Industry accepts new hedge fund fee, says Bush

| 16/06/2011

(CNS): The government have introduced only one new revenue raising measure in the 2011/12 budget and it will be levied against the hedge fund sector. The new fee will apply to ‘master funds’ that form part of existing ‘master or feeder’ structures that will now be regulated by the Cayman Islands Monetary Authority (CIMA). The premier announced the introduction of $1500 fee during his late evening budget address last week. McKeeva Bush said that government had “received representations from leaders in the local financial services sector that such a fee could be introduced, without any adverse effect on the sector.”

He explained that these type of funds are not currently regulated by CIMA but just as they are regulated in other jurisdictions those funds will be required to pay a modest fee of CI$1,500per year to register with the local financial authority. Government expects to raise over $6million from the new fee and Bush said that $4.5million off that cash would be used to offset fuel duty increases on residential customer’s CUC bills.

Experts in the industry have said they do not expect the procedure for registering these funds to be onerous or increase reporting requirements and closed ended private equity funds will not be subject to this new regime.

CIMA has not yet revealed the timetable for implementation of the new regulations and fee requirement but the regulator had considered that as all of the assets of the fund structure are held at the master fund level, it was prudent to bring the master funds within its oversight.

Themotivation to regulate the funds also came from the growing pressure with regards international regulation and observations by OECD that the regulatory status of these master funds should be improve and this move is aimed at plugging the regulatory gap in the fund industry.

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  1. Anonymous says:

    I agree with the implementation of regulation over masterfunds considering the investment in regulated feeders is often limited to the master.  However I am uncertain regarding the Premier's representation that industry leaders have accepted.  Isn't this the same guy who indicated the Port Board wasonside with decision to terminate GLF agreement when in fact they had not been consulted?  Isn't this also the same Premier who believes the public of Cayman still supports his leadership XXXX?   Considering there is already a great deal of pressure on the financial industry and competition has never been higher it makes me wonder who are the industry leaders he is consulting?

  2. Anonymous says:

    And you will be taking a pay cut.  yea right!  Only the biggest most foolish people on earth would belive anything this idiot has to say.

  3. Anonymous says:

    We're already losing business because of the cost of setting up in Cayman, we can't just keep piling on the fees.  I agree it is anomalous that master funds have had a free ride up until now but maybe they should have thought of that before making the CIMA exlcuded person fee so embarassingly expensive, or increasing the tax exemption charge to the point where it costs about the same as it would cost to move your fund elsewhere if they brought tax in here.

  4. Anonymous says:

    We had better be careful what we do in the Hedge Fund Industry, most of the funds are now moving to Ireland and Vancouver.  I wonder why?  oh and to think about it most of the fund managers and other employees are from which countries?

    We should remember that we are not too big to fail.

    • Anonymous says:

      Not true.  There have been only a handful of redomiclings, on the order fo less than 10.  Compare that to about 100 start-ups per month in Cayman. 

      $1,500 is not going to induce a fund to redomicile.  A fund would incur 10's of thousands of dollars in legal fees alone to redomicile.

    • Pending says:

      Dont know where you are getting your info from but you are misinformed.

      My portfolio of Funds has been increasing for the last two years when this supposed huge shift has occurred.


  5. Jumbles says:

    It was the "tax the hedge funds to pay for your electricity" bit that was naive and idiotic. 

    "I hear Cayman is taxing hedge funds to pay electricity bills" mutters a competitor "What is next?"

    Mac could have just said here is a new fee and then gone on to say later that there would be a CUC rebate.  But no.  He had to link the two. 

  6. Anonymous says:

    Mmmm. I think the letter the Premier received from the Law Society following his announcement might refute that title!

    • Anonymous says:

      Let's just say the Law Society's letter contained a few hyperbolic arguments (as expected).  CIMA has informally and at times formally posited that the exclusion of master funds from registration, and more importantly, funds with less than 15 investors, is problematic.  No other jurisdiction has this arbitrary threshold.  

      The lawyers seem to be interested in only one thing: volume.   What they should be focused on is investor protection, and this proposed legislation incrementally strengthens investor protection.  

      The lawyers do realize that each of these funds will incur a small, one time legal charge to the lawyers for assisting in registration.  Additionally, lawyers can touch base with some of these funds they havent had contact with since establishment, and possibly refresh their offering documents in light of developments over the last couple years (such as wind up rights). 

      Come on lawyers.  Stop only thinking about YOURSELVES and think about INVESTORS.  Please!

      • Anonymous says:

        We are thinking about the longevity of our Funds industry which affects everyone – Govt., CIMA, lawyers, accountants Fund Administrators and of course the public. We are operating in a highly competitive international environment. You are naive if you think it is simply about the lawyers wanting volume.   

        Apparently CIMA was not consulted on this latest move.

        • Anonymous says:

          CIMA was consulted and they have been a driver of this over the years, to bring under their legislative umbrella the unregulated funds in Cayman. 

          Think about it:  I doubt Mackeeva knows what a "master" fund is or a "master-feeder" structure.  So some parties are driving this — it doesnt just artibrarily appear.

      • Anonymous says:

        Oh, it's only volume. Volume means new funds. There will beno investors to protect because there will no funds if this keeps up.  Our jobs depend upon it. Govt. revenues depend upon it. Clearly you do not work in the private sector and haven't a clue. There are better ways to strengthen investor protection.

        • Anonymous says:

          Registration is a consistent theme with other regulators, such as the SEC.  Registration at least provides a basic anchor to a form of regulation.  

          If a fund doesnt want to be subject to some form regulatory oversight, then this isnt the jurisdiction for it.  

          Registration will ensure CIMA has some regulatory reach to that entity, and service providers to such entity will be subject to certain conditions.   For example, auditors to a registered fund are subject to certain sanctions for not reporting to CIMA any actions by the fund operator that are harmful to investors.  If a fund isnt registered, its investors are not afforded this protection. 

          PS….I do work in private industry and have spoken at numerous conferences and have written articles on effective and ineffective regulation.  I am looking out for the interests of investors and this jurisdiction.  Ask an INVESTOR whether he views this as a positive move or not in respect of his protection.   


  7. Anonymous says:

    I heard a rumor that this will not just apply to master funds, but to ALL funds with less than 15 investors (that are currently exempt).  

    Any truth to this or just a rumor?