Glen Trenouth, Rafael Elias, Geoff Ruddick and Ian Dillon (from left) MW: Managers, as well as their service providers, are feeling


significant pressure. We talked earlier about FATCA and form PF and all the disclosures that we’re having to do. So that’s something—even if they’re not putting pressure to decrease fees, they’re asking for more. We have to deliver more, whether it’s integrating with their systems or providing daily feeds, so they’re able to gain efficiency on their back office side. They’re definitely asking for service providers to work harder for the fees.


PS: So does that make it into a leaner, fitter industry, or not? MW: I believe so. From an administration point of view, innovation


with systems and technology is really key in terms of growing our business. Being able to offer value-added services to the managers helps their operations run leaner.


ID: I think there is a less healthy side to it as well and there’s


a bit of a lesson out there. There is the side that instead of getting more for the fee, managers are just demanding lower fees, and that’s tough for professional service providers such as law firms, etc, because there’s pressure on everyone to charge very low fees. We’ve seen a few of those and they just don’t work, because they never get the quality product. In some ways that’s good because it’s pushing that end of the market out.


GR: They’re a little bit more creative in terms of how they’re


structuring. The typical ‘2 and 20’ structure seems to be gone. 2 and 20 are still there as the benchmark, but there are hurdles now, or fee- breaks in different classes in exchange for liquidity, etc. I don’t think there’s ever really been a standard.


JA: There are institutional investors in the market that simply


won’t pay, they just don’t consider it to be appropriate. From the conversations we have with Investors it would appear that in the institutional market there’s a recognition that perhaps the 20 isn’t too egregious, but it’s the management fee that gets more pressure because ultimately if you’re performing and particularly if you’re over- performing, then investors are less concerned about the incentive fee. However, where managers are aggregating masses and masses of assets and not delivering great performance investors object to management fee accumulation being an incentive to grow. So I think that there’s a lot more constructive thought around how fees should be structured, whether it’s with hurdles, stepped fees or whether it’s with cuts on management fees.


RE: What we are seeing is that no matter at what level the


investment manager sets their fees, they will still have pressure from some of the larger investors to provide them fees lower than those for


8 CAYMAN FUNDS | 2013


other investors. So, whether it is 2/20, 1.5/15 or 1/10 you will still have the investment manager feeling some pressure from key investors looking to get preferred nation status and a better deal on the fees.


TB: We’re certainly seeing on any debt-based hedge fund, that the


fee structure is being pushed right down, particularly the management fee. These pressures are passed on to us and our fees too. I would have walked away from more fee quotes in the last six months than I probably have at any time before that. There’s a bottom line below which you just can’t do the job properly and so as a practitioner you must walk away.


PS: So where do those people go—if you’re all walking away who’s doing the work?


ID: I still have fee levels that back in 2006 or 2007 I wouldn’t have


dreamed of quoting. And you’re quoting them to try and get pieces of business from particular sources and they say, “well thanks very much but we’ll go with someone else who quoted a better fee”. As Tim says, you may be losing money on it but you’re doing it because you want to get that piece of business through the door, and you think it has a future.


TB: From our perspective, the margins and the fund part of the


business can’t get any leaner, it really is incredibly competitive out there. On other parts of our business our margins are better. It really is at the bottom now I think.


ID: But do you think that some of that is because of the Cayman


fees, the government fees, the cost? We have a concern that if you package up the cost of setting up a fund—here’s all of the registration fees, and here’s how much it’s going to cost you for the next couple of years etc,—that number, even with our professional fees being much lower, is bigger than it was a few years ago. And I think that’s still an issue.


PS: Presumably the other fees are much less flexible than your fees?


ID: It depends on what you’re trying to do. If you’re trying to do a


single fund, it doesn’t look that bad. If you’re trying do a master feeder structure the fees stack up. They go away and talk to their service providers to find out what other fees they have to add on as well, and all of a sudden it’s difficult.


JA: I think that it’s across the board. At a macro level you have


management fees being squeezed, you’re looking at a greater regulatory burden, which means more fees to pay, so you have to get registered with the SEC earlier than you used to so you have


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