Taking up the growth challenge
In 2004 the global hedge fund industry experienced remarkable expansion of roughly 35 per cent. While the pace of growth seems to have slowed during 2005 and most strategies have struggled to provide strong results, we remain in a very vibrant market with significant numbers of new fund launches. Service providers that provide good service at reasonable rates are thriving in the current environment.
As an international centre for the domicile and servicing of hedge funds, the Cayman Islands benefits greatly from its tried and tested funds legislation. The Mutual Funds Law is relatively straightforward and is flexible enough to allow a broad range of fund structures to be domiciled in the jurisdiction. Other laws and regulations, such as the Proceeds of Criminal Conduct Law and the Money Laundering Regulations, are also widely recognised as best practice.
We are in direct competition with many other financial centres around the world, although to some extent certain jurisdictions service different markets. A number of other centres have observed the success of the Cayman Islands and have attempted to emulate its winning formula. The past few years have seen much revision of fund legislation around the world as jurisdictions try to make themselves more attractive to a fast-growing industry.
The Cayman Islands remains well positioned to cater to the needs of the hedge fund industry because of the excellence of its professional service providers, including accountants, attorneys and administrators, as well as the user- friendly legal, regulatory and tax environment. Its pre-eminent position as a hedge fund domicile is reinforced by the enormous advantage provided by the exceptional depth of the pool of legal talent specialising in fund work.
Although many of the funds domiciled in the Cayman Islands are administered in other locations, the local fund administration sector appears to be growing strongly
through a general expansion of client bases. In fact the main issue that seems to face local administrators is not so much how to attract new business but how best to manage growth.
The fund administration industry can be simplified into two main strata, the high- volume, large-scale global players and the boutiques. The management of growth and capacity is probably more challenging for the boutique administrator, whose strength and reputation rests on high service standards provided by staff conversant with the
individual complexities of each client's business. As a result, the boutique must manage expansion, particularly of personnel, intelligently if it is to stay ahead of the game.
At Cayman National, a significant proportion of our new business is derived from existing client referrals. While this is an excellent indication of the levels of service we provide, it also underlines the importance of fostering and protecting our reputation. We have placed great emphasis on expanding our capacity in advance and
anticipation of business growth to ensure we retain our standards.
Like all small countries and territories, the primary resource constraint within the Cayman Islands involves attracting and retaining qualified staff. This is not an issue that seems to affect every business,however, and the most astute employers seem able to maintain a staff of appropriately qualified individuals.
Christopher Lumsden is Senior Vice President, Fund Services, Cayman National Group
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