Commentators to the hedge fund industry agree that the fund
administration landscape has been altered significantly by the
mergers and acquisitions activity of the last few years. The
consolidation of larger institutional services providers in this
space, along with the exit of some smaller administration shops,
has naturally flowed through to impact the industry in the Cayman
Recent notable consolidations include SS&C Technologies'
acquisition of Citigroup's Alternative Investor Services hedge
fund and private equity offerings and the agreement by UBS to sell
its administration business, including the UBS operation in the
Cayman Islands, to Mitsubishi UFG.
These transactions appear at one end of the spectrum, where
large institutions have been driven to shed their administration
businesses, most likely due to increased regulation and a seismic
shift in the risks and cost effectiveness of running such services.
In addition to these changes, some mid-cap and smaller
administrators have been forced either to enter into merger deals
in order to be able to scale their businesses, or leave the space
altogether. All of this has led to the view in the industry that
the trend for increased institutionalisation is likely to continue
and will further reduce the pool of administrators servicing Cayman
Conversely, however, the exit of some of the larger players from
the administration business has arguably created opportunity for
smaller players to compete for the business of those hedge funds
searching for a more bespoke service.
The changes have impacted both billion dollar funds and emerging
managers alike. Predictably, top of the list of impacts is cost.
Funds across the spectrum demand increasingly advanced,
technologically driven services in view of an expanding regulatory
regime that requires increased due diligence and reporting
functions. As a result, funds are now demanding that their
administrators provide such functions to ensure compliance with
FATCA and, more recently, the Common Reporting Standard issued by
the OECD (now implemented in the Cayman Islands).
These additional services are inevitably reflected in pricing
and smaller managers and start-ups are likely to be forced to
outsource in an environment with fewer administrators and increased
Fewer service providers are willing to provide services on
competitive terms to sub US$100 million funds. The risk flowing
from this is that talented emerging managers could be side-lined
out of the market as entry barriers increase at a rate that only
favours the institutional houses.
Some existing smaller funds have also had to deal with being
forced out by consolidated administration businesses and the
subsequent struggle to engage a new administrator whilst
simultaneously attempting to minimise expense and maintain good
Changing administrators requires legal
If regulated Cayman Islands funds are driven to find alternative
administrators they will generally need to update their fund
documentation. This includes updates to the disclosures relating to
the administrator in their offering document, amendments to their
Form MF1 and the filing of these, along with the new
administrator's consent letter with the Cayman Islands Monetary
Investment managers should contact their Cayman Islands counsel
as early as possible in the process in order to obtain advice on
the requisite documentation and steps to be taken to ensure
compliance with the law and a smooth transition to their new
Originally published in HedgeWeek's Cayman Islands Special Report 2016.
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.
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On the 9 September 2016 the MFSA issued feedback to its consultation of the 1 April 2016 in relation to intra-group loans.
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