Sat, 01/10/2005 - 03:55
The Cayman Islands' success in making itself the international hedge funds jurisdiction of choice has long attracted envious glances from other offshore centres. Its biggest competitors as a domicile have traditionally been regional: the British Virgin Islands, still Cayman's closest competitor, Bermuda, and to a lesser extent the
Bahamas and Curaçao.
However, other jurisdictions have now set their sights on the funds market. Jersey and Guernsey have revamped their regulations to make themselves more attractive as a hedge fund domiciles and service centres, the Isle of Man is marketing its funds regime, and now Gibraltar is trying to get in on the act. The Cayman industry is respectful of the competition but not overawed by it. Says Admiral's Canover Watson: 'Cayman has built a reputation for having the right balance in terms of cost, turnaround time, quality of service providers, auditors ranging from the big four to small firms, and first-class law firms.'
Ogier's Peter Cockhill argues that it will be hard to disrupt the momentum Cayman currently enjoys. He says: 'People like to travel a well-worn path. Secondly, there has been a great migration of managers and legal talent from the US to other parts of the world, and they take with them their fixation with Cayman. Everyone wants a Cayman fund, because it's what their pool of investors and others they work with will expect.'
Deloitte's Robert Mirsky notes that the Channel Islands are marketing themselves on the basis of their proximity to London and other European centres, important when national tax authorities are starting to ask for evidence of substance, such as the holding of board meetings, behind the offshore domiciles of hedge funds.
He says: 'A danger to Cayman is changes in regulation or tax law that would impact its competitiveness by comparison with Jersey or Guernsey. There are strong arguments in favour of the Channel Islands for UK managers, and it makes a lot of sense from a lifestyle perspective for a manager to move there and set up shop. There are quality service providers there, too.'
The BVI remains a keen competitor, although it has a much smaller fund services sector. Says Roger Hanson: 'When I started at Fortis, the funds we were administering were all BVI funds. It's only in the past 13 years that Cayman took that business away, and they're probably strategising now on how to take a share of it back.'
He adds: 'As an administration centre we're definitely in competition with Ireland,and we compete with New York and Toronto in North America. The competition from Ireland is not necessarily based on time zone, either. You'd think a US manager would choose a Cayman-based administrator, but some do choose Dublin.'
Cockhill argues the talk of competition may be over-simplistic and that to some extent offshore centres are complementary. 'You have to look at what a fund might need,' he says. 'Take the example of a Cayman fund being sold to investors in Europe, but with a UK manager who wants physically to relocate to an offshore jurisdiction. 'They set up an investment manager in Guernsey, a fund in Cayman, and have the administration done in Dublin. Three jurisdictions may all claim ownership of the fund, but although in some respects they are in competition, each has unique advantages that complement each other in creating the product that the manager is actually looking for.'
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