Peter M.O. Young is the President and Chief Operating Officer for Advanced Fund Administration (Cayman) Ltd. Established in 2008, AFA is a SOC I compliant hedge and private equity fund administration firm with offices in the United States, and the Cayman Islands, and a BVI rep office. AFA offers a “boutique” approach to fund administration, providing comprehensive and cost effective solutions to all types of fund structures and investment strategies. Wilton G. McDonald II is the Head of AFA Legal Resources (Cayman) Ltd. (AFA Legal), which is an incorporated legal practice and affiliate of AFA. AFA Legal has the capacity to issue legal opinions, and to establish, restructure and liquidate offshore entities and for select clients onshore US based entities. The scope of the offshore entities includes investment funds, management companies, holding companies, SPCs/SPVs, trusts and partnerships. In this exclusive Expert Insight feature Peter and Wilton tell us
What type of funds do you assist with and is there a specific sector focus? Are the fund vehicles unique to Cayman?
All types including standalone, master/feeder, incubator, parallel, SPC/umbrella funds or single investor funds for family offices. Alternative Investments and crowdfunding are getting attention as liquidity becomes harder in new global paradigm. Asset classes are more esoteric and there is a shift to opportunistic and global macro strategies as the world becomes more volatile. These structures are not unique to Cayman; however, not all jurisdictions have a tax neutral or zero direct tax regime. This is especially useful for Cayman master funds where portfolios are held at the master fund level and will not have any direct taxation imposed.
How important is professional support in the process of fund administration?
The new paradigm for fund administration calls for more personal involvement at all levels—including onboarding of clients and investors to day-to-day management of the structures in addition to liquidating/termination events. Individual account managers are in constant contact with clients and for AFA we have two important value propositions: a) a law firm affiliate, which is available to address technical and legal matters without additional fees in most cases, and b) Peter Young, our President, reviews every NAV pack before it is finalized, something not seen in 90 percent of firms competing with AFA.
What are the regulatory considerations when administrating a fund in Cayman?
Very much depends on where the fund is based. We administer both Cayman and US domiciled funds. Now the common thread between all fund clients is FATCA, and the CRS- common reporting standard, which we have to address on each file. However, depending on whether the entity is a company, trust, or partnership where different laws apply, the main gatekeeping issue for Cayman funds is whether the fund is CIMA registered or not. If registered with CIMA, we have to ensure that the directors of the fund (minimum of 2) are registered with CIMA as directors, audits are completed annually, CIMA fees and other government fees are paid and updates to all offering documents and Form MFs are filed with CIMA within 21 days of any changes made.
What are the main issues that your clients are likely to face in the process of administrating a fund? How do you assist them with these matters?
Mutual funds and hedge funds are facing a difficult operating environment trying to compete with runaway global stock market returns, and growing investor redemptions. The competition for talent in the industry is fierce and forces turnover not just for hedge fund clients but service providers as well include fund administration firms like AFA. Clients are demanding lower and lower service fees and so we constantly seek out ways to meet these needs without sacrificing quality; i.e., by exploring setting up a back office in a low cost country to lower our operating costs so we can pass on cost savings to clients. We also adopt above all a family office culture throughout the firm with strong internal incentives which increases employee retention for the benefit of clients who grow accustomed dealing with certain AFA fund accountants over the life span of their funds.
You also provide legal services in relation to funds in several other offshore locations – what are the particular challenges of operating across multiple jurisdictions?
Keeping up with legislative changes within all jurisdictions would be the most challenging hence the reason we focus on Cayman and BVI in particular. Overall it’s an advantage and asset to be portable and mobile in other countries not just Cayman. The head of AFA Legal Wilton G. McDonald II is based in Europe, which enables him to service Asian and MENA clients with greater ease vs. sitting at a desk in Cayman and he has an opportunity to market the firm to a wider audience in Europe, especially countries in Eastern Europe who have not traditionally dealt with Cayman and the BVI.