Bermuda Trails Cayman Islands In Hedge Fund Stakes

by Amanda Banks, for LawandTax-News.com, London

23 September 2005

Despite the Bermudian government's efforts to streamline the approval process for investment fund registrations, the island continues to lag well behind its rivals, particularly the Cayman Islands, in the number of new hedge funds that it attracts, high-net-worth investors and fund managers heard at a two-day conference in Bermuda earlier this week.

At a special session devoted to offshore domiciles on the second day of the MARHedge World Wealth Summit on Tuesday, the Royal Gazette reported that participants heard from a panel of experts that, while Bermuda and the Cayman Islands are very similarly matched offshore jurisdictions, the latter continues to attract the bulk of hedge fund incorporations because, among other reasons, it comes highly recommended by the industry’s US lawyers.

“In many respects Bermuda and the Caymans are very similar jurisdictions,” observed Boris Onefater, the national director of accounting firm Deloitte & Touche’s hedge fund practice in New York. However, he went on to add that the Cayman Islands is attracting 45 percent to 65 percent of all funds registered. “Bermuda is not anywhere near that,” he noted.

Although both boast educated work forces, friendly tax regimes, and good communications infrastructures, Bermuda is seen as having stricter policies on expatriate work permits, stated Mr Onefater. Another advantage of Cayman over Bermuda is the former's more flexible legislative and legal system - lawyers in the Caymans have a reputation for quickly signing-off new applications, the panel noted.

Earlier in the year, Bermuda announced a new fast track approval system for collective investment schemes, dispensing with the need for ministerial approval and cutting back on red tape in an attempt to bring the jurisdiction into line with the likes of the Cayman Islands and the British Virgin Islands. However, the conference continued to cite Bermuda as the jurisdiction where hedge funds find it takes the longest to get established.

By comparison, another hedge fund domicile in the region, the Netherlands Antilles, was said to be able to incorporate new funds in as little as a day. According to Mai Liem, legal officer for SS&C Fund Services NV, it also has more choice in service providers with outside audit and administration firms cleared to work with funds in the jurisdiction. She added that the Dutch territory has never been blacklisted as a tax haven, offers lower costs and restrictions than rival domiciles and was “expat friendly”.

Nonetheless, it is the Cayman Islands that continues to have the clear advantage in the hedge fund stakes. With a 13 percent increase at the end of the first six months of 2005, as compared to the record-setting second half of 2004, the Cayman Islands continue to dominate the global hedge fund industry as the venue of choice. More than 80 percent of the world's hedge funds are registered with the Cayman Islands Monetary Authority (CIMA), which reported that the first half of 2005 saw the total number of registered funds grow from 5,932 to 6,527.

"As money managers and investors, particularly those in emerging markets such as Asia, continue to have assets to invest and a need for strong returns, it's certain that the growth in Cayman's hedge fund industry will continue," noted Mark Lewis, a partner at law firm Walkers, which handles more than 40 percent of all new Cayman hedge funds, whilst commenting on another good year for the domicile in a report published last month.

"With more than 795 new hedge funds established in Cayman through the end of June, Cayman's position as the leading offshore investment funds jurisdiction is well established," he added.

According to Lewis, at its current rate, the number of new hedge funds established in the Caymans will set another record in 2005. By way of background, 2004 saw an unprecedented 112 percent increase in the number of new hedge funds that were established in the Cayman Islands.

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