An opportunity for start-up managers
By Derek Adler - Ifina has had a presence in the Cayman Islands for most of the past decade, but for much of that period the largest share of the firm’s administration work has come from the British Virgin Islands. However, particularly in the past year we have experienced a significant increase in the volume of demand from clients for servicing of Cayman-domiciled funds.
There are a number of reasons for the surge in new Cayman activity. First, we are very much a client-driven business that aims to provide our customers with a choice. If they perceive that Cayman is their preferred domicile, and that fits with their marketing and their own structure, we are happy to comply with their wishes.
One of the advantages of Cayman as a fund domicile is that we can enable a money manager to run a Cayman-registered fund without having a licensed management company. Instead Ifina takes responsibility for the correct establishment and management of the fund. While it’s generally desirable for managers to be regulated in one jurisdiction or another, there are circumstances where the Cayman solution is particularly helpful and pragmatic.
Over the past couple of years, the demise of Lehman Brothers and other banks, the divestment of alternative asset management and proprietary trading operations in response to the Volker rule in the US and a broader exodus of traders and asset managers from the ranks of banks and brokerages have prompted a significant influx of new managers into the market.
Start-up hedge fund managers may have innovative ideas and loyal clients from their previous businesses, but they may not be starting out with a large volume of assets under management. The time, effort and cost of establishing robust structures, achieving regulatory compliance and meeting rules in areas such as capital adequacy can be a heavy burden on new businesses.
The Cayman structure provides a very good stepping-stone for managers in this position. Ifina is careful to conduct thorough due diligence on its new clients, but this model allows serious professional money managers to begin management of a fund, which they might not be able to do in certain other jurisdictions. With so many individuals leaving institutions over the past year to start up their own business, it’s not surprising that Cayman has been such a popular choice of fund domicile.
In addition, even after the crisis, most administrators are reluctant to take on new managers with as little as USD5m or USD10m in assets, no matter what their future potential. By contrast, Ifina has long been ready not only to service start-up funds but to provide a structured framework – crucial in the first months of a new operation. Many of our clients subsequently become regulated in their home jurisdiction once their business is properly up and running.
Ifina has established a managed account-style umbrella fund structure within which start-up money managers can establish their own sub-funds. The Primary Development Fund and each sub-fund can accept seed capital as low as USD1m, offering all the benefits of a regulated mutual fund coupled with tremendous initial and ongoing cost savings.
This framework is designed to enable the potential future manager stars of tomorrow to achieve their potential. History tells us that start-up managers often deliver better performance than large and long-established firms, and the Cayman model gives newcomers the chance to prove their worth.
Derek Adler is a director of Ifina (UK)
Please click here to download a copy of the Hedgeweek special report Cayman Islands Hedge Fund Services 2011
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