What trends are you seeing within the alternative asset managers space in the Cayman Islands?
Paul Woods: Asset managers and investors are increasingly interested in the Cayman Islands as a fund domicile, and are often looking for support with fund administration, corporate and debt capital market services for Cayman Islands structures.
While regulations have recently been put in place to encourage Cayman managers to set up shop and have a real Cayman presence, relocation remains an unlikely option for many managers. It is far from cost effective for smaller asset managers, and larger asset managers who may be able to absorb the cost and relocate people who do not always have the experience and depth of knowledge needed to build and run Cayman-based in-house teams. As a result, managers have turned to outsourcing compliance officer roles and directorships to experienced firms like Alter Domus.
What are the biggest challenges in the Cayman Islands’ alternative asset managers space?
Woods: Cayman has spent years building up its reputation as a trusted fund domicile, but earlier this year, a missed compliance deadline by a few days landed the country on the EU’s blacklist for several months. While no longer on the blacklist, the Cayman government is well aware of its reputational risks and continues to adapt its regulations to ensure that the Cayman Islands’ financial industry remains a robust market and good partner in the global investment industry.
As regulatory requirements continue to evolve and expand, the penalties for non-compliance in certain areas are increasingly steep. Many asset managers, especially those with smaller operations, face challenges in securing the in-house staff and resources required to cover director positions, anti-money laundering (AML) officers, audit fees and Cayman Islands Monetary Authority (CIMA) fees.
What is being done to tackle tight regulations and reporting requirements?
Woods: Asset managers need to make sure they have trusted advisors to guide them through the regulatory landscape. CIMA has been taking a closer look at almost all entity types. Regulators will physically visit offices to review a setup, speak to directors, and review all documentation for investment approvals.
Outsourcing firms like Alter Domus help managers successfully navigate the regulatory environment by providing dedicated phone lines and office space to the managers. The professionals at Alter Domus also have experience in investment management and can serve as directors, approving investments and preparing managers for any potential scrutiny.
How has the virus affected the sector in the Cayman Islands?
David Boyd: While there is no doubt that the asset management sector has experienced a fundamental jolt to its system, there is still confidence out there. The scope of disruption presents clear opportunities, and those best placed to capture them are those best able to scale resources and expertise where needed. Specifically, for the Cayman Islands, COVID-19 has significantly changed the ways managers interact with their boards and investors. Where managers might previously have held board meetings in person, it can be hard to justify the mandatory 14 days of quarantine for a half day meeting. Meetings with onshore members of the board are also being conducted remotely.
As we live with and learn to adapt to virtual meetings, travel limitations and ongoing economic turbulence, technological solutions look set to become more firmly embedded across operational activities. Technology has been at the heart of the world’s response to COVID-19 and this may well prove to be the first steps on the path towards a significantly greater digital era.
How do you think the market will progress in 2021? What will be the big talking points?
Woods: The Cayman Islands market will continue to grow, but with greater responsibility for managers and asset servicing providers.
In the year ahead, we may begin to see the impact of recent regulations on new fund openings. Managers trying to launch funds in the Cayman Islands may run into challenges, particularly if they are short-staffed to handle all administration in-house.
We are optimistic in our outlook for the fund services industry. As the region’s emphasis on regulation continues into 2021, asset managers — particularly the US and Asia-based managers — who find the Cayman Islands an attractive fund domicile will require the guidance of a fund services team which brings a global network, as well as in-depth knowledge and local best practices
