Monday, June 26, 2006

Tim Ridley Chairman of CIMA	Gary Linford Head of Investments and Securities Division at Cayman Islands Monetary Authority (CIMA)

Some 665 hedge funds established a presence in the Cayman Islands in the first five months of 2006, a pace that could put the offshore banking center on track for another record year in registrations in 2006 according to the Cayman Islands Monetary Authority.

As of the end of 2005, there were 7,106 hedge funds registered in the Cayman Islands, far outstripping other offshore tax havens, including the British Virgin Islands at 2,372 funds and Bermuda at 1,182, CIMA said.

Hedge fund managers routinely set up offshore funds in the Caymans and elsewhere to attract international investors who want to avoid being taxed in both their home country and the country into which they invest.

Increasingly, US. pension funds and other institutions invest in U.S. hedge fund managers through their offshore shell structures to legally avoid U.S. taxes, experts say.

"While Cayman has always been a destination of interest, the enacting of hedge fund registration rules by the SEC in the U.S. has caused many funds to look offshore for attractive domiciles," said Gus Pope, co-head of the Cayman investment funds practice at Maples and Calder, the largest Cayman Islands law firm.

Cayman officials attribute industry growth there to an extensive infrastructure of legal and financial service providers, along with stringent government oversight.

The industry is said to be worth around $1.1 trillion and recent trends have seen the sector focus on efforts to protect the consumer as noted at a recent specialist conference that took place in Cayman.

Elizabeth Jacobs, Deputy Director of International Affairs at the Securities and Exchange Commission (SEC) who spoke at the GAIM Cayman Conference said that there is a trend for collaboration and cooperation among regulators around the world, one of the issues which is ensuring Cayman's success in the field.

"Because of the global nature of hedge funds there may be cases when regulators in multiple countries will need to cooperate in enforcement actions where it is warranted."

At the same conference the Head of Investments and Securities Division at Cayman Islands Monetary Authority (CIMA), Gary Linford, said the Cayman hedge fund industry needs to be involved on regulatory issues.  Two hot issues include the valuation of complex and illiquid assets and the failure by hedge fund managers to disclose side letters, which was addressed in a discussion paper by the UK Financial Services Authority (FSA).

 "The FSA discussion paper suggested that it might be advantageous to better coordinate regulatory consultation to minimize further fragmentation in regulatory requirements for hedge funds," said Mr Linford.

"While such an approach may reduce the likelihood that industry players will be subject to widely differing regulations, global regulators need to be careful that in dispensing guidance we are not forcing the hedge fund industry into a one-size-fits-all approach.

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