By Colin MacKay – The 2007/8 global financial crisis continues to influence the environment within which the Cayman investment funds industry operates. Global economic patterns, largely driven by factors emerging from that crisis, continue to shape cross-border political and regulatory developments. These, in turn, impact the investment management, banking, prime brokerage, administration, accounting and legal communities, each of which continues to favour Cayman for investment fund structuring and operation.
In geo-political terms, 2013 has seen a continued evolution of the thinking on what British Prime Minister Cameron dubbed the “3 Ts” of cross-border activity: taxation, transparency and trade. This evolution is evident on an international scale through initiatives such as the OECD’s Global Forum on Transparency and Exchange of Information on Taxation, the AIFM Directive, US and UK FATCA etc.
On a local level this is bourne out through greater government accountability and transparency through scrutinised budgeting and public spending, the conclusion of a growing number of bilateral tax information exchange agreements by Cayman and proactive efforts on the part of the Cayman Islands Monetary Authority (CIMA) to survey the alternative investment funds communities both at home and abroad to help shape the regulatory framework of the future.
Over the last two decades, Cayman has established a strong track record of close cooperation with US, UK, EU and other governments and regulators on many of these and similar initiatives. During 2013, Cayman has continued to lead the way for international financial centres including the recent signing of a Model 1 Inter-governmental Agreement (IGA) with the US to secure the most favourable and cost effective means of complying with US FATCA for Cayman domiciled institutions, including collective investment funds. Cayman has also recently concluded a preliminary agreement in relation to the implementation of the UK’s FATCA equivalent regime.
Notwithstanding the rapidly changing geo-political agenda, Cayman’s domestic political environment saw significant change in 2013 with the formation of a new government. The new administration is well stocked with senior political office holders with strong links to the financial services industry locally, significantly strengthening the public-private partnership which has allowed Cayman to grow so successfully for over 30 years.
An active dialogue among government, key industry associations, including Cayman Finance and AIMA Cayman, and private sector representatives ensures more effective legislation targeted at achieving the government’s goals of delivering a well governed industry and improving global economic and political perception of Cayman. while making the jurisdiction an attractive place to do business for the international community. Combined with CIMA’s recent surveys and consultation on draft regulation and guidance on industry hot topics such as corporate governance, the legislative and regulatory framework in Cayman appears to be well positioned to meet those twin goals as we move into the New Year.
While we in the industry locally are confident of Cayman’s ability to meet and master the challenges of the future, it is particularly encouraging to see similar levels of confidence from investors and investment managers alike as evidenced by strong ongoing new fund registration flows recorded by CIMA since 2010 and the reported growth in capital raising, which continues to drive total assets under management within Cayman structures to record levels. The hedge fund industry’s growth prospects remain strong, and as its long-standing partner AIMA remains ready and waiting to assist.