EDITORIAL

Cayman still a choice domicile

Friday,  November 25, 2005

There is no doubt that the financial sector in the Cayman Islands has been experiencing significant growth during the last two years. 

The fact that this period encompasses the massive clean-up and restoration effort necessitated by Hurricane Ivan which made its landfall on Grand Cayman just 15 months ago is testimony to the resilience of the country in general and our financial services industry in particular.

Company registrations are reportedly up substantially, notwithstanding that the Registrar of Companies was one of the government departments that were literally made homeless by Ivan, when its offices in the Tower building, which is now scheduled for demolition was damaged beyond repair.

The market capitilisation of companies listed on the Cayman Islands Stock Exchange now stands at just under US$74 billion, representing 22 percent growth in the past year alone. It also recorded a $120,000 profit at the end of June, two years before the projected break-even date.

The first six months of this year saw a record number of new hedge funds created in the Cayman Islands, according to local law firm, Walkers.

The Cayman Islands therefore continue to be the world leader as the jurisdiction of choice for offshore hedge fund registrations.

Two ‘homegrown’ law firms, Maples & Calder and Walkers, have been active in opening branch offices in other jurisdictions and in the process achieving a size and global importance that rivals longer-established firms in major financial centres such as London and New York.

Other local firms are effectively accomplishing the same thing by merging with well-established foreign firms.

However, does this recent growth represent an expansion of the financial sector that will sustain in the longer-term or more of a passing spike in activity?

A number of competing jurisdictions are no doubt casting envious eyes at our success and are surely plotting even as this is being written to find ways of increasing their own share of the offshore pie, at the Cayman Islands’ expense.

If, as postulated by other commentators, there has indeed been some sort of ‘herd mentality’ in play to set up in the same place where the majority of other funds have been established, then we must continue to maintain an appropriate environment so that there is no stampede away.
While a recent survey of law firms indicated that the Cayman Islands is still the most popular domicile for hedge funds, other jurisdictions are starting to get a mention. We cannot afford, therefore, to become complacent.

According to Legal Week, reliable statistics in the area of hedge funds in particular are hard to come by. For example, whereas some surveys as of the end of 2004 suggested that approximately 43 percent of the world’s hedge funds are based in offshore jurisdictions, according to official data released in Cayman, 80 percent of the world’s hedge funds are based in Cayman alone as of the end of the first quarter of 2005.

The explanation for this apparent discrepancy may be that we provide a home for 80 percent of the world’s offshore hedge funds, not the global total.

However, according to one report, there has been a reduction in the share of the Cayman Islands between mid-2004 and mid-2005. 

The Cayman Islands still remains the leading hedge fund domicile in terms of net assets, but as surveys demonstrate, this dominance may well be waning and we must continue to encourage investors by knowing that the world is keeping a watch on us.

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