Duncan Nicol: Many of topics underlying the reviews are interlinked.
For example, on beneficial ownership, it’s also an issue for the tax
standards and partly underpins the Common Reporting Standard
(CRS). There’s an increasing integration between all the reviews
conducted by international bodies.
You therefore have to look at how the jurisdiction itself is integrating
these things, the legislative package and the regulations, so that it
can be business as usual and cause the least disruption.
The ministry takes a very holistic view of the various initiatives and where
there’s commonality on an issue solutions can cascade through different
reviews. We need to ensure that what we do works for Cayman and can
also meet the assessments of the international standard-setters.
Smith: There are some practical implications around reporting,
because each review seems to require something slightly different.
Our objective is to ensure that we’re not having to go to the industry
each time looking for different information; ideally all required
information should be readily available.
We must therefore anticipate the necessary reporting, look at what we
currently have and what we may need to consider adding in the future.
Scott: There is significant convergence globally and a lot of pressure.
The challenge is that some of the underlying pushes are actually not
reasonable yet they create a tremendous amount of pressure.
Cayman always tries to be the best of its peers and follow the right
rules. But some of the rules that are now being promulgated frankly
are protectionist and very unreasonable. We must ensure we are
fulfilling the high standards, while getting the balance correct.
We value the relationship with government, with the regulator, to be
able in some cases to provide a good basis for pushing back on some
of those things that are not reasonable for the jurisdiction, aren’t
balanced and really do not help protect the global financial system.
Nicol: The voice of non-governmental organisations has become
more prevalent and there are also more trading blocks, such as the
EU, describing what their view of fair taxation should be. It may
not align with the rest of the world, but that’s the EU view. From a
Cayman perspective it has been helpful for us to stay aligned with
international standards that have been globally accepted.
Richard Spencer: We have seen some European managers move
away from Channel Islands fund structures to use Cayman. That’s
one potential avenue of growth. We are also seeing managers in
Asia moving away from what they perceive as higher risk, less
sophisticated offshore jurisdictions, to Cayman, which is very well
positioned. The message needs to be clearly made that what Cayman
offers in terms of fund establishment has not changed.
What are the pressures beyond
the regulatory environment?
MacKay: From a manager’s perspective, the critical headwind
is achieving performance. If they cannot achieve and deliver
performance to their investors, the investors will vote with their
feet. The regulatory environment is a consideration but performance
matters more.
We have also seen more wind-downs. Some are a consequence of
new managers who are simply unable to achieve capital growth or
could not raise what they had hoped. Maybe they start off with $20
million but they can’t get the institutional mandate to boost capital.
The larger institutional managers continue to grow product and
capital, however, which can be counterintuitive because often it’s
the smaller managers who are able to deliver better performance
because they’re able to accommodate a higher degree of volatility.
Yet when you’re dealing with pension money, there’s only so much
volatility that they’re prepared to accept and that tends to push them
towards higher value managers.
Jacob: Some of the smaller managers will be the future stars. Colin is
right about performance though and investors will pursue alternatives
if performance is not there. You can’t take the chance of getting it
wrong in this environment. The benchmarks prove that you don’t
need to go to a hedge fund for diversification but I believe the future is
with the emerging managers. They need to get that performance right
early otherwise they won’t attract enough capital to cover the cost of
the necessary reporting to regulators, investors and others, nor will
they be able to cover the costs of attracting and retaining good talent.
MacKay: In terms of new managers, one of the strengths of Cayman
has also been the quality professionals and advice you’re getting,
and the tried and tested structuring path that deliver cost efficiency
to the managers. It may not be high on their list of priorities but while
they’re seeking volatility on an investment perspective, they do not
want volatility on restructuring or jurisdictional perspective.
The other point is that service providers also make an investment
alongside our clients, we invest time through fixed fee structuring
and fee reductions, for exactly the reason that these new managers
and funds are the stars of tomorrow.
Golding: The fee pressure is great. Emerging managers are not
only having to deliver returns in a short amount of time, they’re
having to build a business with much lower fee rates than their
predecessors did. The average management fee has dropped along
with performance fee.
“Post the Brexit vote, people
have taken a step back to
wonder whether they want
the passport.” André Ebanks
CAYMAN FUNDS | 2017