funds and prove themselves to get to a size where they can come
out on their own.
Andrea Proctor: Is it trying to give each individual investor some sort
of tailored strategy, or it is an emerging manager platform—a kind of
incubator fund?
Subiotto: The ones we see set up mostly fall in the first category.
We have seen hundreds set up that are actually emerging managertype
platforms.
Rossiter: Some partnerships are formed between a law firm,
broker, and administrator, so you’ve got a pre-packaged deal
where you can say, okay here’s my platform, it’s going to be a
standardised document, it’s going to appeal to this particular broker
or no broker at all and an administrator and an auditor. It’s a package
you can go to which is cost-effective and allows you to build that
track record.
These people have an opportunity to build something up because
I think we also need to bear in mind we’re in pretty unusual times.
You could say you’ve got a 10-year track record but the reality is
you’ve been in a market where the central banks have been pumping
money in, so everything has been going up, and it’s very easy to be
a passive performer.
In the context of volatility, I would suggest we’re moving back into
an environment where active management is going to become a
lot more valued because the market is harder to predict. Volatility
is coming back, a whole lot of geopolitical changes are happening,
active managers theoretically are those ones that should really earn
their fees in that environment.
Pierre: I agree with your point in terms of seeing partnerships, we’re
in the 21st century so it’s all about instant gratification and it’s no
different for funds. What we’re finding is that people want to have
a one-stop shop, they want to be able to come to you and get what
they need, so you’re seeing a lot more alliances between service
providers to satisfy the demand.
Guilfoyle: It depends on the client. If you’re an institutional, you’re
going to want to split up all the service providers so that you have
independence. If you don’t have the resources yourself it’s very easy
to go to a platform provider. It’s horses for courses.
What about cryptocurrencies? Is
that one form of innovation?
Scott: All too often we don’t give the industry enough credit for the
amazing amount of innovation it has been driving over many years. It’s
a very entrepreneurial industry and has invested heavily in innovation
and technology.
We see that in terms of the types of investment managers, how
they approach the trading strategy, how they invest in technology, also
how they supplement what they do because these are businesses that
not only need to stock pick, they also need to understand economies,
they need to understand geopolitical impacts. When we’re looking at
PE the holdings are longer, they’re investing in emerging technologies
and markets.
The infrastructure, the talent pool they put in place are a constant
innovation process within them. We’re probably not seeing real,
amazing, dramatic applications of new innovations because they’ve
been constantly doing that over time, constantly testing new
technology.
There are two thing s on our radar with innovation. We’re looking
at say the PE space, the growth of that will have an impact on our
needing to help them move to a more institutional type framework.
Second is the application of fintech to the space and things such
as the issuance of cryptocurrency tokens, the ability to trade in
secondary markets. That might allow you to translate something
which was originally designed to have a three to five-year lockup
period to actually something which could be very liquid in a secondary
market. It does need to have reasonably precise valuations.
We’re looking at digital assets. They have the potential to start
transforming beyond what we’ve seen PE traditionally investing into,
which typically are hard assets, real estate, paintings. Now we’re
getting into even more esoteric things which could be a digital unit in
an income stream that’s part of a business somewhere in the world.
A lot of what we’ve seen develop in the hedge fund space, those
types of frameworks are going to need to start being applied also into
this space and specifically on fintech itself.
Cayman Finance has been focusing on looking at the trends that we
see in terms of fintech technology implementation in the industry,
newer technologies such as blockchain, and how we prepare properly
to ensure Cayman continues to be a leader in that space.
We’ve also identified that there are some barriers that have held
back these types of new technologies from being fully deployed in
global financial services. One of the key barriers has been the issue
of AML because on its surface when you create things like initial
coin or initial token offerings or even security token offerings, you
start running the risk of creating an instrument that could be readily
exchanged anonymously around the world.
One of the solutions to address this global risk that we’ve been
working on with government, with CIMA, and with industry, is
developing a certified digital AML platform that’s a regulated platform,
that provides an environment where regtech and compliancetech
“For the unregulated
business, having to appoint
an AML officer will help
them to focus their efforts.”
Gwen McLaughlin
CAYMAN FUNDS | 2019