GAIM Ops Cayman Conference – Session Notes & Talking Points

Esther Zurba, Director at Castle Hall Diligence, attended the GAIM Ops Cayman Conference and she found a number of key themes that had been on everyone’s lips at the Conference:

Expenses

No surprises here, but investor scrutiny appears to be increasing. Institutional investors continue to focus on permissible expenses that asset managers pass through, demanding greater transparency on the “hidden” items that can result in unexpected expense burdens eating, sometimes deeply, into net returns. Investors are looking for transparency, reasonability and fairness, and are definitely engaging in the challenging conversations with asset managers where the management fee does not cover items investors expect. While this general theme is not a particularly new story, investors say they are unhappy with a noted trend in increasing permissible expense items such as systems and outsourced back office services, and they are conducting further analysis on financial statements. Asset managers can expect demands for greater transparency into granular breakdowns of “professional” and “other” line items. Overheard: “the management fee should not be a profit center”.

Politics and Compliance

All express uncertainty regarding the future with respect to how the new U.S. Trump Administration will impact markets and the regulatory environment in the United States. Everyone is wondering: if the new U.S. Administration follows through with repealing Dodd Frank, what does this mean for asset managers? As Europe also enters unchartered territory in the wake of Brexit, conference speakers and attendees are discussing what impact will an increase in protectionism have on markets and jurisdiction specific regulations? Most agree that regulators will continue to focus on areas of key concern: valuation procedures, fee structures, conflicts of interest, allocation of expenses, and cyber security. Thorough documentation and proof that process follows documentation in practice is key.

Cybersecurity

The hot topic “du jour”. Conference speakers and attendees agree this is high on everyone’s radar, and including that of the regulators, who are additionally ensuring to include that asset managers have, in turn, done appropriate due diligence on the cyber security preparedness of their own third party vendors. Asset managers can expect a strong degree of ongoing commitment from regulators and prosecutors in this area: “’I am compliant’ does not equal secure”.