A safe place for funds in troubled times

Date: Wednesday, June 24, 2009
Author: Hedgeweek.com

The Corporate and Institutional business division of RBC Wealth Management, the international wealth management arm of Royal Bank of Canada, has been providing custody and fund administration services in and from the Channel Islands for more than 25 years through various locally licensed subsidiaries.

The business unit now has more than USD30bn in assets under custody for third-party institutional and high net worth clients. The division's clients benefit from the continuing strength and stability of the RBC group, whose disciplined strategy, sound risk management, strong balance sheet and diversified business mix have helped it to withstand the recent market turmoil.

Amid investor redemptions and a general lack of risk appetite for funds and in particular alternative investments, fund sponsors have sought to retain their diminishing investor base through the introduction of gates, side-pockets and complex corporate actions. The lack of investment liquidity is also leading to the creation of new 'non-liquid' fund cells from which investors will receive value upon final disposal of the illiquid securities.

Another trend is the creation of managed accounts into which the assets of existing funds are tipped for each investor pool on either a notional or actual basis. This provides the investor with full transparency on the assets they own, together with a regular valuation from the independent administrator/custodian, while the investment manager becomes a high net worth money manager, retaining clients that may no longer have an appetite for pooled arrangements.

An unknown factor is the European Union's declared intent to spearhead global enhancement of the regulation of alternative investment funds (defined by the EU as any funds that are not Ucits). This move was prompted by the recent turmoil in the world's financial markets and its severe impact on the global financial system.

The proposed Directive on Alternative Investment Fund Managers encompasses oversight of all managers operating within the EU, irrespective of where their funds are domiciled, so the legislation is set to affect European managers of onshore and offshore funds alike.

The directive aims to ensure investment transparency, investor protection and regulatory oversight of the activities of managers in relation to hedge funds and private equity funds, as well as real estate, commodity and infrastructure funds and other types of institutional vehicle.

Alternative funds have been the focus of the investment industry in Guernsey and Jersey over the past decade after retail funds became less attractive to domicile and administer offshore for various regulatory, tax and infrastructure reasons.

The Channel Islands have responded proactively to international initiatives on the regulation of offshore financial services, not only ensuring compliance with global standards but seizing the opportunity to demonstrate their robustness and enhance their reputation as financial services centres.

When the fund industry rebounds, the Channel Islands will be well placed to benefit thanks to its financial infrastructure of many law firms, banks and other institutions, and its world-class regulations governing a wide range of fund vehicles.

This will be complemented by the team-based approach of RBC Wealth Management's Corporate and Institutional division. Professionals from the banking, credit, trust, fund accounting and custody units meet potential fund sponsors at an early stage, understanding their business needs and adding value through a true partnership.