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Fund administration clients warm to Guernsey model

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By the nature of the island, its geography and population, fund service providers in Guernsey have never been geared up to mass-market retail business, a sector now dominated by big global players

By the nature of the island, its geography and population, fund service providers in Guernsey have never been geared up to mass-market retail business, a sector now dominated by big global players that have deep pockets to fund costly IT systems and hundreds of employees spread across networks of offices around the world.

Instead, they have made a virtue out of necessity, eschewing the massive scale of the global giants to offer clients instead the benefits of nimbleness and flexibility. The island’s administrators are encountering increasing demand from clients that seek a bespoke service rather than a conveyor belt-like process that embodies a one-size-fits-all approach, and in any case has increasingly little room for smaller managers and their funds.

While the big international administrators are fully geared up to handle plain vanilla funds quickly and efficiently, they struggle to accommodate differences from the standard model, such as reporting to different investors using different accounting standards. They also have a tendency to tell their asset manager clients what they need, rather than the other way round.

By contrast, Guernsey firms have a tradition of willingness to accommodate the needs of their clients, whether it means adopting new approaches to valuation of exotic assets or creating the customised reporting required for a disparate investor base, or adapting the timing of the working day to the needs of a customer in a different time zone.

The Guernsey administration model is in some respects the product of a single firm, Guernsey International Fund Managers, the predecessor to today’s Northern Trust fund administration business in Guernsey, which over the years has been the starting point for many of the individuals that today run fund services firms across the island.

The GIFM model that today predominates in the Guernsey fund industry has dispensed with the production-line approach of fund services divided into separate teams carrying out functions such as share registry and accounting. Instead teams are assembled with a crossover of skills that equip members to cover for colleagues and to deal directly with the client.

Guernsey firm may not be able to compete with the global players on staff numbers and systems, so instead they aim to be more responsive and adaptive to the clients’ needs. The single team approach ensures that both investors and fund managers know with whom they are dealing, as opposed to the call centre-style arrangements put in place by the largest players.

However, this does not require providers to be limited in scope or geography. Equity Fund Services and Custom House Administration, which merged earlier this year, both espouse a philosophy that combines an international presence with the flexibility and personal touch of bespoke service providers.

Custom House has developed a ‘superhighway’ approach that enables it to produce daily NAVs by drawing on the resources of its offices in Chicago and Singapore as well as its headquarters in Dublin. Equity offers fund promoters a wide-ranging structuring ability through its offices in jurisdictions including Luxembourg, Cyprus, Mauritius and the Netherlands Antilles.

Other Guernsey administrators are looking to maximise the value added to fund servicing through their offices on the island while taking advantages of processing capabilities elsewhere, either within their own group or through ‘best friend’ arrangements with service providers in other jurisdictions, in order to uphold service standards while benefiting from the lower cost structure of other jurisdictions.

Bob Brown is director of Equity Fund Services Guernsey

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