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Cayman Islands: hedge funds and offshore finance

The success of the Cayman fund regulations are based on the innovation, creativity and forethought of the local legal and structuring talents more than a decade ago. Very quickly, the Cayman hedge fund has become the default model for an entire industry, and investment managers as well as investors have been attracted by the jurisdiction because of its efficiency. By a significant margin, Cayman remains the leading hedge fund jurisdiction selected by existing and new launch managers.

Jurisdictions should compete, but in a fair and equitable manner

Looking at the total of global invested assets, the hedge fund is only just about 1% of the $300 tln in financial investments. That means there is a huge potential for more business in the alternative investment space, and of course all jurisdictions will want to do whatever they can to make it attractive for funds to domicile in their jurisdictions or assets to flow through them. However in some countries, political pressure has been put onto local investors to move assets to certain places that are perceived as better regulated jurisdictions even though the product is essentially the same structure and regulatory model as the Cayman product. While competition is healthy and jurisdictions should compete, this should happen in a fair and equitable manner and not through inappropriate protective legislation that mandates one jurisdiction over another.

Improved Governance

The trend to increased regulation has changed how investment managers, along with their independent board, are operating. Today, board members are required to know a lot more about the laws and regulations where the fund manager is based, jurisdictions where they invest and jurisdictions where they raise capital. As a consequence, independent fund directors face a lot more scrutiny and pressure. But, most industry experts agree that corporate governance and board composition has measurably improved, for example by including more directors with an actual investment management background or from different geographies.

The Roundtable took place on December 12th 2012 at Walker’s Georgetown office with:

• Ingrid Pierce, Managing Partner, Walkers
• Gary Linford, Managing Director, HighWater
• Darren Stainrod, Managing Director, UBS Fund Services (Cayman Islands)
and offers interesting insights about:

• Why has Cayman become the number one hedge fund jurisdiction?
• Why must the Cayman regulator now walk a tightrope?
• Can Cayman remain competitive going forward?
• Considerations regarding board composition: What defines a good board? What defines a good director?
• What are some of the newer best practices in corporate governance?
• How should a hedge fund manager manage conflicts when he is also a board member?
• The “regulatory boiling point”: how can an investment manager deal with delivering 250 regulatory reports per year?
• Why has the number of Cayman registered hedge funds surged in 2012? What is the outlook?

The 20 page Roundtable script is attached and can be downloaded here for free: www.opalesque.com//RT/CaymanRoundtable2013.html

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