Cayman Islands Fund Administrators Association
AST talks to Darren Stainrod of the Cayman Islands Fund Administrators Association about directorships and how AIFMD will affect the islands
What is your opinion on the attention that is being paid to directorships in Cayman?
There has been a lot of attention to this subject over the past few years. This led to the consultation paper that was issued by the Cayman Islands Monetary Authority (CIMA) to a wide cross-section of the industry in January 2013 relating to the potential regulation of professional directors on the boards of regulated funds.
Most of the people providing these services from the Cayman Islands are seasoned professionals with sufficient experience to provide adequate supervision of the funds that they provide services to. As such, we don’t feel that a significant increase in regulation is necessarily needed to resolve this situation as investors can always ask about this prior to placing any funds with a manager. In this way, the industry can, and is, regulating itself by moving to directors with more manageable portfolios, establishing boards of entirely unrelated independent directors and by providing increased transparency regarding the nature and extent of individual appointments.
Are you seeing any rise in non-traditional Caribbean domiciles, and how will Cayman continue to lead the pack?
There are a growing number of domiciles that compete with Cayman fund products both within the Caribbean and elsewhere. Some European managers that used Cayman in the past may now use a Dublin qualified investment fund or Luxembourg specialised investment fund instead, either for proximity or perhaps to position themselves for the Alternative Investment Fund Managers Directive (AIFMD).
However, we have not seen any other locations making significant inroads to the long standing dominance of Cayman, perhaps in the same way that the Cayman brewery makes a very drinkable beer but isn’t yet threatening the Budweiser brand. That said, there are always opportunities to innovate different products for slightly different markets such as the Bahamian SMART funds that are aimed at the growing Brazilian family office fund market, which have been reasonably successful.
How will AIFMD affect Cayman?
The government of the Cayman Islands has been in close dialogue with the European Securities and Markets Authority (ESMA) as well as several key EU member states in relation to AIFMD ever since it was first proposed. The aim has been to ensure that Cayman is accepted as a third country once these are permitted under the regulations in 2015 and that there is no negative impact on Cayman products in the meantime. Recent legislative amendments authorise CIMA to enter into intergovernmental cooperation agreements in line with the template memorandum of understanding that was envisaged by ESMA. The amendments empower the monetary authority to use the ESMA model to complete any additional cooperation agreements that may be required with EU member states.
Cayman also meets the other major preliminary requirement of not being on the Financial Action Task Force (FATF) list of non-cooperative jurisdictions. Therefore, Cayman is doing everything it can to pave the way for AIFMD compliance to ensure that Cayman-domiciled funds can continue to be marketed in Europe.
Are you seeing any consolidation of administrators on the islands—and is this a positive or a negative?
There are only a few medium-to-small-sized administrators that have their only office in Cayman and so the consolidation of the Cayman industry largely reflects the consolidations in the global administration industry, of which there have been quite a few in recent years.
Consolidation in general can be beneficial by providing combined resources to enhance platforms and reduce costs, which can be passed onto clients or fill gaps in capability. The argument that it reduces choice holds little water when there are more than 70 administrators and 10 with more than $100 billion in AUA (excluding fund of funds). This still provides significantly more choice of top-tier players than in the audit industry, for example. However, client losses or negative feedback following consolidation seems to suggest that there have been as many unhappy marriages in the industry as successful ones.
Migrating or integrating platforms and cultures, key staff losses and overly ambitious attempts to cut costs by outsourcing too much of the value chain to low cost locations are some of the negatives. The issue for Cayman’s fund administration industry has not been so much the amount of consolidation as it has been the migration to other locations mainly for cost reasons, which have been made possible by technology advances that render many processes location agnostic.
However, this flexibility of the Cayman product is one of its strengths and there are still benefits to operating here in terms of attracting talented professionals from around the world. This enables a consistently high level of personalised service to be provided, which is critical in servicing certain products and strategies. By combining this excellent service with global platforms that use lower cost locations to operate many of the processes seamlessly to the client, this can still be done at a competitive price.
