Thanks to sound legislation and a solid private/public sector partnership the Cayman Islands was the domicile of choice for fund administration in the 1990s; however, recent years have seen administrators move to other jurisdictions for a number of reasons, including cost efficiency and immigration issues. The establishment of a new fund administration company here is therefore extremely good news for Cayman’s financial services industry and the jurisdiction as a whole. Business Editor Lindsey Turnbull reports.
Trinity Fund Administration was welcomed into the fold at a well-attended reception at Grand Old House last November, which included Cayman’s Premier McKeeva Bush, Health Secretary Mark Scotland, MLA Cline Glidden, other government officials as well as a large gathering of the private sector.
Although Trinity Fund Administration is headquartered in Dublin the two main operators at Trinity both have strong Cayman connections.
John McCann, managing director of the company spent five years working at Midland Bank in Cayman (now known as HSBC) in the late 1980s and early 1990s and even maintained a home here until recently.
“We moved to Dublin in 1994 as our group client base was predominantly focused on India and the E.M.E.A. region as opposed to North America, so it made sense to locate to a jurisdiction with a European time zone,” he explains.
McCann built up the business in the late 1990s and 2000s, creating a solid operation servicing funds while remaining a small and independent global boutique operation. During this time he still kept close contact with the Cayman Islands, as the majority of the investment funds Trinity serviced continued to be Cayman domiciled, travelling back twice a year for board meetings as well as trips for pleasure and to stay in touch with life-long friends.
Over time it became more apparent to McCann that having an operation in a US-based time zone would be a clear advantage for the firm, especially as the third party administrative landscape there was dramatically changing.
“The hedge fund industry evolved during this time from its initial cottage industry into a more institutional and increasingly sophisticated business. We had an increasing number of funds domiciled in Cayman so it made sense to establish a physical presence here,” he says.
Brad Cowdroy is Trinity Fund Administration (Cayman) Ltd’s General Manager and he has lived in Cayman for the past nine years and is married to a Caymanian, so his connections with the Island are also extremely close.
Brad says they looked at other jurisdictions when anticipating their expansion; however, Cayman was always the logical choice. Not only is Cayman regarded as the leading domicile for offshore hedge funds, but the legislative and operational framework in Cayman was more conducive to their business than elsewhere.
He states: “Guernsey and Jersey, for example, often require local administrators and local custodians when a fund is domiciled there. Cayman takes a much more business friendly and flexible approach, whilst maintaining the financial centre’s integrity, and was therefore a more attractive proposition in structuring one’s business.”
A changing landscape – all in the timing
The events of the past year to 18 months in the United States have made fund managers and fund principals take a fresh look at the infrastructure of their new funds.
“Operational risk is now the mantra,” McCann says, “The Bernie Madoff affair, on the back of a number of other recent high profile (albeit with lesser economic impact) cases, has created a paradigm shift in the way that Hedge Fund managers, regulators but most importantly investors view the historical US approach of “self-administration”. They are now demanding arms-length third party, independent administration.”
Thus the appointment of an independent administrator has become increasingly important for investors and McCann believes this is a decisive factor for funds when choosing their administrator and when considering their overall marketing strategy.
“Safe custody of assets, independent verification of assets and so on, have become a pre-requisite for fund managers. The US fund industry finds itself in a transforming landscape with its previous structural approach in comparison to the non-US approach,” McCann states.
Having independence from big name banks and other financial institutions means entities such as Trinity can be nimble and receptive to markets’ demands, which, McCann says is the only chance for survival in this most competitive of businesses.
McCann cites an example of the type of market movements to which the industry is having to adopt: “The CalPERS fund (California Public Employees’ Retirement System) is the biggest in the world with a fund value (at the time of writing) of $206.2 billion. They invest between one and two per cent of that figure in alternatives such as hedge funds, which is still a huge figure. Those hedge fund managers who wish to attract these types of institutional investments must have third party administration.”
A welcoming environment
Premier McKeeva Bush welcomed Trinity to the Cayman Islands with a speech that discussed the benefits of such entities to the Caymanian people. “If we attract 10, 20 or hopefully 30 such fund administrators they will each provide a good number of jobs for Caymanians,” he said.
Bush said that immigration issues that have previously thwarted expansion of business in such areas must and would soon be rectified.
”We have to show to the world that we are not just open for business, but that we are ready to compete and market ourselves as the leading international business centre,” he confirmed.
Welcoming Trinity to the Cayman Islands, according to the Premier, marked the start of getting Cayman back on track.
“If we all continue to work together in this way in a collaborative effort and create a united and powerful front we can achieve anything,” he said.