Cayman Islands
33 Feb 2023
Brian Bollen outlines the current trends affecting the Cayman Islands’ mutual funds and what lies in store for the jurisdiction post-COVID
Image: martina/stock.adobe.com
“Cayman is great. Cayman is the jurisdiction of choice. Cayman is the biggest financial services player in the Caribbean by some distance,” affirmed contributors to this feature.
Cayman would hardly be Cayman if it and its supporters hid their light under a bushel. To be perfectly frank, it is refreshing to hear such candid claims, even if they come from one of the small group of experienced Caribbean fund administration specialists who chose to participate in this article.
For anyone interested in life before the territory acquired its status as a financial services domicile, the Cayman Islands are situated 480 miles southwest of Miami, about 277 miles south of Cuba, and 310 miles northwest of Jamaica. Reputed to be discovered by Christopher Columbus in 1503, the first settlers arrived in 1638.
The Cayman Islands were administered as a dependency of Jamaica from 1863. Upon Jamaica’s independence, the Cayman Islands opted to become a direct dependency of the British Crown, and received its first constitution in 1959. As of autumn 2019, the islands were home to around 69,900 inhabitants.
Skip forward to present day and David Mungall, head of Trident’s Cayman fund administration team, identifies market evolution, Brexit and increased regulation in the EU as current trends affecting the region and its business activities. The latter is particularly in relation to the EU’s proposed minimum taxation requirement.
Cayman mutual funds
The number of funds active in the Cayman Islands is substantial, with growth in private funds particularly pronounced since the introduction of the Private Funds Act (PFA) in 2020.
Summarised briefly, the law captures Cayman-domiciled closed-ended funds such as private equity, venture capital, real estate and debt funds, whether they are structured as a company, unit trust or partnership. Prior to the introduction of the new law, these funds were not regulated in the Cayman Islands.
Key requirements include registration with the Cayman Islands Monetary Authority (CIMA), payment of an annual fee and a requirement for private funds to submit an application within 21 days of accepting commitments from investors, among other requirements.
Trident executive director Gwen McLaughlin points to the importance placed upon the observance of anti-money laundering regulation and tax reporting. She also acknowledges the continuing growth in private asset investment and the decline in the number of local fund administrators.
“CIMA figures show that there were 97 fund administrators plying their trade in 2017, but this number has fallen to 75, as a result of consolidation through mergers and acquisitions in the sector,” she says.
A number of smaller players have chosen to exit the market because of increased investor demands and the concomitant need for further investment, echoing the trend seen elsewhere over the past 30 years.
Apex has been most noticeably active on the acquiring front and has recently appointed Anne Storie as country head for the Cayman Islands. Storie is currently deputy chairwoman for the trade and business licence board for the Cayman Islands Government and is also a member of the Cayman Islands Directors Association. Apex Cayman offers a range of fund services to registered funds, mutual and private funds, administered funds, master funds and trusts.
Looking ahead
What lies ahead for Cayman? The answer is simple: growth. “When COVID-19 was at its height, I thought we might all lose our jobs, but life is not only back to normal now, it is better than before,” says Solvena Moore, senior director at global professional services provider JTC in Cayman.
Moore attributes Cayman’s popularity as a location to its neutrality, tax efficiency, stability, abundance of lawyers, auditors and the general quality of the skill sets on offer.
“It is a very good, flexible location in which to do business,” Moore adds. One side effect of this is the impact on real estate locally: “The value and volume of activity has tripled in some cases,” she notes.
In its Fundamentals 2022 report, international law firm Walkers affirms that “in the near future, [it expects] CIMA to update its governance rules and guidance for regulated funds in the Cayman Islands to reflect recent trends in global best practices.”
The report, which features the Cayman Islands at some length, also pays due attention to other locations in the Caribbean. “Based on the drafts published in consultation,” Walkers says it “anticipates these being a useful addition to the Cayman Islands’ regulatory framework. The Cayman Islands PFA is now firmly ensconced in the fundraising landscape.”
“CIMA has worked closely with the industry to add further clarity to the registration process in terms of its expectations with regards to disclosure. This continual evolution of a user-friendly registration process is one of the reasons private fund registration numbers have remained strong,” opines Walkers.
The report further outlines: “The registration numbers indicate that private fund formation activity in the Cayman Islands has remained strong. We have seen a number of sponsors raising their first ever Cayman funds. In the last twelve months in particular we have also seen established managers raising successor funds in Cayman, with target sizes reflecting robust historic numbers.”
Bruce Smith, Senior Director at JTC in Cayman, surmises: “Certain groups of investors continue to prosper and we are there to help them, not only in Cayman but also through our offices in the British Virgin Islands and the Bahamas.”
The value of assets under administration in the Cayman jurisdiction is estimated to be several trillion US dollars, accounting for a very large share of global alternative asset flows. According to some estimates, Cayman houses around two-thirds of the world’s hedge funds and accounts for about three-quarters of global alternative asset flows.
Of course, if a US manager is raising a fund targeting domestic investors, it will be a Delaware vehicle, and if EU distribution is a key target, then Ireland or Luxembourg will usually be the primary choices.
However, there is a clear argument in favour of the claim that Cayman remains the premier destination for internationally-pooled capital, and it is cementing that position through enhancements to its regulatory framework.
The statistics also highlight one of the other current trends, which is consolidation. While the number of funds is growing, the number of fund administrators has fallen. This is not unique to the Caribbean. Fund administration is becoming a more complex business with more sophisticated regulatory, technological and client service requirements.
Cayman would hardly be Cayman if it and its supporters hid their light under a bushel. To be perfectly frank, it is refreshing to hear such candid claims, even if they come from one of the small group of experienced Caribbean fund administration specialists who chose to participate in this article.
For anyone interested in life before the territory acquired its status as a financial services domicile, the Cayman Islands are situated 480 miles southwest of Miami, about 277 miles south of Cuba, and 310 miles northwest of Jamaica. Reputed to be discovered by Christopher Columbus in 1503, the first settlers arrived in 1638.
The Cayman Islands were administered as a dependency of Jamaica from 1863. Upon Jamaica’s independence, the Cayman Islands opted to become a direct dependency of the British Crown, and received its first constitution in 1959. As of autumn 2019, the islands were home to around 69,900 inhabitants.
Skip forward to present day and David Mungall, head of Trident’s Cayman fund administration team, identifies market evolution, Brexit and increased regulation in the EU as current trends affecting the region and its business activities. The latter is particularly in relation to the EU’s proposed minimum taxation requirement.
Cayman mutual funds
The number of funds active in the Cayman Islands is substantial, with growth in private funds particularly pronounced since the introduction of the Private Funds Act (PFA) in 2020.
Summarised briefly, the law captures Cayman-domiciled closed-ended funds such as private equity, venture capital, real estate and debt funds, whether they are structured as a company, unit trust or partnership. Prior to the introduction of the new law, these funds were not regulated in the Cayman Islands.
Key requirements include registration with the Cayman Islands Monetary Authority (CIMA), payment of an annual fee and a requirement for private funds to submit an application within 21 days of accepting commitments from investors, among other requirements.
Trident executive director Gwen McLaughlin points to the importance placed upon the observance of anti-money laundering regulation and tax reporting. She also acknowledges the continuing growth in private asset investment and the decline in the number of local fund administrators.
“CIMA figures show that there were 97 fund administrators plying their trade in 2017, but this number has fallen to 75, as a result of consolidation through mergers and acquisitions in the sector,” she says.
A number of smaller players have chosen to exit the market because of increased investor demands and the concomitant need for further investment, echoing the trend seen elsewhere over the past 30 years.
Apex has been most noticeably active on the acquiring front and has recently appointed Anne Storie as country head for the Cayman Islands. Storie is currently deputy chairwoman for the trade and business licence board for the Cayman Islands Government and is also a member of the Cayman Islands Directors Association. Apex Cayman offers a range of fund services to registered funds, mutual and private funds, administered funds, master funds and trusts.
Looking ahead
What lies ahead for Cayman? The answer is simple: growth. “When COVID-19 was at its height, I thought we might all lose our jobs, but life is not only back to normal now, it is better than before,” says Solvena Moore, senior director at global professional services provider JTC in Cayman.
Moore attributes Cayman’s popularity as a location to its neutrality, tax efficiency, stability, abundance of lawyers, auditors and the general quality of the skill sets on offer.
“It is a very good, flexible location in which to do business,” Moore adds. One side effect of this is the impact on real estate locally: “The value and volume of activity has tripled in some cases,” she notes.
In its Fundamentals 2022 report, international law firm Walkers affirms that “in the near future, [it expects] CIMA to update its governance rules and guidance for regulated funds in the Cayman Islands to reflect recent trends in global best practices.”
The report, which features the Cayman Islands at some length, also pays due attention to other locations in the Caribbean. “Based on the drafts published in consultation,” Walkers says it “anticipates these being a useful addition to the Cayman Islands’ regulatory framework. The Cayman Islands PFA is now firmly ensconced in the fundraising landscape.”
“CIMA has worked closely with the industry to add further clarity to the registration process in terms of its expectations with regards to disclosure. This continual evolution of a user-friendly registration process is one of the reasons private fund registration numbers have remained strong,” opines Walkers.
The report further outlines: “The registration numbers indicate that private fund formation activity in the Cayman Islands has remained strong. We have seen a number of sponsors raising their first ever Cayman funds. In the last twelve months in particular we have also seen established managers raising successor funds in Cayman, with target sizes reflecting robust historic numbers.”
Bruce Smith, Senior Director at JTC in Cayman, surmises: “Certain groups of investors continue to prosper and we are there to help them, not only in Cayman but also through our offices in the British Virgin Islands and the Bahamas.”
The value of assets under administration in the Cayman jurisdiction is estimated to be several trillion US dollars, accounting for a very large share of global alternative asset flows. According to some estimates, Cayman houses around two-thirds of the world’s hedge funds and accounts for about three-quarters of global alternative asset flows.
Of course, if a US manager is raising a fund targeting domestic investors, it will be a Delaware vehicle, and if EU distribution is a key target, then Ireland or Luxembourg will usually be the primary choices.
However, there is a clear argument in favour of the claim that Cayman remains the premier destination for internationally-pooled capital, and it is cementing that position through enhancements to its regulatory framework.
The statistics also highlight one of the other current trends, which is consolidation. While the number of funds is growing, the number of fund administrators has fallen. This is not unique to the Caribbean. Fund administration is becoming a more complex business with more sophisticated regulatory, technological and client service requirements.
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