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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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