AIMA: Cayman well placed for EU hedge fund passport

The Cayman Islands maintains confidence that a pan-European marketing passport will be extended to alternative investment funds set up in the jurisdiction, according to the Alternative Investment Management Association.

In a first assessment at the end of July, the European Securities and Markets Authority (ESMA) recommended that the passport, which allows non-EU funds to be marketed across the EU, be granted to Jersey, Guernsey and Switzerland under the Alternative Investment Fund Managers Directive.

ESMA still has to assess other jurisdictions, including Cayman where most of the world’s offshore hedge funds are registered. But AIMA said in a press release that Cayman is well-placed to have a successful review in the near future.

Cayman has entered into cooperation arrangements with the major EU investment securities regulators, as well as the necessary tax information exchange agreements with EU governments required by the AIFMD. In addition, the Cayman Islands government developed an AIFMD-compliant opt-in regime to meet the needs of Cayman-based alternative investment fund managers who want to market funds into the EU under the passport, AIMA said.

Alan Milgate, chairman of AIMA Cayman, said ESMA’s initial decision, which did not recommend that the passport be extended to Cayman, should not be misinterpreted. “Cayman has simply not yet been assessed, and has certainly not been adversely opined on, or excluded by ESMA. We look forward to the Cayman Islands being assessed positively in ESMA’s ongoing review of additional non-EU jurisdictions and that AIFMs based in the Cayman Islands will continue to benefit from evolving legislation which is both flexible and adaptable,” Mr. Milgate said.

According to AIMA, it is in the interests of institutional investors in Europe and hedge fund managers globally that Cayman be granted the passport.

“The global industry as a whole needs Cayman AIFs to be approved under the AIFMD passport to ensure that pension funds and other European institutional investors can continue to benefit from investing in some of the world’s leading alternative investment funds,” said Jack Inglis, CEO of AIMA. “We are confident that Cayman will be granted the passport since the new Cayman regime looks similar to those in the jurisdictions that have already obtained favorable assessments.”

If the third country passport is not granted to Cayman’s alternative investment funds, they would have to be marketed in each EU member state individually through private placement. However, the private placement regime is set to expire by July 2018.

On July 30, the Cayman Islands was listed as one of 22 jurisdictions identified by ESMA as both a domicile of alternative investment funds and fund managers that market their funds in the EU. The European securities regulators stressed that it will continue to work on its assessment of other non-EU countries not covered in its initial advice with the aim of delivering further submissions to the European Parliament, the Council of the European Union and the European Commission in the coming months.

More than 11,000 regulated investment funds, as well as numerous other closed-end fund structures are currently domiciled in the Cayman Islands, and there are 2,300 investment managers who are either fully licensed or registered in Cayman.

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