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Institutional investors fuel continued Cayman hedge fund growth

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A record number of new hedge funds were created in the Cayman Islands during the first six months of the year according to offshore law firm Walkers.

A record number of new hedge funds were created in the Cayman Islands during the first six months of the year according to offshore law firm Walkers.

And, that was despite an overall slowdown to the inflow of capital to hedge funds.

With a 13 per cent increase at the end of the first six months of 2005, as compared to the record-setting second half of 2004, the Cayman Islands continue to dominate the global hedge fund industry as the venue of choice. More than 80 percent of the world’s hedge funds are registered with the Cayman Islands Monetary Authority (CIMA), which reported that the first half of 2005 saw the total number of registered funds grow from 5,932 to 6,527.

The strengthening position in the Cayman Islands is in sharp contrast to a report earlier this month from Tremont Capital Management, a hedge fund data analysis and research firm, which indicated that the second quarter of 2005 saw the smallest net quarterly inflow of assets into hedge funds generally since the fourth quarter of 2001.

"It is clear that fund managers are under pressure to deliver results for their investors, but hedge funds are still an increasingly common part of most investment strategies," said Mark Lewis, a partner at Walkers and joint head of the firm’s investment funds team. "As money managers and investors, particularly those in emerging markets such as Asia, continue to have assets to invest and a need for strong returns, it’s certain that the growth in Cayman’s hedge fund industry will continue. With more than 795 new hedge funds established in Cayman through the end of June, Cayman’s position as the leading offshore investment funds jurisdiction is well established."

Lewis added that at its current rate, the number of new hedge funds established in the Caymans will set another record in 2005, surpassing the unprecedented 112 per cent increase in hedge funds that were established in the Cayman Islands during 2004.

Walkers now handles more than 40 per cent of all new Cayman hedge funds. The increase in institutional work continues to be a boon for the firm, who according to 2004 HedgeWorld Limited rankings, is the top law firm for hedge funds by total assets of funds and assets of non-US funds, and the leading law firm representing funds in the asset class greater than USD 500M.

"We credit the growth to more global activity, increased allocation of assets to hedge funds from pension funds as well as a significant increase in the perception of large corporations and institutional investors of Cayman’s position as a strong financial jurisdiction," said Jonathan Tonge, a partner at Walkers who, with Lewis, leads the investment funds team, "At Walkers, we’ve seen continued business from current clients as well as new business garnered from referrals and our strong track record of success."

As it relates to the growth trend in the first half of 2005, Tonge also noted that the overall increase in registered funds is particularly noteworthy as it accompanies a small decline in administered funds, or funds with a minimum equity investment of less than USD 50,000. The decline in administered funds suggests that Cayman continues to attract the larger and more sophisticated institutional funds from all over the world.

The Cayman Islands provide hedge funds with a no tax jurisdiction, and a sophisticated financial infrastructure that includes major banks and accounting firms.

Background notes: Walkers is based in the Cayman Islands with offices in the British Virgin Islands, Hong Kong, and London. Walkers SPV Limited is a licensed trust company wholly owned by Walkers, with a branch office in Tokyo. It provides experienced and expert management and administration of Special Purpose Vehicles (SPVs) as well as registered office and secretarial services for many companies and partnerships of all types.

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