Institutional investors face an almost unprecedented set of challenges. The post-crisis period has been one of slow economic growth, low or even negative real interest rates, volatile markets and increasing geo-political pressures.
The Cayman Islands has for decades been one of the world’s leading banking and financial centers, currently ranking as the fifth largest banking centre worldwide, with over 200 banks, including 40 of the world’s 50 largest banks, and over US$1.5 trillion in assets.
Concerns in the U.S. and Europe over security leaks and the debate about access to public versus private information runs in some ways parallel to the discussion regarding the information investors prefer and require to make informed decisions about their investments in Cayman Islands funds.
The world has become global and this not only on business and private sides, but also family offices are seeking increasingly to get the most out of this international playing field at their hand.
With the global hedge fund industry transitioning into a new era of heightened regulation and stricter fund governance, the Cayman Islands are extremely well placed to respond to the associated challenges.
In the current competitive hedge fund marketplace the use of side letters between investors and funds has become commonplace. Side letters are used by funds and fund managers to draw in investors who jockey for the most favourable terms possible.
The investor due diligence process has evolved with the growth of the hedge fund industry. What was once a short and rather perfunctory process has grown into one which today is highly quantitative and detailed.
We have identified certain red flags that we have seen in more than one situation and provide some practical guidance that investors may wish to consider to mitigate the risk of being victims of a fraud.
In the long run, private fund advisers may decide to forego the services of third party service providers and device strategies that allow them to fulfill their reporting obligations under the Dodd-Frank Act more effectively, thus lowering compliance costs further.
European regulators will decide early this year whether UCITS funds should be reclassified as “complex” and “non-complex” products in order to improve transparency of information about investment strategies.
Legislative changes introduced director registration or licensing requirements and new regulations. In addition, law firms started to spin off their administration divisions and private equity and other buyers entered the market.
This industry trend is being driven by investors who consider that the challenges of such a model are far outweighed by the benefits provided to them by a board that will be more effective in all situations.