Europes hedge fund industry continues to reap benefits within the paradigm of a Cayman Islands fund tethered to managerial input from London. This Cayman-London confederacy anticipates feeling ever-growing future competition from other savvy offshore locales that are jockeying for position as the next investment site of preference.
Nevertheless, this pairing continues to be appealing to hedge fund managers and investors and remains predominant. For companies seeking to domicile a hedge fund, the Cayman Islands show no sign of being pre-empted by the other jurisdictions that are striving to offer the same harmonious combination of the right form of regulation and flexibility.
This regulation has come about in Cayman by the enactment of a Mutual Fund Law that has, for the past ten years, served managers well and has been affected by nothing other than the occasional adjustment. This legislation that is already in place on the island continues to be sufficient for the funds of intelligent investors.
Investment funds in Cayman are regulated solely on the basis of full disclosure of information that can potentially impact the investor. There is no inventory of specific requirements as is seen with more intrusive regulatory directives. The disclosure principle that is inherent within the Mutual Fund Law grants the same degree of protection and recourse that investments have the benefit of in other jurisdictions.
Additionally, this is enhanced by the confidence that is instilled by having a UK-regulated investment manager that often includes listings on a stock exchange in Dublin or the Channel Islands, together with a third-party administrator guided by home-territory regulation. Dublin is the leading centre contending for third party administration of London managed Cayman Funds, followed at a distance by the Channel Islands and Luxembourg.
The islands of Jersey and Guernsey have had nascent success in convincing investment managers to relocate their interests to these locales and some European destinations such as Russia, Switzerland and the Benelux countries are also serving as centres for hedge fund management. However, London remains pre-eminent in this regard and is the first choice of most European fund managers.
Hedge fund activity can be indicative of investor confidence and managers can rely upon certain patterns within this activity to test the strength of a market. With the well tested Cayman Islands model in place, managers who are beginning to raise capital for a new fund project can stick to the basics of discussing the strategy behind a fund and the investment policy with investors, rather than putting time into the justification behind having a fund that is domiciled in Cayman and combined with Dublin based administration and an investment management centre in London.
Time need not be spent on less relevant aspects such as the decision behind why a fund is managed from Spain, for example, that is domiciled in the Cayman Islands.