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Recent second quarter figures from the Cayman Islands Monetary Authority (CIMA), have confirmed the achievement of a key milestone by the Cayman Islands financial services industry, with more than 10,000 investment funds currently registered in the jurisdiction.
At the end of June 2008 there were 10,037 funds on CIMA's register, compared with 9,681 at the end of the previous quarter and 8,972 at the mid point of 2007. The current annual growth rate of 12% in net new hedge funds, which takes cancellations into account, is particularly striking in the context of the deterioration in global markets following the sub-prime meltdown and associated credit crunch.
"This is yet another round of impressive statistics from CIMA," said Mark Lewis, senior investment funds partner at Walkers, the leading offshore law firm. "The 10,000 barrier has been breached as hedge funds continue to be formed in the Cayman Islands, which remains the clear jurisdiction of choice for investment managers and their advisers around the world."
Mr Lewis added: "Business remains active and the volatility which has impacted world markets as a result of the credit crisis, and the relatively weak valuations of many securities, has provided hedge fund managers with great opportunities to create alpha after a number of years of relatively flat returns. Hedge funds have also provided the market with much needed liquidity, which has been especially beneficial amid the current tight lending conditions."
According to Walkers, the continued growth in net hedge fund registrations is also partly explained by the absence of a significant spike in fund terminations. While the firm has observed a slight increase in terminations over the past 12 months, funds are not being closed at an unprecedented rate.
"There have been some forced closures, but in the cases where funds are struggling, the managers we work with are being pro-active by placing hard-to-value securities in side pockets, suspending redemptions and imposing gates. Such measures may enable a fund in distress to ride out the storm or to wind down its affairs in an orderly manner," said Walkers investment funds partner Nick Rogers.
"In the Cayman Islands the key drivers behind the actions being taken are the need to treat all investors equitably and to act in the best interests of the fund, and this provides a firm foundation for protecting market participants and preserving value," he added.
Among the new funds that have been established in the Cayman Islands, strategies such as distressed debt and special opportunities presented by the widespread markdown in asset prices have continued to feature strongly, Walkers notes.
"There has also been significant ongoing activity in emerging markets and commodities," Mr Rogers added. "The convergence of these two hot asset classes has been particularly interesting."
Walkers believes that there are a number of factors behind the Cayman Islands' attractiveness as a domicile for hedge funds, in particular the stable economic and political climate, the close relationship between the public and private sector and the presence of the world's leading professional services firms.
Furthermore, the regulatory regime in the Cayman Islands has been recognised internationally, notably by the International Monetary Fund (IMF) and the Caribbean Financial Action Task Force (CFATF) for its high standards. In the area of transparency and "know-your-client" regulations, these standards surpass many of the world's top international financial centres.A comprehensive report in our Intelligence Report series examining offshore investment, offshore stock exchanges, trusts and hedge funds is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp
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