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Comparing apples to apples

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The traditional lines of offshore jurisdictions, custody and fund administration continue to blur.

The traditional lines of offshore jurisdictions, custody and fund administration continue to blur. Today’s world is no longer just about the administration of long-only equity, fixed income, money market, hedge funds and funds of hedge funds. The sector has expanded to include private equity, venture capital, securitisation, property and insurance structures. With all these offerings combined in a single jurisdiction, Guernsey is more than just a funds centre.

One must appreciate that each of these product segments requires distinct administrative service competencies and skill sets. In principle, they share some commonalities around the general concepts of unit-holder recordkeeping, financial accounting, the formalisation of periodic market valuations, calculation of net asset values and reconciliation to a formal record of cash and investment assets, although some structures will not require the formal appointment of a custodian.

Ironically, this is where the lines blur and the general market measurement practice of assets under administration starts to dilute its significance. A fund administration or custodian survey boasting so many billions in assets under administration that results in a certain ranking is fairly meaningless unless put in a proper context.

Comparing the custody and fund administration requirements of a USD 2bn master/feeder hedge fund, fund of hedge funds or traditional long-only fund with thousands of unit-holders is quite distinct from a USD 2bn property, venture capital or private equity structure.

Unfortunately, many offshore industry surveys do not make this distinction, which leads to a lack of transparency and results in apples being compared with oranges as far as assets under administration are concerned. Hopefully, more industry surveys will evolve to create a clear reporting mechanism that incorporates fund categories, which will then acknowledge size of assets where credit is due.

The range of fund categories results in a varied choice of service providers, whether they be global custodians, niche boutique
independents or the administration arms of trust companies and legal firms. Here again, Guernsey boasts a robust choice of service
providers, each able to deliver its select product offering and cater to its client segment.

When comparing service providers there are some important questions to ask. Is custody and fund administration a core business line of the organisation, and is there a long-term commitment to remain in the industry? Are the providers global players with multi-jurisdictional operational hubs, or niche boutique players with select or single jurisdiction presence?

What technology systems are used – home-grown Excel net asset value spreadsheets and Access unit-holder registry databases, or industry-recognised third-party vendor system platforms? Are operations scalable from both staffing and technology viewpoints? Does the service provider have the balance sheet and sufficient contingency insurance to cover unforeseen administrative errors and associated financial losses?

These are all questions that should be posed to any custodian or fund administrator, regardless of jurisdiction domicile. Of primary importance is the ability to offer a truly integrated, scalable and clientcentric trustee, banking, custody and fund administration service, against the backdrop of a proactive and industry-progressive regulatory regime. This dynamic combination is a powerful force that is attracting more and more fund sponsors, investment managers and institutional clients to domicile their structures in Guernsey.

By José Santamaria José Santamaria is head of sales and business development for corporate and institutional business with Royal Bank of Canada in the Channel Islands

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