Focus on domicile and administrator for offshore funds; Jan 2012


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Phil Griffiths of JP Fund Administration (Cayman)
explains the considerations to keep in mind when
establishing a fund in the Latam region

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Focus on domicile and administrator for offshore funds; Jan 2012

  1. 1. 3 2 WWW.Latamfm.COM January • 12 domicile/administrator sponsored editorial Focus I n the alternative investment com- munity, much of the regulatory and investor focus is now on the use of independent service providers: directors, banks, brokers, auditors and administrators. This focus is hardly surprising given recent scandals. Although Madoff and other fraud- sters were not running hedge funds or other alternative investment struc- tures (Luxembourg Ucits were used), the practice of receiving investor funds into company accounts, execut- ing trades through a proprietary bro- kerage, reporting all activities and cli- ent holding values internally and using a ‘friendly’ auditor to sign off enabled the perpetration of massive fraud; all industry participants are understand- ably cautious. The days of the invest- ment manager faxing the NAV to the administrator at the end of the month are long over. Alternative investment fund struc- tures with independent service pro- viders can be combined to establish cost and operationally efficient funds with the strongest of investor protec- tion characteristics ‘built in’. The JP Funds Group Emerging Managers Platform provides a fund structure that is independently held from the investment manager with independent directors, administra- tion and external auditors to ensure that investors’ interests are overseen by separate directors who are not the same as or appointed by the princi- pals of the investment manager. When establishing a fund, the domicile of investors and their preferences will play a large role, although the manager is the one that must deliver perform- ance, so legal considerations, costs and the flexibility to operate the strategy as intended are key. For these reasons, the vast majority of qualified investor funds are based in the Cayman Islands. When choosing a fund administra- tor, similar considerations exist given that this service provider is a key in- terface with investors and the primary focus of non-investment based activ- ity. Alternative fund managers may wish to consider a number of factors when choosing fund administrator: • Regulatory status of administrator In many jurisdictions, administrators are simply not accountable to any regulator. A Cayman licensed ad- ministrator is subject to the highest minimum capitalisation requirements and comparable regulatory inspec- tion requirements to the strictest EU jurisdictions. Regulation of the fund administrator is a crucial comfort for all fund participants. It’s important to note that in recognition of the higher regulatory status of the fund admin- istrator, a Cayman ‘administered’ fund can accept subscriptions below the usual $100,000 minimums where unregulated administrators are used; some qualified investors may find this very attractive, particularly in the cur- rent economic climate. • How NAV calculation and report- ing is handled What is their relationship with third- party providers (for example, banks and brokers)? Can any regulatory or tax reporting be arranged? Do they as- sist with audit preparation and liaison with other service professionals? Do they really understand the strategy? • Operational What are the due diligence, anti-mon- ey laundering and “know-your-client” procedures like? Are the share registry services adequately covered? Do they actively participate in middle office functions and cash management? • IT/disaster recovery Are IT backup and disaster recovery systems satisfactory? Can business resume without materially affecting the fund operations and reporting? • Fund domicile expertise Different jurisdictions have different regulatory and compliance require- ments; an administrator will need to be conversant with the requirements concerning the domicile of the fund; and • Cost Administration fees and sometimes numerous additional charges can have a considerable impact on the ongoing running costs of a fund; ask questions to confirm minimum fees. While this list is not exhaustive, it provides an initial framework for an investment manager seeking a fund administrator. JP Fund Administration is the hold- er of a Cayman Islands Unrestricted Mutual Funds Administrator’s Licence FOCUSON: Domicile/administrator Phil Griffiths of JP Fund Administration (Cayman) explains the considerations to keep in mind when establishing a fund in the Latam region Phil Griffiths director of JP Fund Administration (Cayman) 032_LatamFM15_JPFundadmin-sponsored.indd 32 24/11/2011 11:36