Navigating the waters of Caribbean fund administration
24 July 2024
Klea Neza speaks to market participants on the challenges faced by fund administrators in an ever-changing industry
Image: picturepast/stock.adobe.com
Just as sailors once explored the seas of the Caribbean looking for treasure, fund administrators seek the gold key to providing top work in the realm of asset servicing.
As the Caribbean gradually emerges as a dynamic hub for fund administration, it is doing so in an ever-changing global landscape. This has left fund administrators to navigate the waves of constant change that influence fund services in the region: technological advancements, regulatory reforms, a shift in how funds are managed, and data management.
To understand how these specific trends may be transforming the fund administration business, and what they might signify for investors, we too, must dive deeper in the search for nuggets of administrative fund gold.
Navigating the waves of today
Just as sailors have faced the challenges of the Caribbean’s waters, fund administrators have their obstacles within the asset servicing industry in the region.
But how do they handle these dilemmas? What solutions do they use? And why has it become difficult for fund administrators to manage their services?
“Like all sophisticated fund markets, the regulatory landscape in the Caribbean locations or countries is always evolving,” comments Dan McNamara, chief strategy and chief financial officer at MUFG Investor Services.
McNamara notes that around the world, there have been regulators aiming towards “increased transparency, increased levels of reporting, and additional information”. Some examples of this can be seen in the “recent revision of the Cayman Islands Anti-Money Laundering regulations (AMLRs), and a host of legislative changes that will work their way into regulation”, he highlights. This includes examples such as the Beneficial Owner Transparency Act, and enhancements to the Exempted Limited Partner Act, he notes.
Other changes in the Cayman Islands have included the expansion of the beneficial ownership transparency act that McNamara says will move into “full effect in January 2025 will bring a significantly greater number of entities into the new regime”.
Similarly, Cory Thackeray, head of Caribbean at IQ-EQ, highlights “new rules and guidance” across various Caribbean jurisdictions in which he explains that some of these requirements are “the natural responses to Financial Action Task Force (FATF) mutual evaluations, which have prompted jurisdictions to enhance their regulatory frameworks, strengthen compliance, and mitigate financial risks in the region”.
Despite the boat of fund administration services coming across a few rocks and bumps, it remains strong in its journey to adaptation as some may view this as an “opportunity for managers who can display to investors that they are fully abreast and ahead of the changes, which drives investor confidence and manager appeal”, explains McNamara.
“This positive outlook on the changes in fund administration could also create a competitive advantage for businesses who know how to comply and anticipate regulatory change most efficiently,” he adds, which could be through technology or the process of outsourcing.
“It allows them to spend a larger proportion of resources on attracting investor inflows and generating alpha.”
Thackeray, with a similar outlook, sheds light on the opportunities that are created as a result of regulatory changes, commenting on the idea that “administrators are seeing much more demand for consultative arrangements and partnerships to navigate these waters, moving beyond the traditional fund accounting and investor servicing business models [companies have] delivered on”.
He notes fund administrators that are able to offer “a full suite of services to complement the core administrative functions are well-positioned to assist clients in managing increasing regulatory pressures”.
Managing risk
McNamara notes that “risk management is not a separate process laid over investment strategies, but a foundational component of those strategies. Risk management hinges on a firm’s ability to manage and analyse large data sets, such as trade and position data and historical P&Ls.” McNamara explains that data as such enables the manager to “test new strategies and examine trends and performance across cycles”.
Another factor that McNamara highlighted is the growth of technology in risk management. Fund managers seem to be increasingly faced with processes such as “managing tech infrastructure, disparate data sets and associated operational and technology risk to deliver their end product to investors”, he says.
A company such as MUFG Investor Services is able to aid them in achieving scalable technology and operations in order to effectively manage and evaluate data to protect it against fraud.
Commenting on hedge funds, Thackeray says: “we have seen a number of hedge funds choose to return external capital and transition into family offices. This trend highlights the evolving nature of the hedge fund industry rather than outright ‘failures’.”
Treasures ahead
Technology has evolved and continues to do so for all industries, including fund services. So how are these ‘sailors’ searching for the treasures of tomorrow and the gold of today? In fund administration, there seems to be an increased demand for the ‘jewels’ of data services across the market, which is highlighted by Thackeray. This means that companies need to stay on top of data collection across sources, aggregation and exchange, and reporting back to the client.
Looking into the future, he suggests AI “is an area to watch”. IQ-EQ has already taken steps to advance in their AI journey with dedicated teams and projects “being stood up to enable best-in-class AI capabilities, initially concentrating on Generative AI and Large Language Model (LLM) tools”.
Thackeray believes this category is broad, and will include leveraging AI tools available in the marketplace along with developing their own proprietary tools before bridging them into their existing applications.
McNamara notes the saying: “There are two types of companies in the world — technology companies and companies that don’t know they are technology companies.”
It seems like in the next few years, AI will be delivering further advanced applications to streamline operations and deliver more services to clients. MUFG Investor Services already uses AI, natural language processing and machine learning to “streamline data gathering capabilities and provide more efficient data processing and workflow”, adds McNamara.
It is clear to see that the use of AI and other technologies will only increase over the years, specifically focusing on fund administration and becoming the gold that these companies seek in order to implement into their services.
Talent acquisition
Some may say talent in fund administration is scarce but McNamara gives another point of view in which he says he would not necessarily agree. Instead he sheds light that there is in fact a lot of talent, “but the market is very competitive because candidates are highly valued and in demand”.
McNamara speaks about the hiring process,which consists of things such as HR focusing on employee engagement and well-being, providing teams with career development and growth opportunities through processes such as “development programmes at all employee levels” as well as in-house academics. He further ensures that MUFG Investor Services does not view talent acquisition as a dilemma, rather the “opportunity to invest in learning and development process to become an employer of choice”.
Thackeray, however, underlines that, while talent acquisition is important and that companies have to strive in order to have the “best athletes on your team to service clients, the concentration risk in the Caribbean has been diversified in many organisations, including IQ-EQ”.
He calls attention to the fact that “most administrators are no longer operating in a silo in the Caribbean and are leveraging a global workforce in servicing clients. This may be with teams in the US or Canada (same time zone) or utilising teams in other strategic global client delivery centres (GCDs) around the world, leveraging a 24-hour clock ‘follow the sun’ model for client deliverables”.
But is it important to note that even when leveraging these models global operating models, companies still own the client relationships and deliverables, ensuring they have the proper oversight in place.
Dropping the anchor
Though the waters can be navigated, a final destination can never truly be reached. Avoiding walking the plank may be victory enough.
Despite this, fund administrative ‘sailors’ will continue their journey in seeking ‘treasure’ that will help them in the future, with AI seeming as a big factor to aid their services.
As the Caribbean gradually emerges as a dynamic hub for fund administration, it is doing so in an ever-changing global landscape. This has left fund administrators to navigate the waves of constant change that influence fund services in the region: technological advancements, regulatory reforms, a shift in how funds are managed, and data management.
To understand how these specific trends may be transforming the fund administration business, and what they might signify for investors, we too, must dive deeper in the search for nuggets of administrative fund gold.
Navigating the waves of today
Just as sailors have faced the challenges of the Caribbean’s waters, fund administrators have their obstacles within the asset servicing industry in the region.
But how do they handle these dilemmas? What solutions do they use? And why has it become difficult for fund administrators to manage their services?
“Like all sophisticated fund markets, the regulatory landscape in the Caribbean locations or countries is always evolving,” comments Dan McNamara, chief strategy and chief financial officer at MUFG Investor Services.
McNamara notes that around the world, there have been regulators aiming towards “increased transparency, increased levels of reporting, and additional information”. Some examples of this can be seen in the “recent revision of the Cayman Islands Anti-Money Laundering regulations (AMLRs), and a host of legislative changes that will work their way into regulation”, he highlights. This includes examples such as the Beneficial Owner Transparency Act, and enhancements to the Exempted Limited Partner Act, he notes.
Other changes in the Cayman Islands have included the expansion of the beneficial ownership transparency act that McNamara says will move into “full effect in January 2025 will bring a significantly greater number of entities into the new regime”.
Similarly, Cory Thackeray, head of Caribbean at IQ-EQ, highlights “new rules and guidance” across various Caribbean jurisdictions in which he explains that some of these requirements are “the natural responses to Financial Action Task Force (FATF) mutual evaluations, which have prompted jurisdictions to enhance their regulatory frameworks, strengthen compliance, and mitigate financial risks in the region”.
Despite the boat of fund administration services coming across a few rocks and bumps, it remains strong in its journey to adaptation as some may view this as an “opportunity for managers who can display to investors that they are fully abreast and ahead of the changes, which drives investor confidence and manager appeal”, explains McNamara.
“This positive outlook on the changes in fund administration could also create a competitive advantage for businesses who know how to comply and anticipate regulatory change most efficiently,” he adds, which could be through technology or the process of outsourcing.
“It allows them to spend a larger proportion of resources on attracting investor inflows and generating alpha.”
Thackeray, with a similar outlook, sheds light on the opportunities that are created as a result of regulatory changes, commenting on the idea that “administrators are seeing much more demand for consultative arrangements and partnerships to navigate these waters, moving beyond the traditional fund accounting and investor servicing business models [companies have] delivered on”.
He notes fund administrators that are able to offer “a full suite of services to complement the core administrative functions are well-positioned to assist clients in managing increasing regulatory pressures”.
Managing risk
McNamara notes that “risk management is not a separate process laid over investment strategies, but a foundational component of those strategies. Risk management hinges on a firm’s ability to manage and analyse large data sets, such as trade and position data and historical P&Ls.” McNamara explains that data as such enables the manager to “test new strategies and examine trends and performance across cycles”.
Another factor that McNamara highlighted is the growth of technology in risk management. Fund managers seem to be increasingly faced with processes such as “managing tech infrastructure, disparate data sets and associated operational and technology risk to deliver their end product to investors”, he says.
A company such as MUFG Investor Services is able to aid them in achieving scalable technology and operations in order to effectively manage and evaluate data to protect it against fraud.
Commenting on hedge funds, Thackeray says: “we have seen a number of hedge funds choose to return external capital and transition into family offices. This trend highlights the evolving nature of the hedge fund industry rather than outright ‘failures’.”
Treasures ahead
Technology has evolved and continues to do so for all industries, including fund services. So how are these ‘sailors’ searching for the treasures of tomorrow and the gold of today? In fund administration, there seems to be an increased demand for the ‘jewels’ of data services across the market, which is highlighted by Thackeray. This means that companies need to stay on top of data collection across sources, aggregation and exchange, and reporting back to the client.
Looking into the future, he suggests AI “is an area to watch”. IQ-EQ has already taken steps to advance in their AI journey with dedicated teams and projects “being stood up to enable best-in-class AI capabilities, initially concentrating on Generative AI and Large Language Model (LLM) tools”.
Thackeray believes this category is broad, and will include leveraging AI tools available in the marketplace along with developing their own proprietary tools before bridging them into their existing applications.
McNamara notes the saying: “There are two types of companies in the world — technology companies and companies that don’t know they are technology companies.”
It seems like in the next few years, AI will be delivering further advanced applications to streamline operations and deliver more services to clients. MUFG Investor Services already uses AI, natural language processing and machine learning to “streamline data gathering capabilities and provide more efficient data processing and workflow”, adds McNamara.
It is clear to see that the use of AI and other technologies will only increase over the years, specifically focusing on fund administration and becoming the gold that these companies seek in order to implement into their services.
Talent acquisition
Some may say talent in fund administration is scarce but McNamara gives another point of view in which he says he would not necessarily agree. Instead he sheds light that there is in fact a lot of talent, “but the market is very competitive because candidates are highly valued and in demand”.
McNamara speaks about the hiring process,which consists of things such as HR focusing on employee engagement and well-being, providing teams with career development and growth opportunities through processes such as “development programmes at all employee levels” as well as in-house academics. He further ensures that MUFG Investor Services does not view talent acquisition as a dilemma, rather the “opportunity to invest in learning and development process to become an employer of choice”.
Thackeray, however, underlines that, while talent acquisition is important and that companies have to strive in order to have the “best athletes on your team to service clients, the concentration risk in the Caribbean has been diversified in many organisations, including IQ-EQ”.
He calls attention to the fact that “most administrators are no longer operating in a silo in the Caribbean and are leveraging a global workforce in servicing clients. This may be with teams in the US or Canada (same time zone) or utilising teams in other strategic global client delivery centres (GCDs) around the world, leveraging a 24-hour clock ‘follow the sun’ model for client deliverables”.
But is it important to note that even when leveraging these models global operating models, companies still own the client relationships and deliverables, ensuring they have the proper oversight in place.
Dropping the anchor
Though the waters can be navigated, a final destination can never truly be reached. Avoiding walking the plank may be victory enough.
Despite this, fund administrative ‘sailors’ will continue their journey in seeking ‘treasure’ that will help them in the future, with AI seeming as a big factor to aid their services.
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
