Presentation on Custom House
Good evening Ladies and Gentlemen. As this is the last presentation of the evening, I will try to make it short and concise and, I hope, interesting. I will just briefly tell you who we are, what we do and then discuss a couple of points that we believe set Custom House apart from our competition.
I am the Chairman of Custom House Administration and Corporate Services Ltd, which was founded in 1989 and is based in Dublin, Ireland. We call ourselves The Specialist Fund Specialist, which relates to the fact that our business is entirely involved in alternative investment and hedge funds. Our business consists of two separate but closely linked components.
* Firstly, we advise and help clients, such as Portfolio Managers and institutions, to design and set up their own customised, specialist, offshore alternative investment or hedge funds.
This involves discussing with the client the objectives of the fund, the target market (which includes considering the different rules in the target markets), the type of investor high net worth, institutional etc., and, after completion of a 17-page questionnaire containing over 100 questions, deciding upon out the best structure and jurisdiction for their fund. We then do all the legal work, drafting the offering memorandum, all the agreements and other documentation necessary to get the fund off the ground, as well as clearing all that documentation with a lawyer in the selected jurisdiction. This is, in fact, quite a complicated analytical task, which I dont have time to examine fully this evening. However, it is described in great detail on our website (www.customhousegroup.com), which I invite you to visit.
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The second and major part in fact, the most important part - of our business is that of administration. As a sort of corporate clerical nanny, our job is to leave the geniuses to work away in their Ivory Towers, making the money. Thus, Once a fund has been established, we provide a complete administration service, including shareholder register and corporate secretarial services.
The administration of hedge funds (- by the way, when I use the term hedge funds this evening, please accept that I am including all alternative investment funds, including futures and commodity funds, not just the so called hedge funds) is different to the administration of a classic mutual fund, sicav or unit trust, that may be offered to retail investors by the larger institutions in the world. This is because there are so many variables that can occur within the hedge fund, whereas mutual funds tend to be standardised products.
For example, hedge funds can have quite complex fee structures. They can have: incentive fees; benchmarks or hurdle rates; theres the equalisation problem; they could be multi manager funds, with different compensation packages for the different managers; and it goes on. As a result, the administration of alternative investment and hedge funds is primarily a specialist accounting process and the administrator needs special skills.
This will explain why the majority of our staff are graduates or have a professional qualification. In total, we currently have over 60 employees including; three chartered accountants, some 10 or 12 certified accountants and a plethora of nearly qualified certified accountants, by which I mean people who are currently on courses with the expectation of qualifying within the next year or so. We actively encourage our staff to improve their qualifications, whether its in the area of Accountancy, IT or Law and give financial help to suitable candidates. In addition, we have 2 qualified barristers and 2 law graduates, who are in the process of qualifying as barristers, in the set-up department.
We are ranked as the 10th largest offshore hedge fund administrator by the magazine IFI.
We act for over 170 funds, for some 90 clients, with total assets under administration of approximately US$2.5 Billion.
We are authorised and regulated by The Central Bank of Ireland.
Our objective is to provide a personal, efficient, cost effective administration service to our clients. This includes the calculation of the Net Asset Value of the fund and the calculation of the Net Asset Value per share or unit. We maintain the share register, handle all purchases and sales of shares, issue all reports, maintain the books and records, liase with the auditor and the regulators, and much else besides. It is important to us that the actual administrator of your fund is a person known to the client and not just a number.
Our clients are varied, although for the most part they tend to be start up situations. By that I mean somebody who may have been a proprietary trader with a house, such as Goldman, but has gone out and set up on his own.
We have actively sought this type of client. Many administrators will ignore them as not being worth the effort today, because they wont add to their bottom line today. We believe that, although they may not give us a profit today, they are a good investment for the future and we have found this has worked out. We have several funds now with many millions of dollars in them that started off with $2 or $3 million and a gleam in the managers eye. Having said that, we also have other clients that are substantial institutions. For example, we set up a multi manager currency fund for American Express Bank and a multi manager futures fund for Credit Suisse Asset Management. This latter fund had seventeen different CTAs and, even though it was a monthly dealing fund, we produced a daily valuation, so Credit Suisse could carry out their own risk management monitoring.
The type of fund we have set up is very varied. As I have said, we only act for alternative investment and hedge funds but they have ranged from a fund that was a capital protected, effectively guaranteed, currency fund that complied with Islamic investment principles, which, if you think about it, sounds like a non-sequetor. At the other end of the spectrum, we have set up a fund for a client that invested solely in arable farmland in Argentina.
In between, we have done: currency funds; future funds; long short equities; real estate; various arbitrage techniques, using convertible bonds, equities or options trading; funds that invest in second hand endowment life insurance policies; venture capital funds; and more.
That is basically what we do. But before I finish, I would just like to say a word about our systems. David (an earlier speaker) passed comment on the changes that technology brings
Efficient administration means, in the mind of the manger and the investors, quick and accurate calculation of the NAV each month or each dealing day. Often, this is not achieved by hedge fund administrators. Why Because the systems that most administrators use today are multiplex systems using several independent components. The various functions, such as share transfers, the securities trading, the calculation of fees, the calculation of equalisation of incentive fees, will be done in a separate module and the information then has to be transferred from one module to another. This can be very time consuming and each such transfer can create, what I have described as, an error zone - and, in the case of the fee calculation and the equalisation modules, which are usually spread sheets, these error-zones multiply almost geometrically.
Two years ago we decided to update our system working with an independent software house. We have now started to install and implement our new system called PFS-PAXUS.
We believe this to be the first such administrative system on the market. Its great advantage is that its integrated. This means that all of those functions that I have mentioned, in fact all of the functions relating to the administration of the fund, are done within one integrated system.
I cannot stress how much this will improve our life and that of our clients, because, once we have transfered all our funds on the system, we should be able to produce valuations very much more quickly than we (or any other administrator) can today and with much greater accuracy, in an error free environment. In fact, we have no doubt that both we and our clients will benefit from improvements in efficiency and a broader service, not previously achievable by us or any other administrator.
Thank you very much.