not sufficient, nor were they used sensibly.”  

Whatever option for public project investment is chosen, Mr. Miller believes government can no longer depend on the model that drove the “Cayman economic miracle” of the last 30 to 40 years.  

“I am convinced that the economic model … has expired and must be retired. The actions of the previous [government] administration’s tenure clearly demonstrate this. They wasted four years of time and millions of dollars trying to resuscitate this deal model with zero results.” 

Chamber members react 

Mr. Miller’s proposal was presented to Chamber of Commerce members Monday as part of the business group’s Be Informed series and received a fairly positive response.

Some interest was expressed during the meeting as to how infrastructure fund investments could bolster private sector pension returns.  

“Even if [investors] put in for 40 years, they get a very small amount to live on under the current scenario,” Labour and Pensions Department Director Mario Ebanks said. “So you either have to increase the contribution rate or improve the returns. 

“I’m not in favor of losing money just because it’s in Cayman … but if it’s at least equal to or better than they get in the market, it’s a win-win.”  

First Regents Bank Director and CEO Paul Byles asked whether cash flows from the various projects could really be taken out of government.  

“The government may not wish to relinquish control … of the business itself and the cash flows associated with the infrastructure,” he said.  

Reluctance  

Mr. Miller said he had gotten that impression of reluctance in previous meetings with government officials on the subject. “There are ways we are prepared to share … with the government,” he said. “But they don’t seem to get the concept that they need to let go of some stuff to make it happen.”  

“[The plan is] fundamentally sound, but you really have to put on an innovative hat and there has to be a secondary market [a way to sell the investment],” local businessman Attlee Ebanks said. “People would like to know, if they have to get out [of the investment] how can they get out.”