Cayman Islands
22 August 2012
The Cayman Islands now has competition for fund administration business in the Caribbean, as AST finds out
Image: Shutterstock
The Cayman Islands continues to take the lion’s share of the funds business. With more registered companies than people, a low tax business environment, a close proximity to the US, an educated and motivated workforce, and more than 9000 registered hedge funds, there is a plethora of reasons to choose the British Overseas Territory that is nestled between Cuba and Jamaica.
However, since 2000, hedge funds have swollen in volume to become vital to the investing universe. In turn, directorship services have grown alongside hedge funds, with many funds that are run by US money managers having their legal residence on the islands for tax purposes.
Due to a idiosyncrasy in the tax code of the Cayman Islands, these funds must appoint a board, which is a quirk that has eagerly been seized upon, judging from the many dozens of operations now offering directors; typically accountants, lawyers and administrators of hedge funds.
But recent negative press has resulted in big investors starting to become uneasy over the role of offshore directors, who are ostensibly supposed to offer guidance and oversight to the funds.
US SEC filings have reportedly shown that some individuals are holding more than 100 directorships. This had led to those invested in the islands calling for greater disclosure of how many boards directors serve on.
The hubbub around the Cayman Islands has led other regions in the Caribbean to grab fund administration business, particularly the Netherlands Antilles. Though the country itself has dissolved politically, the islands—particularly Curaçao—provide a favourable tax, legal and regulatory climate for hedge funds.
A tax-exempt vehicle is available for hedge funds, and unlike the Cayman Islands, funds that are established in Curaçao do not qualify as UCITS. This means that there is no need to withhold on redemption, or to pass client information to tax authorities of other countries.
Unlike other Caribbean domiciles, the jurisdiction has a Dutch heritage and so it has a different legal structure from those with a connection to the UK. In 2003, the Netherlands Antilles passed the National Ordinance for the Supervision of Investment Institutions and Administrators (NOSIIA). The ordinance requires thorough supervision of funds that are domiciled in the Netherlands Antilles, unless a fund qualifies for one of its exemptions.
The ordinance and the supervision of funds provided for under it are based on Dutch regulations. Supervision is similar in scope and authority to the supervision of securities and investment vehicles in the Netherlands by the Autoriteit Financiele Markten (AFM). The intention of the AFM is to rely on NOSIIA supervision effectively allowing supervised funds to be marketed in the Netherlands.
In 2003, the Netherlands Antilles also took steps to raise its profile in the hedge fund industry, forming an association called the Curaçao Financial Services Association (CIFA). CIFA is seeking to promote the Netherlands Antilles as another alternative to the Cayman Islands and other Caribbean domiciles for hedge funds and other similar products.
However, many maintain that traditional and popular Caribbean domiciles will not be suppressed just yet. David Loader, the author of Fundamentals of Fund Administration, and CLT International, which offers qualifications in Caribbean fund administration, both assert that the influence and size, expertise and long history of fund jurisdictions such as the Cayman Islands and the British Virgin Islands compares favourably with some of the jurisdictions in Europe, with the geographical proximity to the Americas also remaining an important factor.
Though talent pools can be smaller, CLT reports that it has seen delegates from a wide range of backgrounds registering for its advanced certificate and diploma in fund administration.
“Candidates include those who are relatively new to the funds industry (for whom the advanced certificate is ideal) and those who are more experienced and are looking to develop and broaden their knowledge of different types of funds and their administration (which is covered in detail on the diploma). Previous delegates have included fund administrators, fund accountants, directors, client service managers and business analysts,” states Loader.
Though the surroundings may be more tropical, the issues affecting the funds business are just as pertinent to the Caribbean as they are to the US. Additional services that fund managers require centre around “assistance with compliance and risk management, client services such as reporting, verification of assets and more valuation input”. Administrators also are developing their own independent pricing models, which are depending on the fund policy, the regulation and the investor demands for independent valuations.
CLT International says: “The key changes that are affecting fund businesses in the Caribbean are regulatory and regarding transparency. The regulatory environment has seen some significant developments around the world, particularly in the US and Europe, and investors are carrying out greater due diligence on funds, as well as expecting greater levels of information and data about the fund and its performance. Risk, both market and operational, is a much more important area than it was previously so independent administration has grown in importance.”
However, since 2000, hedge funds have swollen in volume to become vital to the investing universe. In turn, directorship services have grown alongside hedge funds, with many funds that are run by US money managers having their legal residence on the islands for tax purposes.
Due to a idiosyncrasy in the tax code of the Cayman Islands, these funds must appoint a board, which is a quirk that has eagerly been seized upon, judging from the many dozens of operations now offering directors; typically accountants, lawyers and administrators of hedge funds.
But recent negative press has resulted in big investors starting to become uneasy over the role of offshore directors, who are ostensibly supposed to offer guidance and oversight to the funds.
US SEC filings have reportedly shown that some individuals are holding more than 100 directorships. This had led to those invested in the islands calling for greater disclosure of how many boards directors serve on.
The hubbub around the Cayman Islands has led other regions in the Caribbean to grab fund administration business, particularly the Netherlands Antilles. Though the country itself has dissolved politically, the islands—particularly Curaçao—provide a favourable tax, legal and regulatory climate for hedge funds.
A tax-exempt vehicle is available for hedge funds, and unlike the Cayman Islands, funds that are established in Curaçao do not qualify as UCITS. This means that there is no need to withhold on redemption, or to pass client information to tax authorities of other countries.
Unlike other Caribbean domiciles, the jurisdiction has a Dutch heritage and so it has a different legal structure from those with a connection to the UK. In 2003, the Netherlands Antilles passed the National Ordinance for the Supervision of Investment Institutions and Administrators (NOSIIA). The ordinance requires thorough supervision of funds that are domiciled in the Netherlands Antilles, unless a fund qualifies for one of its exemptions.
The ordinance and the supervision of funds provided for under it are based on Dutch regulations. Supervision is similar in scope and authority to the supervision of securities and investment vehicles in the Netherlands by the Autoriteit Financiele Markten (AFM). The intention of the AFM is to rely on NOSIIA supervision effectively allowing supervised funds to be marketed in the Netherlands.
In 2003, the Netherlands Antilles also took steps to raise its profile in the hedge fund industry, forming an association called the Curaçao Financial Services Association (CIFA). CIFA is seeking to promote the Netherlands Antilles as another alternative to the Cayman Islands and other Caribbean domiciles for hedge funds and other similar products.
However, many maintain that traditional and popular Caribbean domiciles will not be suppressed just yet. David Loader, the author of Fundamentals of Fund Administration, and CLT International, which offers qualifications in Caribbean fund administration, both assert that the influence and size, expertise and long history of fund jurisdictions such as the Cayman Islands and the British Virgin Islands compares favourably with some of the jurisdictions in Europe, with the geographical proximity to the Americas also remaining an important factor.
Though talent pools can be smaller, CLT reports that it has seen delegates from a wide range of backgrounds registering for its advanced certificate and diploma in fund administration.
“Candidates include those who are relatively new to the funds industry (for whom the advanced certificate is ideal) and those who are more experienced and are looking to develop and broaden their knowledge of different types of funds and their administration (which is covered in detail on the diploma). Previous delegates have included fund administrators, fund accountants, directors, client service managers and business analysts,” states Loader.
Though the surroundings may be more tropical, the issues affecting the funds business are just as pertinent to the Caribbean as they are to the US. Additional services that fund managers require centre around “assistance with compliance and risk management, client services such as reporting, verification of assets and more valuation input”. Administrators also are developing their own independent pricing models, which are depending on the fund policy, the regulation and the investor demands for independent valuations.
CLT International says: “The key changes that are affecting fund businesses in the Caribbean are regulatory and regarding transparency. The regulatory environment has seen some significant developments around the world, particularly in the US and Europe, and investors are carrying out greater due diligence on funds, as well as expecting greater levels of information and data about the fund and its performance. Risk, both market and operational, is a much more important area than it was previously so independent administration has grown in importance.”
NO FEE, NO RISK
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
