The Cayman Islands laid the foundations for its growth to become the leading off shore funds domicile by being the first jurisdiction to implement specific legislation for hedge funds in 1993. Since then the market has grown exponentially, initially encouraged by the liberalisation of international finance, with the end of currency controls and trade barriers, which resulted in demand for financial services from Cayman. International investors increasingly gained comfort with Cayman structures, primarily due to the robust and effective legal system – based on the UK's Common Law - and the quality of the professionals working in the Cayman Islands. As the market developed, Cayman structures became the standard in the hedge fund market and a benchmark for competing jurisdictions to aim at.
Responsible for hundreds of billions of dollars of investment into OECD economies, Cayman Islands domiciled hedge funds have enabled investors around the world to gain access to the most successful investment products and opportunities. By domiciling in a tax neutral jurisdiction such as Cayman, capital is pooled for the purpose of investing in major investment projects or deployed in international markets, without an additional layer of tax being applied at the fund level. That helps to ensure the overall project is successful, while investors in Cayman funds will all pay tax in their home jurisdiction.
A significant body of economic research demonstrates that investment by Cayman Islands funds into OECD countries makes a considerable contribution towards global GDP. Furthermore, Cayman funds and the investment dollars they provide, have been responsible for supporting growth in developing countries, helping China and India for example to move out of poverty. By studying the flow of funds to and from Cayman structures it is clear there is no capital flight out of OECD countries and on the contrary OECD countries are major beneficiaries of the inward capital flows from investors all around the world, seeking the most attractive and efficient investment products.
Cayman has been fortunate to attract a large number of the finest professional services clients in the investment funds sector. All of the major global auditors and fund administration firms have a presence in the Cayman Islands and the caliber of the legal professionals is equivalent to that you would find in any major financial center such as New York or London,
More recent years has seen Cayman maintain its leadership of the off shore funds sector and the total number of funds has held above the 10,000 level, which is testament to the strength of the industry. At the Q3 stage in 2016 there were 10,830 funds regulated by CIMA and this does not include the large number of unregulated funds, such as closed ended funds or funds with less than 15 investors. The fund administrators are well represented with over 100 operating in Cayman.
The past 12 months has been characterised by the specific taken action by the Cayman Islands government in terms of cooperation with international transparency initiatives such as Common Reporting Standards and FATCA. The Cayman Islands has also prepared a new AIFMD compliant regime for funds and managers that wish to participate in Europe.
Source: Cayman Islands Monetary Authority (CIMA)
Produced with kind assistance from the Alternative Investment Management Association (AIMA).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
