The American private fund industry is a significant representative of Wall Street’s interests and regulating hedge funds was a politically sensitive undertaking since the inception of the industry
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.
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.
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.
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.
All investment management firms need to pay very careful attention to a recent paper issued by the UK’s Financial Services Authority (FSA) concerning the management of conflicts of interest between asset management firms and their customers.
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.
The recently court appointed principal liquidators of a Cayman Islands registered Madoff feeder fund, Herald Fund SPC (In Official Liquidation), immediately began a ‘hearts and minds’ campaign aimed at establishing trust with the trustee.
The enforcement division of the SEC’s Asset Management Unit has recently brought a number of complaints against various hedge funds and their investment managers.
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.
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.