Many people thought that, due to the recent upheaval in the credit markets, the level of fund formation in Cayman would slow down.
Many people thought that, due to the recent upheaval in the credit markets, the level of fund formation in Cayman would slow down. However, this has not been the case, with Q3 proving to have the highest number of fund formations ever in a quarter.
It should be no great surprise that hedge fund managers, both new and established, see current market conditions as providing an opportunity to form funds.
Cayman as a jurisdiction is challenged by many of the same forces that face its competitors. The innovations in hedge fund strategies mean that professionals too, need to innovate, in terms of the technology and infrastructure in place to service clients.
Several interlocking factors, however, continue to make Cayman a jurisdiction of choice for new funds. Geographically of course Cayman is well-positioned – only about 60-70 minutes away from Miami. But of more consequence than location has been the attitude of the Cayman Government to regulation – its commitment to quality and supporting the industry’s continued growth in the right way,
The Government’s foresight in going with an e-reporting system has been a great step forward. They saw that from a cost perspective – whether human capital or infrastructure – the potential savings over the next few years would be significant and would enable Cayman to continue to grow.
The decision to leverage off technology has several major advantages. It enables the mining of the data gathered – indeed everyone is looking forward to the first set of data in early 2008. It also helps people to grow professionally – moving from being pure data personnel to being analysts, examining the information from a macro perspective. Thirdly, from a business continuity perspective, electronic information is a lot more portable than physical files.
There is an increasing focus on corporate governance, due diligence, and documenting the ongoing day-to-day operations, processes and controls within funds. As the demand for transparency increases, many more of the physical structures of hedge funds will have to become more sophisticated, which will require more informed professionals to support those operations.
One of the recent trends in the offshore jurisdictions is the evolution of the role of the independent director, requiring them to become more involved in the ongoing operations of the structure.
As institutional investors demand more information from funds, the directors associated with a hedge fund want to ensure that the complexity of this investment information is mitigated by them having an in-depth understanding of the fund’s operational structure.
By Rohan Small and Baron Jacob
