How have changes in corporate
governance changed the dynamic
Jacob: One of the benefits we have is that a lot of the people who
participate in that space are in this room. For us as auditors we’ve
heard some of the things that people talk about in particular when
new launches come to the table. We are all prepared when a new
client says ‘work with me, I’m a star in the making, co-invest with
me as I build AUM and don’t have the ability right now to take the
entire burden of your traditional fees’.
We make those bets but it goes back to our being required every day
to do the best job for our clients through development of our people,
attracting talent that is competent, and then also working with our
colleagues to make sure that we bring the right touch to what we do
in Cayman, from the ministry to the regulator and to us.
The uptick in corporate governance is the result of a great many
things. Cayman is uniquely positioned whereby through the local
auditor regime, we work with our colleagues throughout the world
to ensure best practices in areas like corporate governance are
provided to every client we work with.
It used to be you’d spend an exorbitant amount of time defending
why a fund would be domiciled in Cayman and the requirements of
the jurisdiction as a whole, now it may take five minutes to have the
same type of conversation because people know what they should
expect from Cayman. The high quality of corporate governance, for
CAYMAN FUNDS | 2017
example, has allowed that perception to be expected as the norm
when funds choose to launch and a majority of new funds choose
Cayman. That’s really a compliment to the people who work in a
financial service industry here in Cayman.
Rick Gorter: Corporate governance is not just being driven by
the fund principals and regulators, it’s also being driven by the
investors. When I started out in the industry, investors had very
little input, they took a back seat, you dealt with the fund managers,
but now in order to provide comfort not only do we have annual
external audits we are also subjected to SOC1 examinations,
security and data protection audits and questionnaires, as well as
anti-money laundering audits and regular regulatory examinations.
The sophistication is increasing and there is greater pressure on
the administrators for compliance.
The challenge I see as an accountant is that income has to exceed
expenses otherwise you’re on a fast track to nowhere, but we’re
seeing downward pressure on fees yet compliance costs are increasing
dramatically. Audit and compliance fees are a fairly substantial part of
our expenses and I’m not sure how this is all going to play out, not to
mention the increased cost of FATCA and CRS compliance where the
IT costs of implementation alone have been astronomical.
The other issue on corporate governance is the question of
outsourcing which is being driven by price sensitivity issues. How
do you operate effectively within a regulatory environment when
the work may not always be done in Cayman any longer? There are
substantial challenges and our operations are becoming a lot more
complex. It seems like we are hiring more IT and compliance people
than accountants these days. As Colin said, we’re becoming data
custodians so we have to manage the data as efficiently as possible.
Golding: When the Statement of Guidance for Regulated Mutual
Funds was issued everyone in this room who’s in the governance
field looked at it and said ‘we’re already doing this and more’. The
heightened attention investors have paid to corporate governance
has only helped our message when we’re speaking with clients and
getting across the idea to consider us a trusted advisor, someone
who you can come to for advice.
Yes, a cost comes with having an active board of directors but it’s
usually pretty de minimis in the grand scheme of things when the
fund is of sufficient size, so consider us an affordable resource that
you can come to and bounce ideas off.
Jennissen: In the past investors never came to talk to directors or
service providers, now they talk to everybody. Investors want to
know all the background and that’s partly why we’re being elevated
so high in the corporate governance world.
The Cayman Islands Directors Association is going from strength to
strength. Directors need to be involved in any type of regulation that’s in
the pipeline because if we don’t know what’s going on we can’t effectively
govern and make sure that the investors are protected. Ultimately our
goal is to make sure that the investors are being taken care of. We all sit
on many different structures, multiple variances of funds, the PE world
is such a broad spectrum that we have to have access to the information
and we’re definitely more vocal than we were in the past.
That’s driven a lot of the new blood coming in and being a lot more
involved than maybe in the past. It’s a lot harder to find the returns
so investors need to be more involved in doing the due diligence to
make sure it is the right investment manager that they want to put
their money with.
Spencer: Tammy, are Cayman-based directors finding that there is
an increased appetite for independence on the general partner board
in PE fund structures?
“Institutional investors are
really pushing for those
brand name service providers
and quality jurisdictions.”