Despite threats from other offshore jurisdictions, the Cayman funds industry continues to thrive, as Darren Stainrod explains.
The Cayman fund administration industry has experienced many changes in the last few years. The administration of hedge funds, fund of funds and other alternatives has become increasingly automated, globalised, commoditised and industrialised. Technology has rendered the physical location of processes largely irrelevant. As a result, Cayman has seen a migration of fund shops from its shores to other jurisdictions due to rising costs and ever-increasing competition from both onshore administrators and offshore outsourcing options.
But there are still many advantages to accessing these global platforms via an expert team of dedicated professionals situated in the Cayman Islands who offer a responsive and personalised service. For fund of funds, private equity funds, family offices and certain hedge fund strategies, where a certain complexity exists, Cayman is still a leading domicile and Cayman-based administrators can differentiate themselves from the crowd.
One of the key attractions of Cayman-domiciled vehicles is their flexibility. This is exemplified in the speed of set-up, range of structures and freedom in use of leverage or strategy employed. Indeed, one of the reasons that they are used the world over is Cayman’s open architecture, which allows all the services to be provided locally, with only the audit needing to be signed off in Cayman.
There are many new competing jurisdictions with similar products to Cayman’s, such as Malta and Gibraltar. Even Luxembourg and Ireland have the specialised investment funds (SIFs) and qualified investment funds (QIFs) that replicate the Cayman fund structure. These competing jurisdictions have not made significant inroads to date. However, with the EU Alternative Investment Fund Managers Directive (AIFMD), and the more regulated (but restrictive and expensive) Undertakings for Collective Investment in Transferable Securities (UCITs), they have certainly attracted some assets that would previously have found their way into Cayman-domiciled hedge funds. Fortunately, as a global administrator, UBS is able to service most of these assets wherever they are located and in whatever structure they sit in.
Turning to Cayman as a base for administrators, there is no doubt that the industry has had to change over the years. Nearly 200 administrator licences have been issued by the Cayman Islands Monetary Authority (CIMA), but it is not clear how many maintain a significant physical presence in Cayman. Perhaps a more accurate indicator might be the 35 or so members of the Cayman Islands Fund Administrators Association. Even then only a handful continue to perform full administration services from the Cayman Islands, with many retaining only corporate services, trusts and shareholder services physically in Cayman.
For administrators that do still offer a full service from the Islands (while leveraging a global platform) there are many advantages. UBS, for example, has around 160 full-time staff dedicated to fund administration services physically located in Cayman, including nearly 100 qualified accountants. We have found that, partly because of the attractiveness of the location, expatriate employees tend to stay for a number of years, providing continuity of service for our clients.
Quality of service is especially important for certain products which cannot be fully automated, such as fund of funds, family offices and other complex alternative strategies. These cry out for a coordinated service provided by a dedicated and professional team that understand the hidden complexities, can manage the month-end juggling of incoming subscriptions and outgoing trades and will not only get it right but also pick up inconsistencies in orders received. Even for less complex hedge funds, by combining professional qualified staff in Cayman that deal with clients and their investors with processes carried out seamlessly in lower cost jurisdictions, it is still possible to provide a top quality service at competitive rates.
As much as we have seen some of the administration industry based in Cayman migrate to other shores, we continue to see a steady flow of talent into Cayman from all over the world. For UBS, with the strength of our work force and the attractiveness of the jurisdiction, we expect the fund administration industry to continue to thrive in the Cayman Islands for a very long time to come.
Darren Stainrod is head of UBS Fund Services in the Cayman Islands. He can be contacted at: firstname.lastname@example.org
Darren Stainrod is responsible for the overall management and development of UBS’s fund services business in the Cayman Islands