Last updated: 06:28 / Friday, 10 October 2014
By Jonathan Rivas

What the Fund?

What the Fund?

The most challenging projects that have come across my desk this year involve domiciling Emerging and Offshore funds and finding custodian partners in established trustworthy jurisdictions for the funds’ daily operations. It may seem an easy task, but most banks in the US, UK or Ireland will not be as friendly to your Argentina Fixed Income Portfolio or your BVI Small Cap Strategy fund as you’d like.

I started this year working with several Latam investment funds that needed a custodian bank or a clearing agent, tasks that could easily be accomplished within 30 days for any fund structured in the US, UK or Ireland.

But why are custodians so cautious of any jurisdiction not a top 10 global financial hub? It is true that new regulatory changes worldwide are playing a significant role in banks being more selective regarding the clients they want to service. After working directly with banks in the selection and onboarding process, I have learned that in this case the biggest deal breaker is the fear of the unknown. Custody and trust bankers are simply not fully aware of rules, regulations and restrictions that govern funds based in emerging markets or other offshore jurisdictions.

As a fund manager or leader of your investment firm, is your job to educate them. Here are some ice-breaking topics I discuss with custodian banks when onboarding my clients:

Speak the same language

If you are working with a bank outside your jurisdiction, learn the terms, rules and regulations of the jurisdiction that will be doing your safekeeping. Make sure your banker knows what your needs are by identifying them clearly. A custodian account for example, might not have the same functionalities in the UK than it does in the US.

Explain your Investment Strategy and your Growth Potential

Custodial banking is fee-based, so any banker will be more inclined to help you if they can easily determine the number of assets they will be doing custody for, the number of annual trades to be executed and the risks involved within the investment strategy.

Draw a map of your jurisdiction

You should not assume that banks are fully aware of how funds in Uruguay are regulated, or the rules and restrictions faced by broker-dealers in Argentina, or the reporting requirements for a fund in New Zealand.  Similar to a business plan, you should explain in writing the rules and regulations that you are supervised under, the similarities between your jurisdiction and a major investment hub, the risks and the rewards of working with a client from your jurisdiction. Most importantly tell the bank why you can be such a great future client and partner.

Show your compliance cards

Make sure to have ready and available to share all the policies and procedures you will be following. Some of the main ones should be: client onboarding policy, AML policy, privacy and reporting policy. You should consider adding policies required in other jurisdictions as this may help you form a new relationship with a bank without affecting your core business strategy.

Form Relationships

Chances are that if you are not managing a minimum of US $50 million in your fund, top-tier Banks will not be fighting over your business. The best relationships I have in banking are with mid-sized banks. These banks are big enough to have recognizable brands and can give you peace of mind about safekeeping, while at the same time are small enough to understand new business means growing together and finding solutions that work for both the client and the bank.

Article by Jonathan Rivas, Managing Parter dcdb Group