The Cayman Islands as a fund center

In January 2024, the Cayman Islands Monetary Authority (“CIMA”) released their Investments Statistical Digest (the “Digest”) for the Investment Funds sector for both the 2022 and 2021 calendar years.

The Digest, while not the most current of information, together with the detailed alternative investment fund (private open and closed ended vehicles) fundraising results for 2022, as well as other regulators' reported statistics, allows us to be able to draw some conclusions on the continued success of the Cayman Islands as a leading fund domicile jurisdiction. This strong past performance in a difficult moment for the alternative investment industry, coupled with recent regulatory updates, bodes well for the financial center as a whole.

Fund formation against headwinds

2022 reported a significant drop in fundraising for alternative investment funds. However, despite private closed-ended funds, according to McKinsey, reporting an 11.4% drop in assets raised, it should be noted that the Cayman Islands still managed to show an 8% increase in the number of private funds in 2022, with a net number of funds increasing by 1,175 to a total of 15,854.

Several sources reported open-ended hedge funds having redemptions in the region of $110bn in 2022, yet fund formation in the Cayman Islands was slightly up, with a moderate increase of 2% for a total number of registered mutual funds of 12,995.

Another useful data point from the SEC is a summary of the large advisor form PF reporting (albeit just a snapshot of USA regulated asset managers and larger managers at that) which shows the Cayman Islands increasing their share of net assets for “qualifying hedge funds” from 51.7% to 52.5% during 2022. While the same data shows that the Cayman Islands experienced a decrease in the share of private equity net assets for the corresponding period from 29.2% to 28%, this is still the only notable jurisdiction other than the USA itself for SEC large filers.

Other key insights from the Digest

• The USA continues to be the primary location for Cayman Islands fund managers, with a net increase of over 700 funds in 2022 added. Interestingly, Texas and Florida experienced double digit growth in the net number of Cayman funds, while traditional centers such as Illinois and Massachusetts were flat or negative for the year, and New York showed an 5% increase in total number of funds.
• Hong Kong, Singapore, and Brazil based managers continued to show strong growth in Cayman Islands fund formation despite the former two jurisdictions introducing competing beneficial fund structures in 2020.
• Despite challenging market conditions for digital assets and rising interest rates, both digital asset funds and real estate funds saw positive net inflows into Cayman Islands fund vehicles of $8bn and $28bn respectively.
• Contrary to popular misconception that Cayman Islands fund structures are expensive, the Digest shows that a large proportion of licensed funds have total assets under $20m (29% for registered mutual funds/ 36% for private funds), or under $100m (56% for registered mutual funds/ 65% for private funds).

Regulatory tailwinds

In October 2023, the Cayman Islands was removed from the Financial Action Task Forces “increased monitoring” list, and in January 2024, further removed from the European Commission’s Delegated Regulation (EU) 2024163 (the "Regulation"), also known as the “EU AML List”, with effect from February 7, 2024.

Tacking back

The Cayman Islands’ ability to grow the investment fund sector despite a challenging 2022 highlights the jurisdiction’s competitiveness and overall attractiveness to investment fund managers and investors.

The well-established regulatory environment, advantageous tax-neutral fund structures, trusted legal system (with legal principals based in English common law), and the deep and talented number of fund finance and legal professionals in the islands helps keep the Cayman Islands as a pre-imminent fund center that should be considered by managers and investors alike, with no bias for strategy or size of the fund to be launched.


Sources:

^{Investments Statistical Digest} 

^{mckinsey-global-private-markets-review-2023.pdf}

^{Private Funds Statistics, First Calendar Quarter 2023 (sec.gov)}

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The views and opinions expressed herein are those of the respondents/authors and do not necessarily represent the views and opinions of KPMG LLP, Cayman Islands.

Partner,  Asset Management, KPMG in the Cayman Islands 

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