Cayman funds still growing

| 15/07/2010

(CNS): Despite dire predictions for the Cayman Islands hedge fund industry reported in the Financial Times this week, local figures paint a very differentpicture. As of 30 June there were 9,486 funds in this jurisdiction, an increase of over one hundred on the previous quarter. Other good news is that so far this year, authorizations have outstripped terminations each and every month. Ingrid Pierce, partner and head of Walkers’ Hedge Fund Group in the Cayman Islands, said clients continue to have the utmost confidence in the Cayman Islands as the domicile of choice when it comes to hedge funds, and despite concerns to the contrary, very few funds have either redomiciled or determined to set up funds elsewhere.

With clients among the world’s leading investment managers and financial institutions, Walkers reports a healthy flow of instructions for new funds to be established.
 
“Recent press commentary has pointed to a preference for new hedge funds to be domiciled in Ireland and Luxembourg at the expense of Cayman, however a more likely scenario is that these jurisdictions will co-exist with the Cayman Islands, each appealing to different if partially overlapping segments within the investor and investment manager communities,” Pierce added.
 
In a short article in the UK’s leading financial paper, The Financial Times, the future picture of the Cayman Islands hedge fund sector was painted as bleak, with some hedge fund managers stating that institutional investors are increasingly choosing to invest in funds that comply with Europe’s onshore Ucits regime rather than unregulated offshore hedge funds.
 
Mark Fleming, a partner at Tiburon Partners, an Asia specialist that runs both Newcits and Cayman funds, said that the Cayman Islands would “wither on the vine” and his firm would not open another Cayman fund.“If I was a Cayman lawyer with more than three or four years of career expectation I would wonder what I’m going to do with the rest of my working life,” he told the FT. Dan Mannix, head of sales at London-based RWC Partners, said his firm was also looking at redomiciling its Cayman funds into the EU. “Funds in offshore centres such as the Caymans are not favoured at the moment by the investment community,” he said.
 
However, Pierce pointed out that, while UCITS funds are suitable for particular strategies and investors with certain requirements, they are wholly unsuitable for a large number of other funds that continue to enjoy the benefits offered by funds established in Cayman. 
 
“This shows that the Cayman model is incredibly resilient and this is borne out by the statistics on fund registrations as well as the experience of Walkers and other firms regarding instructions for the establishment of new funds,” she said.
 
Meanwhile, on Thursday morning Anthony Travers, Chairman of Cayman Finance, said he was bemused by the comments made to the FT. Based on CIMA’s figures, he predicted there would be in excess of 10,200 fund registrations by the financial year end.  “This will exceed the all-time high watermark for the Cayman fund Industry,” he added.
 
Company incorporations were also growing again, he noted, with increases of over 14% for  Q1 and 24% for Q2. “It is more helpful to report on the actual numbers rather than the wishful thinking on the part of competitor jurisdictions,” Travers observed.
 
 “We take a statistical approach to these matters and will also look forward to comparing the performance metrics of our traditional and successful hedge fund product to the EU regulated  ‘Newcits’ funds over the next couple of years. Monthly fund dissolutions in Cayman appear well within historical norms and do not evidence any trend towards redomiciliation. We would anticipate however that fund managers with a purely retail product will in the immediate term create a Eurocentric model but Cayman has not historically provided a UCITS product,” the Cayman Finance chair explained.
 
An article in Hedge Funds Review concerning Dalton Strategic Partnership’s doubling the investment risk of its Melchior European Fund in a bid to seek higher returns illustrated the point that Cayman offers a different kind of fund regime.
 
Magnus Spence, a partner in the firm, pointed out that traditional hedge fund investors are still prepared to take more risk in order to achieve higher returns outside of UCITS where investors are happy to sacrifice returns for a lower risk profile. Spence pointed out the need of the hedge fund sector to offer investors the choice. "If we want to be attractive to both types of hedge fund investors we need to be structured in the right products and we need to have the right risk return profile," Spence added.
 
Pierce pointed out that Cayman’s leadership of the investment funds industry as the domicile of choice for hedge funds has developed over time as a result of its pro-business, cost efficient environment within a strong system of regulation that adheres to international standards. Even though Cayman was catering to higher risk investors, she said, it was still likely to be able to maintain access to the European market.
 
“Looking at any of the likely conditions that non-EU countries would be required to meet in order for their funds to gain access to the European market, there is nothing to suggest that the Cayman Islands will not maintain its leading position and continue to play a valuable role in the international financial system.”
 
Over the medium to long term, Pierce indicated that it was unlikely that the AIFM Directive will adversely impact Cayman’s position. “Government has already demonstrated its commitment to do everything within its power, acting with propriety and integrity, to safeguard its place among the world’s leading international financial centres, including, where necessary, making amendments to its regulatory and legislative regime,” Pierce told CNS.
 
The statistics from CIMA reveal that despite the economic recession and the international criticism that Cayman and other offshore jurisdictions have faced in recent times, the hedge fund business here remains solid.
 
At 30 June 2010 there were 8929 registered funds in Cayman, 427 administered and 130 licensed. In January 158 funds were domiciled and 74 terminated, while in February there were 104 started and only 32 terminated; in March 100 came and 35 went; and again in April 96 new funds arrived compared to 28 which ended; In May 70 funds were gained compared to 36 terminations; and in June 57 were registered while 46 terminated.
The legislation which has caused someconcern for the local fund industry, however, is the proposed EU Alternative Investment Fund Managers directive which would block funds from outside the region from being marketed to Europeans countries unless the jurisdiction adopted “equivalent” legislation, a restrictive barrier few countries are expected to meet.
 
The controversial proposal provoked a storm of opposition, not just from offshore jurisdictions such as Cayman but also the US and Europe’s governments. As a result the EU is now engaged in an effort to reconcile the now three separate suggested versions of the AIFMD text produced by the European Commission.
 
Instead of an “equivalence” stipulation, it is expected that non-EU fund jurisdictions will need to meet four criteria, such as having co-operation agreements between their regulators and those in the EU, not being blacklisted over money laundering or terrorist financing failures, having tax treaties with Europe and allowing reciprocal access to their market for European products. This means the Cayman Islands would have much less difficulty in complying with the AIFMD and therefore the industry is far less likely to suffer any adverse effects.
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Comments (29)

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  1. Dagny says:

    Cayman is obviously still out-performing in this area and investors and fund managers continue to be attracted to it as a domicile because it offers them the stability, the technical know-how and the constructs they are comfortable with.  Ingrid raises a good point in that just because some fund managers may be setting up additional funds in other jurisdictions to enable them to access different markets, it does not mean that there is an exodus of business from Cayman to other jurisdictions. 

    Cayman’s competitors like the sounds of their own PR.  Looking at the numbers shown above, it would be quite the task to make a big splash every time someone launched a fund in Cayman, not to mention a boring read.   We can leave that type of press coverage to the others who obviously need it.

    I continue to be shocked, however by the fact that the FT, which is such a highly regarded newspaper, would print such an obviously slanted and uninformed story.  Cancel my subscription!

  2. Anonymous says:

    If you listen carefully you can hear the sound of their knuckles being dragged along the ground.  Quick! Someone distract whodatis with a small shiny object.

    • whodatis says:

      LOL!!

      I’m rolling over here … I must admit – that was a good one!

      :o)

  3. Anonymous says:

     Please tell me she is Caymanian.  I always thought Cayman women were the most beautiful AND intelligent!

  4. Legal Beagle says:

    As a man I am embarrassed by the ignorant comments by some of the neanderthals on this thread.  It is clear that Caribbean male chauvinism is alive, well and self-justified in 21st century Cayman.

    • whodatis says:

      Yes, because clearly ALL of the posters and supporting thumbers were obviously of Caribbean descent – it is so easy to tell, isnt it?

      In any event, and on a serious note, I do believethat your comment is quite out of place.

      Cayman has a long history of respecting our women as everyone’s mother and granny is a queen – after all, we have no choice! :o).

      However, many women do complain about upward mobility in the private sector of this country – but do tell … who controls that? Surely not Caymanian or Caribbean men … hmmm, they actually appear to be (gasp!) … could it be … British – American – Canadian!! Gosh, golly, gee-willikers!!

      Maybe you are directing your rather strong criticisms in the wrong direction on this one?

      whodatis

      (Caymanimus Heterosexulus Neanderthali Maximus)

    • Men of the World says:

      You presume that because we think she is beautiful that her intelligence is therefore necessarily subordinated to her looks.   How terribly demeaning a view of women you have!  It’s YOU who are presuming that beauty and intelligence are mutually exclusive, not us. 

      She’s obviously gifted with great intellect, drive and ambition, and her achievements have demonstrated that.  She’s cleartly very attractive too, but you don’t want anyone to talk about THAT because YOU think that noting her good looks means that her intellectual qualities are nullified.  How very, very wrong you are.

      I say that beauty and intellect are not only NOT mutually exclusive, but the latter greatly enhances the former in all cases

      Try respecting women in all their capacities – being beautiful is not a sign of stupidity.  Saying someone is beautiful is not denigrating of their other attributes.

      As a man I reject your embarassment, and suggest you learn to appreciate feminine asthetics without shame, guilt or malice.

  5. Anonymous says:
    This thread of responses, albeit well intentioned, aptly demonstrates the frustration faced by every beautiful and intelligent woman. Her intelligence is ignored and worst, it is perceived as secondary to her intelligence. Sad really given that the year is 2010.
    • Seriously says:

      Exactly what I was thinking in my post below.  It is disgusting that people think that way, even more disgusting that they think it is funny.

      • Studly Hungwell says:

        Men are attracted to beautiful women, and you think it is "disgusting that people think that way". 

        The Sherlock gene in me lead me to conclude that you are either a woman who does not inspire the attraction of the opposite sex (and are unhappy about that), or you are a man who, well, does not experience the attraction to the opposite sex (being disgusted by the thought of attraction to beutiful women and all). 

        Either way, you’ve got nothing to do with (real) men being attracted to real beautiful women, so stand down and mind your business.

        Studly Hungwell

    • whodatis says:

      Clearly she is hardly in need of anyone to validate her intelligence as she holds a very high position – in case you missed it that is why she is featured here in the first place.

      The bottom line is that she possesses the level of beauty that takes every red-blooded heterosexual man back to "basics" … I for one will not apologize for that.

      Prior to education, qualifications and corporate positions in this world there was, and always will be, attraction.

      She is very attractive.

      Men like her.

      Deal with it.

    • Anonymous says:

      Life is sure tough for "beautiful and intelligent" women.  We should feel sorry for them.  Very, very sad.   Around the world, beautiful and intelligent women are crying themselves to sleep every night.   

      ….tongue in cheek of course…..these lads are paying her a compliment.  

      PS, you must be very, very beautiful, because your second last sentence doesn’t make sense.  🙂  Just havingsome fun, and happy we aren’t commenting on any shootings or violence this week.   All is good.  

       

      • Anonymous says:

        "These lads are paying her a compliment". "Lads" exactly describes these puerile comments.

    • au revoir says:

      how terribly sexist of you.  i am male and face the exact same frustrations.  women just want to use me for my good looks.  i am tired of being leered at and drooled over by all these hot women.  sad, given that the year is 2010!

    • Studly Hungwell says:

      As a handsome manly man with a great deal of respect for women, I have never had a woman be irritated by a display of genuine attraction.  On the contrary…

      You on the other hand must be having some problems.

      Being beautiful is not a curse, XXXXXX.

  6. Anonymous says:

    Wow! Beautiful! What was this article about?!

  7. whodatis says:

    Is it humanly possible for a person to be that intelligent, successful and beautiful all at the same time?

    (Wonder if this comment will be allowed?)

    :o)

    P.S. I have absolutely no idea what this article is about.

  8. Anonymous says:

    Beautiful

    • Anonymous says:

      Er…yes, indeed. The news was very good too.

      • Seriously says:

        Really have you lot just crawled out of a hole or the 1970’s?  Hicks.

    • Anonymous says:

      Agreed.  You just said what everyone was thinking!!!  Glad you said it.  Ms. Pierce is stunning, and apparently very intelligent in her observations as well.  Great representative for the island.  Please take this comment as a compliment, because it is.   

  9. Dennis Smith says:

    Very good news, the last few years have been spent defending cayman now we need more marketing and brand building. Keep putting these numbers in the international and trade press, monthly if possible.

    Everyone loves a winner. With numbers like these the financial industry and Cayman has something exceptional to be proud of. Too bad that our public financial news and all of our political noise has made such good reading world wide. Must be because our "goldfish bowl" is so small and each voice here is heard so loudly out there.

    Congratulations to everyone who has worked so hard and for the most part silently.

  10. Leroy B. Whorms Sr. says:

    The Cayman Islands remind me of the runt in the Litter. The runt usually being the smallest or least defensible.

    Everyone will try to beat up on this smaller one. Quite often the mother will abandon it giving it a lower chance of survival.

    However, many runts have been known to survive and surpass the  larger ones to become the fiercest and most respected of the litter.

    Our plight as a Financial Center will experience all kinds of difficulties due to the fierce competition, but with resilience, honesty and respect the world will respect us. We will survive even if Mother abandons us.

  11. Anonymous says:

    Any statistics for values of funds under management etc?

    It’s all well and good having a lot of new funds, but if the bigger funds are leaving and only getting replaced with small funds with hardly any value then we are painting a false picture.

    Everyone I talk to in the funds industry talks about how many fund jobs have been cut in cayman. This is in line also with what immigration work permit statistics are telling us.

     

     

    • Anonymous says:

      Both larger and small investment managers are establishing more funds in the Cayman Islands.  Working in the industry, we have not seen a significant change in the nature and size of funds relative to historic norms.    There isnt a significant value-add to a fund by simply redomiciling elsewhere. 

      The decrease in funds jobs in Cayman is due primarily to the migration of administration to other jurisdictions.  While the fund may be domiciled here, the administration can take place anywhere in the world.   There are other factors as well, but this is the primary factor.  

      • Anonymous says:

        So the "fund" is here but the jobs are elsewhere?

        Doesn’t make me feel any better, the local economy is still going down!

        • Anonymous says:

          Yes. This is due to the high cost of doing business, immigration challenges and size of the labour pool. All of these are contentious issues, so its simply easier to do business elsewhere. 

        • Anonymous says:

          Investment Funds do not employ people, but they do have service providers. Some of those providers will be in Cayman and so the the extent the number of funds is increasing it helps our job situation. Further, the greater the number of Funds the greater the amount of govt. revenue. Don’t be so gloom and doom. 

          • Anonymous says:

            Obviously a "fund" cannot employ anyone but the service providers do.

            The service providers in this instance will definitely not listen to McKeeva Bush about passing on additional expenses to their clients. So when the fees associated with having that service located in Cayman decreases revenues, measures will be taken to reduce cost – ie: decrease the number of employees or even move the office to another jurisdiction.

            All this goes back to the cost of the government. It seems like that was all forgotten since the LOAN was approved. Nothing has changed and Cayman will need to borrow again within 8-9 months. Good luck with that!