Phil Griffiths of JP Fund Administration (Cayman) explains the
considerations to keep in mind when establishing a fund in the
In the alternative investment community, much of the regulatory
and investor focus is now on the use of independent service
providers: directors, banks, brokers, auditors and administrators.
This focus is hardly surprising given recent scandals.
Although Madoff and other fraudsters were not running hedge
funds or other alternative investment structures (Luxembourg Ucits
were used), the practice of receiving investor funds into company
accounts, executing trades through a proprietary brokerage,
reporting all activities and client holding values internally and
using a 'friendly' auditor to sign off enabled the
perpetration of massive fraud; all industry participants are
understandably cautious. The days of the investment manager faxing
the NAV to the administrator at the end of the month are long
Alternative investment fund structures with independent service
providers can be combined to establish cost and operationally
efficient funds with the strongest of investor protection
characteristics 'built in'.
The JP Funds Group Emerging Managers Platform provides a fund
structure that is independently held from the investment manager
with independent directors, administration and external auditors to
ensure that investors' interests are overseen by separate
directors who are not the same as or appointed by the principals of
the investment manager.
When establishing a fund, the domicile of investors and their
preferences will play a large role, although the manager is the one
that must deliver performance, so legal considerations, costs and
the flexibility to operate the strategy as intended are key. For
these reasons, the vast majority of qualified investor funds are
based in the Cayman Islands.
When choosing a fund administrator, similar considerations exist
given that this service provider is a key interface with investors
and the primary focus of non-investment based activity. Alternative
fund managers may wish to consider a number of factors when
choosing fund administrator:
Regulatory status of administrator
In many jurisdictions, administrators are simply not
accountable to any regulator. A Cayman licensed administrator is
subject to the highest minimum capitalisation requirements and
comparable regulatory inspection requirements to the strictest EU
jurisdictions. Regulation of the fund administrator is a crucial
comfort for all fund participants. It's important to note
that in recognition of the higher regulatory status of the fund
administrator, a Cayman 'administered' fund can accept
subscriptions below the usual $100,000 minimums where unregulated
administrators are used; some qualified investors may find this
very attractive, particularly in the current economic climate.
How NAV calculation and reporting is handled
What is their relationship with third-party providers (for
example, banks and brokers)? Can any regulatory or tax reporting be
arranged? Do they assist with audit preparation and liaison with
other service professionals? Do they really understand the
What are the due diligence, anti-money laundering and
"know-your-client" procedures like? Are the share
registry services adequately covered? Do they actively participate
in middle office functions and cash management?
Are IT backup and disaster recovery systems satisfactory?
Can business resume without materially affecting the fund
operations and reporting?
Fund domicile expertise
Different jurisdictions have different regulatory and
compliance requirements; an administrator will need to be
conversant with the requirements concerning the domicile of the
Administration fees and sometimes numerous additional
charges can have a considerable impact on the ongoing running costs
of a fund; ask questions to confirm minimum fees.
While this list is not exhaustive, it provides an initial
framework for an investment manager seeking a fund
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
On the 9 September 2016 the MFSA issued feedback to its consultation of the 1 April 2016 in relation to intra-group loans.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).