By Chris DeNigris – The Cayman Islands are the second largest market globally in terms of client assets under administration or management for Koger, as a provider of fund administration and transfer agency software to many of the world’s largest alternative administration firms as well as, increasingly, to alternative managers themselves. The jurisdiction continues to see significant growth and remains the domicile of choice for master-feeder structures, which remain the most common structure for the alternative fund industry.
In Cayman as elsewhere, the key focus in the industry in the wake of the recent financial crisis is on providing greater transparency, especially to institutional investors, which that are requiring a much broader, deeper and more timely range of information from the managers with which they invest and from their funds’ third-party service providers.
Today competition between jurisdictions for fund domiciliation and servicing business is more intense than ever. The Cayman fund services sector has long been at the cutting edge of the global industry in terms of its recourse to advanced technology, along with Ireland, but today other centres such as Luxembourg, the British Virgin Islands and the Channel Islands are catching up fast.
A key post-crisis development in the alternative fund industry, one with important ramifications for everyone from technology providers to investors, is that there is no longer a single model for relationships between fund managers and administrators. Today managers may seek anything between NAV-lite and month-end services to a complete range of front-to-back services, and administrators must respond by becoming much more flexible with their clients.
At the same time, Koger is encountering increasing demand from managers looking to use our transfer agency product, NTAS, to shadow the work of administrators in shareholder servicing. The watchword today is: Trust, but verify. When service providers’ clients can monitor all their activities in both accounting and shareholder services, every allocation and every reconciliation, the administrator will always be on its toes and likely to perform a little better.
Not all administrators are comfortable with their clients shadowing their activities, arguing that it is superfluous, but others are ready to embrace it, since it can make it easier to resolve issues between fund managers and service providers. Either way, it is an important development for software providers such as Koger, which is seeing increased demand for its products as a result.
The other factor driving demand for institutional-grade software applications is that there is now little or no forgiveness of errors anywhere in the fund value chain, from brokerage and custody to accounting and transfer agency. For many investors, mistakes are now viewed as the first sign of potential fraud.
This puts pressure on service providers that still use in-house systems, which may have seemed a cost-effective solution at the outset but may now be creaking and groaning under the strains of a larger business. In addition, in-house solutions tend to lack the ancillary functionality around the core shareholder registry: compliance tools such as audit reports, blacklist integration, anti-money laundering functions and document tracking, all plugged into the same system as the share registry.
In the current market and investor environment, anything less than institutional-class infrastructure and best practice represents an opportunity for mistakes that can cause huge damage to a fund business. Managers and administrators need systems on which they and their clients can rely under all circumstances and market conditions.
Chris DeNigris is managing marketing and sales globally for Koger
Please click here to download a copy of the Hedgeweek Special Report: Cayman Islands Hedge Fund Services 2012
