UBS’s award-winning Cayman-based Fund Services team.
UBS has been picking up awards for its fund administration. Its Cayman-based Fund Services team earned ‘Top Rated’ status in the 2006 Global Custodian hedge fund administration survey. Funds Europe magazine named Fund Services winner of the award for the European training programme of 2006 and the implementation of the UBS investment fund administration platform was recognised as the “most innovative custody/ fund administration project” for 2006 by ICFA magazine. And, having offered fund administration services for more than 50 years, Fund Services was named European Administrator of the Year 2007 by ICFA magazine.
Cayman Funds spoke to Darren Stainrod, head of Fund Services in the Cayman Islands and executive director at UBS, about a changing investor base and the edge that larger service providers can provide.
Cayman Funds: Is the hedge fund investor base changing?
Stainrod: Traditionally, the target market for hedge funds was the high net worth individual. That position changed some time ago and institutional investors are well established as major investors. Pension funds, endowments and large organisations are driving the big dollar growth in hedge funds. These are sophisticated investors that go to great lengths to satisfy their due diligence requirements and meet their compliance procedures. They are not the only source of funds but, right now, they are the dominating force.
One consequence of this is that more due diligence is required all round, with service providers undertaking due diligence on each other. This means investment managers, when starting up a fund, are more focused on who they engage as service providers. This can be an advantage to UBS as compliance and due diligence are extremely important drivers for our business.
Fund Services benefits from being part of the wider UBS community, which is well known and regarded within financial services. The high professional standards throughout UBS apply equally to Fund Services.
CF: Is the role of the administrator changing too?
Stainrod: To keep pace with the ongoing developments within the hedge fund industry, successful administrators must continue to evolve to provide the level of service demanded by clients.
Institutional investors tend to require more frequent reporting, along with higher levels of compliance due to greater regulatory oversight, as well as increased transparency. This is being driven by the demands of their own investors, who are now performing far more comprehensive due diligence of their investment managers and service providers. Some aspects of the services provided by administrators are expanding. Alongside NAV calculation and shareholder services, administrators are moving more to the middle office and providing cash reconciliation, liquidity reporting, risk reporting, trade affirmation—additional services that can be housed with the managers’ operations.
In addition to this is a suite of services for funds of funds, such as trade execution, order management, credit for short-term liquidity and supporting foreign exchange trading.
The differences between top tier and other administrators are also becoming more apparent. Most provide bookkeeping after the fact, with many offering ancillary services, asset and risk management tools, and trade reconciliation processing. For top tier administrators, such as UBS, we can add value through an additional range of services, the security of the UBS credit rating, and internal and external audits that take place within the business, not to mention the strength of the UBS brand.
CF: Is calculating NAVs as simple as it sounds?
Stainrod: There are four main elements to NAV computation: independent verification of the existence of the assets, pricing, profit allocation and fee calculation.
Within UBS, we independently verify the existence and the price of every open investment for the NAV period. If the client has a complex fund with derivatives requiring a valuation model, then we not only ensure that the model supplied by the client is valid but we also verify the inputs to independent sources.
In addition to the confirmation of the existence of the asset and its value, we also perform profit allocation and fee calculations independent of the manager.
CF: How big is UBS’s Fund Services business in the administration field?
Stainrod: We are the largest fund administrator in both the Cayman Islands and Switzerland, and the third-largest in Luxembourg. As at March 31, 2007, we administered fund assets of over $500 billion in more than 1,700 funds, split between UBS and external clients.
Within Fund Services, our capabilities include fund design, set-up and international registration as well as accounting, NAV calculation, compliance management, reporting and private labelling. We offer shareholder services, including share register, transaction processing and investor communication, and ancillary services for funds of funds, including a line of credit for liquidity purposes, custody, and forward currency hedging.
For hedge funds, we have specialist expertise in single manager, private equity and funds of funds administration, providing facilities for both onshore and offshore funds, backed up by state-of-the-art global infrastructure and support capabilities.
CF: How many people do you employ?
Stainrod: We have a team of 160 in Cayman, 90 of whom are qualified accountants. We operate a single point of contact approach, which means clients have a dedicated account officer to whom they can talk about any aspect of their fund. We believe that having qualified experienced people working with clients makes a fundamental difference to the quality of service we can provide.
CF: Where is your client base?
Stainrod: The major hedge fund administrators have clients split between Europe, America and Asia. The hedge fund industry is still 60 to 70 percent US-based and that is reflected in our client base, the majority of which is located in the US. These clients are serviced by our Cayman and Toronto offices, whilst Dublin looks after clients in the European time zones. Both Cayman and Dublin currently serve our Asian-based clients.
Fund Services also provides administration services for traditional/ mutual funds across Europe. Overall, our administration centres are located in Luxembourg, Switzerland, the UK, Ireland and Canada as well as the Cayman Islands.
CF: What brings new clients to you?
Stainrod: The demand for operational excellence is behind the need to partner with a hedge fund administrator providing superior fund administration services. As the hedge fund industry continues to ‘institutionalise’, running these services in-house can involve significant challenges, time and costs. Outsourcing to a third-party administrator not only provides protection and comfort to investors but also allows the client to focus on managing its portfolio. Additionally, with a banking facility that clears through UBS in the States, we can move funds later in the day and resolve issues more quickly than most other administrators, which is particularly important to our funds of funds clients.
Sometimes investment funds have worked with a smaller administration company and have been happy with the basic services. However, the smaller administrator may not be able to take the fund to the next level to attract the institutional investors, so a top-tier administrator with more robust processes and systems is needed, which leads people to us.
CF: How important is technology to what you do?
Stainrod: Technology is a key part of our strategy. We have an ‘open architecture’ model that allows us to interface with multiple systems and our platforms facilitate straight-through processing, which allows more timely and accurate reporting.
Our central accounting platform is a market-leading application dedicated to serving the needs of the hedge fund industry, and our shareholder service system can deal with performance fee equalisation and series accounting. This system also includes an advanced reporting module that can produce consolidated reports for each shareholder in a customised format.
Our web-based reporting permits secure online access to fund reports, valuations and other investment information, from any web browser, anywhere in the world. Technology needs to provide the flexibility to tailor solutions for clients. The need to keep up with this rapidly changing industry can be a barrier to entry into the administration market, but can give a large global company the edge.
CF: How are you dealing with global demand for employees?
Stainrod: Being a large global organisation helps us attract and retain some of the best people. Our single point of contact approach, facilitating the whole client relationship, supports staff retention by providing a challenging work environment. We further invest in our people through additional training and development, and are thus able to offer a rewarding career. Our staff turnover is much lower than the industry average, which in turn helps to build long-term relationships with our clients. In addition, being in Cayman can be an attraction in itself.
What differentiates UBS is our ability to provide an integrated, comprehensive service. Through our client-focused, single point of contact approach, we can offer all elements of service to clients, growing and developing with them, to deliver successful partnerships.
Darren Stainrod is head of Fund Services in the Cayman Islands and executive director of UBS Global Asset Management. His e-mail address is email@example.com.