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Evolutions in fund administration

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Evolutions in fund administration

Vice President – Fiduciary Services, Todd Hazlewood speaks to HFM Connect about how the fund administration space has been evolving in recent times. *

* Article first featured in HFM Cayman Report 2021

Q: How has the fund administration space adapted since the beginning of the Covid-19 pandemic?

A: We've seen a couple of significant changes. I think the biggest one brought on by the pandemic was the immediate need for work from home arrangements including employees accessing data remotely, and relying on video conferencing to help keep communication lines open. 

Most administrators had such continuity plans in place, and the pandemic has been a real test of those plans in practice. Many of these processes are now more efficient, robust and flexible than before and many of the since-implemented procedures are now considered best practice.

While unrelated to the pandemic, the second recent adaption in the fund admin space has been spurred by the implementation of the Private Funds Act (formerly Private Funds Law) in the Cayman Islands. This law requires fund managers to engage in a number of mandates but, significantly, to get independent investment valuations and to implement cash monetary policies. 

Some managers may previously have performed such actions in-house but are now faced with the need for additional investment into technology and processes in step with increased regulatory scrutiny. The changes have resulted in a significant increase in managers who would rather engage with a proven administrator, such as Ocorian, who has already made such investments themselves and has experience dealing with Cayman's regulators.

Q: Has the pandemic and the Private Funds Act spurred innovation in the fund admin space?

A: The past year has certainly seen a notable demand for cloud-based systems and investor portals. Having a well-managed portal open to their investors, gives funds’ investors access to their information in real time, allows for greater transparency and investor confidence. These platforms can also make AML KYC requirements easier while also allowing for direct communication and updates with investors. 

Q: What have your clients been seeking assistance with throughout this time?

A: Our funds are looking at different fund structures and strategies and there has been a general move towards admins providing clients with a choice of systems depending on what a fund needs.

Funds are looking for more customised solutions when it comes to systems. Funds with varying structures and strategies have different reporting needs, and the more sophisticated fund administrators can provide a choice depending on what a given fund’s needs are. 

Secondly, we've seen clients focused on reducing costs. And one of the ways they can do this is through consolidating their service providers. We at Ocorian, for instance, offer an end-to-end service solution and this gives us synergies across service lines which helps to minimise costs for our clients.

Q: How are different funds’ needs accounted for?

A: Each fund is going to have its own strategy and its structure that fits its particular needs. For instance, a closed- ended fund is going to have different needs than a standard hedge fund. A strategy investing in real estate is going to have different needs for reporting than, say, a fund investing in long, short equities. When we're introduced to a client and they explain what they're doing, we can then look at what we can provide that would best suit their needs. 

In terms of services, the increased regulatory environment has caused a number of necessary evils when it comes to compliance and reporting. A lot of clients like to have all such obligations under one roof which helps to reduce costs. 

Some clients have in-house reporting and compliance capabilities but some prefer not to have to make that investment. Instead, they select administrators that are well-versed in reporting to the regulators, understand the compliance requirements, and can fulfil such duties on a large scale for all of their clients.

Q: Given the current regulatory environment, is there more pressure on fund admins to expand their own service offerings to remain competitive within the marketplace?

A: Specialising in one service line is going to reduce your ability to service your clients. Being able to provide all of the compliance and regulatory reporting from start to finish, provide legal services, provide fiduciary services, all of those under one roof really helps to streamline things for clients. These days, administrators with a limited offering may be restricting themselves in the market.

Q: What trends is the fund admin space seeing at this time?

A: Document digitisation is becoming big in all aspects as well as using secure online portals for two-way information transfer. As mentioned, the increased regulatory and AML oversight means there's a lot of documents going back and forth. Digitising these rather than sending them by courier is becoming far more prevalent. We're seeing fewer manual procedures in general and increased automation, particularly in regards to recording transactions through a direct interface with these trading platforms and then having automated reconciliations. 

Another trend lies in new technology being tested. One noteworthy piece of tech is using facial recognition for verifying investor due diligence documents. We're seeing early reports that it is changing the investor experience significantly and really improving efficiency from the administrator perspective.

Q: What influence has the pandemic had on these trends?

A Some of the functions were already being rolled out, but the pandemic certainly accelerated that timeline. A lot of administrators wanted some of this documented digitisation from, say, the government authorities who were still using paper certificates, for example. Now, the demand for those to be digitised really has some weight behind it because of the pandemic. Not everyone can go down to the government building and pick up a certificate anymore. 

As a result, many of these processes are turning into best practices since they save a lot of time and significantly increase efficiency.

Q: What will be the longer term impact of the pandemic?

A: Some fund administrators are occupying smaller office spaces with hot desks, where employees can either come in for a limited number of days per week, or otherwise work from home and have flexible office hours. I think that is a trend that can reduce costs for administrators. This also results in more of a work-life balance for employees, too, and I think this is a long term benefit for everyone that will continue moving forward.

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With specialist teams in key international jurisdictions, we provide a full range of fund administration and associated fund services to give our clients clear visibility and confidence in the performance of their investments. Find out more about how we can support your fund operations by contacting Todd below or clicking here.

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