As many of the G7 countries and international standard setters echo the need for greater transparency in the hedge funds industry, the Cayman Islands continues to pioneer ahead many onshore and offshore jurisdictions.
In its second year of release, the Investment Statistical Digest published by the Cayman Islands Monetary Authority continues to present aggregate statistical data on funds like no other. The 2007 Digest, released on the 28 May 2009, depicts aggregate funds data collated from over 7,000 regulated funds, thus providing major indicators of fund industry performance for 2007 based on the regulatory submissions of the Funds Annual Return (FAR).
The report shows year end total assets of US$3.688t1 and year end net assets of US$2.265t for the 7,010 funds that had a 2007 financial year end that submitted the mandatory FAR for that year, (see figure1). In addition to asset value, indicators reported in the Digest include asset allocation, subscription and redemption values, net income, legal and operating structures, service provider geographical locations and more.
Along with the stand-alone analysis of fund activity for 2007, this edition of the Digest also offers readers, for the first time, a trend analysis that compares the demographic and financial data from the FAR submissions of funds that had a 31 December 2007 year end to the funds that had a 31 December 2006 year end. This analysis illustrates a 40% increase in the aggregate ending net assets during that period.
The 2007 figures used for the trend analysis were drawn from the 5,884 funds that filed a FAR. Cayman-regulated funds also saw a dramatic change in the assets allocation from 31 December 2006 to 31 December 2007. An increase of US$297b was experienced in master fund investments, with further increases of US$253b in long bond investments, and US$132b in fund of fund investments.
In terms of investment management location, US$318b (or 57%) of the US$556b increase in aggregate net assets was attributed to funds being managed by investment managers located in New York or the UK.
A notable change is the increase in net assets being managed from Asia, which accounted for 5% of the aggregate net assets as at 31 December 2006 compared to 9% as at 31 December 2007.
In terms of fund administration location, the Cayman Islands and Ireland together accounted for US$342b (or 62%) of the US$556b increase in aggregate net assets from 31 December 2006 to 31 December 2007 for NAV calculation services and US$423b (or 76%) of the US$556b increase in aggregate net assets for Registrar and Transfer Agent services for the same period.
What needs to be done?
An important highlight of the 2007 edition is the fact that the Cayman Islands continued as the top location from which fund administration services were provided, based on the proportion of aggregate net assets under administration by administrators in the jurisdiction. Cayman-based administrators that provided net asset value calculation services had US$682b, or 30% of aggregate net assets, under administration. During that time period, entities that provided registrar and transfer agent services had US$928b, or 41% of aggregate net assets, under administration, (see figure 2).
Ireland was the second most popular fund administration location in 2007, with 26% (US$602b) of aggregate net assets for administrators that provided net asset value calculation services and 28% (US$641b) of aggregate net assets for administrators that provided registrar and transfer agent services.
By contrast, the top region for the funds’ investment managers was North America, with investment managers located there managing 58% of the aggregate net assets (US$1.324t). The top location for investment managers was New York, where investment managers held 30% of the aggregate net assets (US$686b). The second most popular investment manager location was the UK, where investment managers managed 20% of the net assets (US$447b).
It should be noted that fund administrators located in the Cayman Islands are subject to the regulatory oversight of the Cayman Islands Monetary Authority. Licensed Fund Administrators are subject to onsite inspections and are mandated by law to submit audited financial statements within six months of their financial year end.
Many onshore fund administrators are not registered or licensed in their home country. However, many investment managers located in the US and UK are subject to the regulatory oversight by the Securities and Exchange Commission, Financial Industry Regulatory Authority, and the UK Financial Services Authority.
As highlighted in the 2006 edition, the Digest again illustrates that the majority of Cayman Islands-regulated funds cater to high net worth individuals or institutional investors. A total of 44% of the 7,010 funds captured in the Digest required investors to make a minimum initial subscription of US$1m or more.
The most common operating structure among the funds was the master/feeder structure, which accounted for 46% of the funds. Among investment strategies the two most popular were multi-strategy and long/short equity. Multi-strategy accounted for 38% of the aggregate net assets while long/short equity strategy accounted for 22%, (see figure 3).
The percentage of funds that suspended trading in 2007 was 3%, up from 0.1% in 2006.
What needs to be done?
In the current environment, there has been great discussion by the G20 countries and international standard setters to enhance the transparency in the hedge funds industry. The ability to provide statistical information of this nature makes great improvements in not only improving the overall transparency of an industry that is often considered secretive but also echoes CIMA’s unwavering commitment of excellence and improving the integrity of the financial sector.
The implementation of the E-reporting system has marked a new era for Cayman’s funds industry and the continued stride of excellence by CIMA. As the Cayman Islands continue to remain the jurisdiction of choice in fund domiciliation, the E-reporting system has enabled CIMA to improve the reliability, quality and transparency of aggregate fund industry statistics globally. This will undoubtedly continue to benefit all stakeholders including onshore regulators and international standard setters. The full Digest is available on the CIMA website at www.cimoney.com.ky.