Lawyers say funds are back

| 14/12/2009

Cayman Islands news, Cayman Business news, Cayman hedge funds(CNS): Lawyers from the Cayman Islands, where some 80% of the world’s hedge funds are still domiciled, are reporting that the fund business is on the up even if that business is changing shape. According to one local expert, the jurisdiction has seen a strong pick-up in new fund activity recently. Ingrid Pierce, head of the Cayman Islands hedge fund practice at Walkers, a law firm, told the Financial Times this weekend that interest during the summer has turned into real business. “We started getting patchy interest in launching new funds in the summer, which has turned into solid instructions for the end of 2009 and the start of 2010,” she said.

The fund activity falls broadly into two camps: restructured versions of funds that had experienced large redemptions and falls in net asset value, or brand new funds seeking to take advantage of inefficiencies thrown up by the credit crisis.

The strategies of the latter group are often highly targeted, Pierce told the FT. “Strategies are often targeted with a specific set of investors in mind. More managers are prepared to send out draft documents to prominent clients and potential clients to determine if a strategy works for them, and then re-define it depending on the feedback received,” she added.

However, the strategies employed are not the only element that is changing in hedge funds. Fund sizes are smaller, fees structures are mutating, and investors’ liquidity and transparency demands are rising.

Appleby, a Caymans-based legal firm, also told the leading financial daily that fund launches are significantly smaller than previous vintages. “$50m is the new $500m,” says Gray Smith, a partner. Part of the invested capital is frequently sourced from the management team itself these days, he added s. “They are injecting their own funds while they get back into the game and establish a track record, so if significant money returns next year they can show the strategy works.”

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