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PS: In the broader sense, there seems to be a lot of criticism about the proposals from CIMA. Where do they come from, if not from you? How do these proposals get put out in a way that isn’t right?


ID: The explanation from CIMA as to where the fund registration


rules come from was a response to the various reports and investigations that were done here by OECD groups—concerns about lack of registration funds, certain types of funds, and also concerns about the inability of CIMA to refuse registration. That appears to be the biggest concern.


“Clients from the US and Europe in particular tend to be much less fee-sensitive than say, Asia-Pacific clients, and always have been.”


JA: We as a firm do not necessarily agree with there being a


prescribed regulatory limit to the number of directorships, or of relationships, that should be a function of the model. It should be a function of how you work and how you approach the discharge of your fiduciary duties, and our cap of 30 was determined through practical experience in terms of investors’ needs and wants, in terms of the composition of our portfolios and the types of relationships we’re taking on board.


There may be a marketing component but ultimately many investors


are looking seriously at the number of relationships you have and it makes sense to assure them, as a confidence issue to go to investors and tell them this is the level we’ll go to, we will not break this. In fact if you look across the 20 individuals we have acting as directors across our six offices internationally, nobody has 30 relationships because we each constantly review our capacity with reference to the time it actually takes to proactively service each one. So it’s an Investor confidence issue for us, it’s the way we approach our business and one way we prove the proactivity and engagement of our model.


ID: We tend to forget here very quickly that if we make the number


the issue, if we introduce a cap, how are we as a jurisdiction going to serve 8,500 funds, not to mention master funds? It’s just not possible. The number is not the issue, and we have to stop pretending that the number is the issue, or giving credence to people who say it’s the only issue.


RE: Perhaps it would be best to focus on the number of hours spent


rather than the number of funds, because not every fund requires the same level of time commitment.


TB: I don’t know about that either because they’re just going to


divide one by the other and ask, “How could you have spent 3 minutes and 47 seconds on this fund the whole year?” That I think isn’t going to work either. The only sensible way to approach this is to look at the directors themselves, police that part of the industry. Ensure the quality, ensure that they have to make proper reports, ensure that they are monitored in professional ways. We need to work closely with the managers and the investor representative groups in the US to be able to give them the information they need on directors to give institutional investors the comfort they need to continue to choose the jurisdiction.


GR: I’ve seen the numbers game and caps work against the principles


of good corporate governance. Someone reached that magic number, whatever their cap was. The next higher-paying client came along, and they abandoned the other client. How is that good governance?


The example I heard at the time when they made proposals for pre-approval registration was, and this was primarily because it was topical at the time the proposals came out was: “What if Bernie Madoff comes along and wants to set up a fund? We would have to allow him in. We would immediately kick him out, but we’d have to let him in first and that’s a ridiculous situation that we can’t have.” That just wasn’t the way and still isn’t the way as I understand it that the industry feels. It’s part of our ability to market Cayman, it’s the speed to market.


If you changed the registration rules to make it a more pre-registration,


pre-approval-type jurisdiction, you’re pulling out this disclosure-based idea, you’re slowing down the speed for managers to get funds to market, and you’re turning it into a different product. I’m not saying there’s anything wrong with that product, but that’s not the product we’re selling.


There have been some proposals to create a different fund to deal


with those particular issues, to create a new category of fund, and that one can meet all the requirements that you’re concerned about. But we still keep this current regime in place.


The master fund registration was a precursor to all of this, it was


supposedly a reaction to the criticism that there are thousands of unregistered funds here. Master funds however were not what those concerned were referring to. The wrong response to the wrong question, or at least the wrong answer. This all fits in on top of that.


PS: So is this almost a land grab? Is CIMA just trying to be more involved in the original process?


ID: The industry are not the only people who are reactive. CIMA


seem to be reactive as well—they get these criticisms and they react to them. They’re afraid of being overly criticised by these other regulator groups, or onshore regulators saying you’re not doing things the way we would like you to do them, and I think that there’s a fear and an inability to push back. But on the contrary, they have to push back because as a jurisdiction, that is what we offer—we’re very clear about what we offer, any sophisticated investor can see what’s on offer here. We’re not making any suggestion that these things are heavily regulated, you go in with your eyes open, but they’re only available to sophisticated investors.


PS: Let’s talk about fees. I would be interested to hear about fees in general and what the situation is. How are managers responding?


JA: I think it’s always been the case that managers have done


different fee deals for different investors and the key really comes down to openness. Say one of the other investors has a different rate from you, and that this is going to benefit you because the funds are larger and have a greater ability to absorb the cost burden because of it. Fee breaks to key strategic investors can be a positive for investors as a whole.


PS: On the service provider side is this something you’re seeing more of, post 2007–08, or is it fairly standard in the industry?


JA: We haven’t seen a particular push. I know that with the larger


funds the institutional investors are putting the pressure on it, but for the smaller ones, I haven’t seen a lot different from what’s happened historically.


TB: Single investor funds with big institutional money will need to negotiate much better rates.


CAYMAN FUNDS | 2013 7


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