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Caribbean-Based Hedge Funds Lap Up US Treasuries

by Carla Johnson, Investors Offshore.com

27 December 2004


Caribbean-based hedge funds have attracted the attention of market observers by buying US Treasuries in large quantities, recent reports have indicated.

According to Bloomberg, investments in US Treasury instruments by hedge funds based in locations such as Bermuda and the Cayman Islands increased by 54% to $85.2 billion during the first ten months of 2004 – significantly higher than the 8.3% increase recorded in 2003.

As a result, the region is now the fourth-largest holder of US government debt, behind Japan, China and the UK.

The news comes as hedge funds have continued to proliferate rapidly throughout 2004. In the first nine months of 2004, some 866 new funds began trading, bringing the total to 7,156, according to Chicago-based research firm Hedge Fund Research Inc.

This growth in new hedge funds has been notably strong in offshore domiciles. For example, the number of investment funds registered in the Cayman Islands has more than tripled to more than 4,000 since December 1997, according to Bloomberg.

However, the readiness with which hedge funds have bought into US debt has worried some industry participants.

Richard Waugh, a managing director at Principal Global Investors, which manages $75 billion in fixed-income assets, fears that hedge funds are not in it for the long term.

“Hedge fund managers might change their minds about an asset class in a minute,” he stated.

“That’s one of the reasons why we’ve been avoiding the Treasury market,” he added.

A comprehensive report in our Intelligence Report series examining offshore investment, offshore stock exchanges, 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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