CIMA: Hedge fund asset growth shows confidence in regulatory regime

The growth of assets managed by Cayman-based funds shows that investment managers have a high level of confidence in Cayman’s regulatory regime for funds, according to Cindy Scotland, managing director of the Cayman Islands Monetary Authority. 

Despite investor concerns about fees and a perceived lack of transparency around risk and performance, as well as fundraising challenges in particular for smaller funds, fund managers are optimistic about the continued growth of the hedge fund industry which is now approaching the $3 trillion mark in allocated capital globally, Mrs. Scotland said at the Campbells Fund Focus on Friday. 

“It is interesting to note that some of the concerns voiced by investors mirror the feedback CIMA received when we did our survey back in 2013. The actions taken by CIMA as a result of that survey positioned us well to respond to some of the concerns,” she said. 

However, more still needs to be done and it is vitally important to continue to implement measures that provide the necessary comfort and protection to investors, Mrs. Scotland added. 

As the industry is evolving in terms of governance and transparency, Cayman’s regulator aims to adopt legislation that meets globally accepted standards for the funds industry. This includes a new regulatory regime for managers or funds that have to comply with the EU Alternative Investment Fund Managers Directive. 

In July, lawmakers approved two bills that enable Cayman-based funds and managers connected with the European Union to elect a regime of prudential regulation that is consistent with the EU directive. 

The amendments to the Mutual Funds Law and the Securities Investment Business Law were designed to enable Cayman to qualify for a so-called “third country passport” under the European directive. 

The passport would allow Cayman funds to be marketed to professional investors across the EU, rather than through private placement in each EU and European Economic Area member state individually, if inter-regulator agreements between CIMA and the respective states are in place. CIMA has signed 27 such agreements with European regulators and negotiations are under way with other countries, Mrs. Scotland said. 

The European Securities Markets Association will evaluate whether Cayman should qualify for the passport regime in a second wave of assessments, the chairman of ESMA said last month. 

“This announcement confirms our conviction that the Cayman Islands is well positioned to be considered for the passporting regime. Cayman has taken steps to ensure it is aligned with the ESMA criteria, including instituting two specifically tailored laws,” Mrs. Scotland said and confirmed that CIMA is in communication with ESMA on the modalities and the timing of the assessment. 

The Directors Registration and Licensing Law which came into effect on June 4, 2014 was another step taken by CIMA to protect investors, she noted. 

From April 1 to Oct. 31 of this year the authority processed 1,209 director applications bringing the total number of applications, including license renewals for 2015, to 19,150 since the implementation of the law. 

As a result, CIMA collected nearly $14.5 million in fees, including termination fees from 601 directors who surrendered their license. 

At the end of October 2015 Cayman counted 11,182 regulated funds, slightly down from 11,292 funds at the end of the third quarter last year. From July to October 2015, CIMA processed 513 new funds, compared to 583 for the same period last year. 

Mrs. Scotland

Mrs. Scotland

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