can do is ensure that when the fund is set up, it is done in the best possible way. “Caledonian differentiates itself in a number of ways, the most valuable to our clients being our integrated service offering including custody and banking services, which allows for efficient establishment and administration of the fund,” Walker says.


One risk that Cayman can’t do much about is that of another funds domicile becoming more desirable for funds, especially in light of the new regulatory efforts. Ireland in particular, has often been touted as the next big thing in offshore funds, especially since there would seem to be big advantages to domiciling in an EU country in light of the Alternative Investment Fund Managers (AIFM) directive, which aims to create a comprehensive regulatory framework for alternative investment fund managers in the EU.


“One risk that Cayman can’t do much about is that of another funds domicile becoming more desirable for funds, especially in light of the new regulatory efforts.”


Whatever the future regulatory environment brings though, Caledonian has the experience and the nous to adapt effectively; and, as Sims underlines, the company is already making preparations to deal with whatever comes. “We are studying the various requirements to ensure that we are prepared for each deadline and to increase the level of services to our clients to ensure they are compliant in all respects.”


And there are also ways in which Cayman can help change perceptions of it as a soft touch around the world. Being seen to be responsible is just as important as being responsible, and in this regard, corporate governance is key. Cayman already observes high professional ethics. But when governments in other jurisdictions believe that, then the Islands will have a huge advantage. With this in mind, Sims says: “We expect that all the attention being focused on corporate governance will result in industry practitioners taking steps to rebalance their risk profiles in the context of directorships and that there will be a conscious effort to arrive at a ‘manageable level’ of directorships by individuals and firms and that prudent guidelines/ codes of practice will be established by the industry to this effect.”


This process is already underway in Cayman, though Sims cautions:


“I am not sure that there is any magic formula that can be determined, which will eliminate all perceived ills. Rather, the emphasis should be on the competency of the individuals and firms concerned with the regulator using its discretion to deal with any residual problems that remain after the industry has adopted suitable self regulatory practices.“


Walker highlights that often the perception that good non-executive directors can be the cure for the industry’s ills is false. “I feel that people are expecting non-executive directors to take more responsibility than is practical,” he says. “Let’s be clear about the cause of most losses. It’s not the directors, its fraudulent managers. While independent directors can help, expecting non-executive directors to be able to identify manager fraud is frankly unrealistic since the directors rely on the manager auditors and administrator to bring issues to their attention. So limiting the number of directorships that an individual can hold will not necessarily protect against loss.”


Caledonian can’t help much with unruly managers, but what it 74 CAYMAN FUNDS | 2012


It would be foolish to ignore Ireland completely, but there are good reasons why it may not be the quite the threat that some have billed it as. As Walker underlines: “European jurisdictions such as Ireland and Luxembourg are fierce competitors of Cayman which routinely build campaigns around criticising the Cayman Islands in the context of its global regulatory position.”


But, Sims says: “The attraction of Ireland as a domicile should not result in a mass exodus of funds from Cayman in the future.”


Domiciling in Ireland or another EU country will continue in view


of the passport advantages offered to EU domiciled funds under AIFM. “However, passporting should be available to eligible Cayman domiciled funds from 2015,” he adds. “Until 2018, in any case, non-EU Funds can continue to be offered in Europe on a private placement basis. Thus we see that managers and investors will utilise both avenues and that Cayman funds may come to offer unexpected but similar benefits to those that they have traditionally offered.”


It is clear that the next few years will see the Cayman Islands have


to adapt, as external regulatory efforts and competition from other domiciles continues to exert an influence. But what is equally clear is that the country is prepared, and in companies like Caledonian, has a body of experience and judgment that will stand it in good stead in the future.


Dave Sims is the managing director of Caledonian Global Fund Services. He can be contacted at: dave.sims@caledonian.com


David Walker is the managing director of Caledonian Fund Services (North America) Inc. He can be contacted at: david.walker@caledonian.com


Dave Sims has been involved with hedge funds for 18 years, working extensively with fund managers primarily in the US, Brasil, Switzerland and the UK. He has extensive experience in all aspects of the establishment, organisation management and operation of funds and other investment vehicles. He also serves as a


director of a number of international funds.


David Walker divides his time between the Cayman Islands and Connecticut and is responsible for client relationship management and business development initiatives in North America, with a special emphasis on New York and Connecticut. regulatory matters.


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