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Cayman Islands sets milestone with 10,000 registered funds

Posted: 30 July 2008

Second quarter figures from the Cayman Islands Monetary Authority (CIMA), have indicated that more than 10,000 investment funds are currently registered in the jurisdiction.

As 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 credit crunch.

"This is yet another round of impressive statistics from CIMA," said Mark Lewis, senior investment funds partner at Walkers, the 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.

"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", Lewis added. "Hedge funds have also provided the market with much needed liquidity, which has been especially beneficial amid the current tight lending conditions."

The continued growth in net hedge fund registrations is also partly explained by the absence of a significant spike in fund terminations. While there has certainly been 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 proactive 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."

"There has also been significant ongoing activity in emerging markets and commodities," Rogers added. "The convergence of these two hot asset classes has been particularly interesting."

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.

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