The Cayman Islands Monetary Authority announced on 5 September that the jurisdiction now has more than 8,000 registered hedge funds, an increase of more than 2,000 funds compared to the beginning of 2005.
More than 1,000 new hedge funds were authorized in the first half of 2006 alone, which is a record for any six-month reporting period in the Cayman Islands.
This surge in hedge funds is the result of a range of factors including non-traditional applications of hedge funds and increased interest in emerging markets, according to a new analysis by Walkers, the global offshore law firm of choice for companies, financial organizations, and international law firms, states a press release.
“Despite an increased focus on regulations by governing bodies such as the Securities and Exchange Commission in the U.S. and the Financial Services Authority in the UK, the hedge fund market continues to thrive,’ Mark Lewis, a Senior Investment Funds Partner for Walkers, said. “Hedge fund managers are finding new ways to apply their skills and strategies. The lines are beginning to blur between hedge funds and private equity funds, with more similar structures and applications being used by both types of managers. In addition, the recent US Pension Protection Act 2006, will reduce the number of investment funds that need to operate in compliance with ERISA regulations and will open up additional investment opportunities for employee benefit plans that were previously precluded from investing in hedge funds.’
According to Hedge Fund Research Inc., the hedge fund industry attracted USD$42.1 billion in new money in the second quarter of 2006 alone, bringing total industry assets under management to USD $1.225 trillion. This influx is the biggest quarterly jump in new funds since HFR started tracking in 2003.
As hedge funds become more common in emerging markets, there is every reason to expect that the global pie will continue to grow. According to a July report by the International Monetary Fund, foreign holdings of Zambian government securities primarily by hedge funds rose from a “negligible amount” to K540bn (USD$150m) during 2005, mostly in the last quarter. By May this year, that figure had risen to K840bn (USD$233m).
In addition to the increase in global strategies being employed, the demographic of the investors who are attracted to the hedge funds is also becoming more global with investment managers and financial institutions less dependent on investors from the United States and EU countries.
“We continue to see strong hedge fund interest globally from investors in Asia and the Middle East, as well as U.S. and UK institutions,’ Jonathan Tonge, Investment Funds Group Managing Partner for Walkers, said. “The number of hedge funds being terminated has also risen, but with a steady increase in new hedge fund registrations, the termination to new fund registration ratio remains at a 1:3. These changes in fund status reflect the maturity of the market where investors are not prepared to tolerate extended periods of poor performance, and variables that impact hedge fund investment such as the recent changes to the U.S. Pension Protection Act and increased costs of regulation and compliance. However, the rate of growth still far outpaces terminations.’
The Cayman Islands provide hedge funds with a no tax jurisdiction, a sophisticated financial infrastructure that includes major banks and accounting firms, and therefore the ability to achieve measurable savings which, in turn, are passed along to investors.
Who they are
Based in the Cayman Islands with offices in the British Virgin Islands, Dubai, Hong Kong, Jersey, and London, Walkers offers high-level skills across the legal spectrum for Cayman, BVI, and Jersey law,. Walkers was named by HedgeWorld Limited as the top law firm for hedge funds by total assets of funds and assets of non-U.S. funds, as well as the 2006 Who’s Who Legal Law Firm of the Year: Cayman Islands, the PLC Which Lawyer? Yearbook 2006 Leading Cayman Islands Law Firm, and The Lawyer’s 2006 Offshore Law Firm of the Year. We act for a wide range of clients including major financial institutions, investment banks, leading law and accounting firms, major corporations of all kinds, partnerships, trust companies and other fiduciaries representing almost every country in the world. Our aim is to provide clear, concise and practical advice based on an in-depth knowledge of the legal, regulatory and commercial environment in the Cayman Islands, Jersey, and the BVI. We are experienced in all types of international and cross-border transactions and we welcome a close working relationship with our clients and their other professional advisers.
Walkers SPV Limited is a licensed trust company and mutual fund administrator, wholly-owned by Walkers, with a branch office in Tokyo. It provides experienced and expert management and administration of Special Purpose Vehicles, Directorship and Trustee services to Cayman-domiciled investment funds, as well as registered office and secretarial services for many companies and partnerships of all types.