provide a meaningful deterrent to undesirable activities. Automation becomes increasingly important as multiple pieces of information need to be tracked and the ‘black lists’ issued by a variety of regulatory bodies need to be consulted on a regular basis.


“The administrator is required to maintain a continuing historical record of the financial activity of the fund, including comprehensive documentation of all decisions and judgments made.”


Subscription and redemption procedures The method by which subscriptions and redemptions are reflected


will normally be detailed in the offering memorandum. However, in practice it is important for the fund sponsor to obtain clear guidelines from the offshore administrator as to how subscriptions and redemptions will be dealt with on a regular basis. Communication between the fund sponsor and the administrator is vital to avoid situations arising where an investment is received in the fund’s bank account without the administrator being informed that a subscription is expected.


Similarly, a clear protocol needs to be established with the


administrator for the notification, calculation and payment of redemptions. For example, unreasonable turnaround times, as may be contemplated by the offering memorandum, serve only to irritate investors when they are not met.


Net asset valuation frequency An important element of all fund administration is the calculation of


the fund’s net asset valuation (NAV), since it represents the fund’s performance report card. Generally speaking, NAVs are not provided on a daily basis in the offshore fund environment. The majority of offshore funds will report on a monthly basis, with a smaller percentage reporting on a weekly or quarterly basis. Nevertheless, because of the amount of information that has to be collated in order to prepare and publish an NAV, fund sponsors need to familiarise themselves with the process and make sure that the administrator has the capacity to provide NAVs within the required time frame.


In the NAV process, the administrator is dependent on reporting


institutions providing information on a timely basis. This means that custodians, brokers, banks and other vendors whose reports and accounts are necessary for the compilation of the NAV, must provide information to the administrator on an expedited basis. A successful fund sponsor should obtain acceptable assurances from all parties involved in the NAV process that they will meet the deadlines required of them.


Regulatory compliance In today’s regulatory environment, directors, advisors, administrators


and other service providers are required by law to carry out extensive due diligence on all parties to a structure, with particular emphasis on the investors and the source of the funding. Such procedures can often become burdensome as work is duplicated by the various service providers and form may start to override substance. There must be a sensible approach to the whole question of due diligence, with procedures that not only satisfy the regulatory requirements but also


78 CAYMAN FUNDS | 2012


Managing your administrator Most offshore administrators are highly professional and very


experienced and are a source of practical advice for fund sponsors. However, their ability to do what is asked of them successfully requires the cooperation of the fund manager once the fund is established. For example, the administrator is required to maintain a continuing historical record of the financial activity of the fund, including comprehensive documentation of all decisions and judgments made. On an annual basis the competence of the administrator—and the performance of the fund itself—are subject to audit by external accountants.


The collating, filing, indexing and cross-referencing and storage of


transactions and their supporting records is a time-consuming task. A competent administrator should be able to justify every transaction and the accounting thereof at any time, even several years after the fact. Adequate documentation is particularly important, especially in view of the litigious and regulated society that we live in. Administrators must be able to justify the probity of the operations of the funds to auditors, regulators and potential litigants. There must, at all times, be a proper segregation of duties, a proper audit trail and the appropriate checks and balances.


By viewing the administrator as being just as important as any of the


other professionals involved in the establishment and ongoing activity of the fund, the fund sponsors will derive the maximum and most cost-effective benefit from them.


Andrew Tyson is a director of Trident Fund Services in the Cayman Islands. He can be contacted at: atyson@tridenttrust.com


Rafael Elias is an associate director of Trident Fund Services in the Cayman Islands. He can be contacted at: relias@tridenttrust.com


Andrew Tyson is a member of the Institute of Chartered Accountants in England and Wales, a member of the Society of Trust & Estate Practitioners and has been a senior member of Trident Fund services’ Cayman office for the past 20 years, responsible for fund accounting and administration.


Rafael Elias is a Certified Public Accountant with more than 25 years’ experience, a member of the Puerto Rico Society of Certified Public Accountants and has been a member of Trident Fund Services’ Cayman office for the past 10 years, specialising in fund accounting and administration.


For more information on Trident Fund Services, a division of the Trident Trust Group, visit www.tridentfundservices.com


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