ARE INSTITUTIONAL US MANAGERS CONTINUING TO PREDOMINANTLY USE CAYMAN STRUCTURES? WHY?

Are institutional US managers continuing to predominantly use Cayman structures? Why?

The short answer is yes, but there are caveats. Many investment fund commentators were all doom and gloom for 2016. Underperformance from some of the institutional fund managers, some institutional investors pulling out of institutional funds, over-regulation in the US, cyber-security and the SEC’s treatment of managers being some of the reasons why and leading to many journalists writing headlines such as “Is this the end of the hedge fund?”

To some extent this was warranted. Performance has certainly been below par for a couple of years. Yet, I have seen the demand for Cayman fund structures, particularly out of the US, continue to grow steadily for decades and we all like stability. The Cayman Islands is incredibly robust and over the years has introduced new legislation, often ground-breaking in the offshore world and often to a higher standard than adopted onshore, to overcome, for example, so-called “blacklists” imposed by certain countries or supranational/international organisations – anti-money laundering legislation and FATCA/CRS being examples – all to ensure the Cayman Islands remains the leading global offshore fund jurisdiction of choice. As and when there is a challenge, I have seen the Cayman Islands react effectively with a measured and professional approach.

The world order has now changed with the arrival of President Trump in the White House. We no longer have predictability in the US. Speaking to the Senate Finance Committee at his nomination hearing US treasury secretary Steven Mnuchin pledged to reform the US tax code to encourage hedge funds to bring their Cayman funds onshore*. Is this rhetoric or will this be our new reality? That’s the biggest question and there is no doubt that a fundamental change of position in the US tax code will have a direct impact on life as we know it offshore.

Leaving politics behind, we were fortunate to have been involved and co-sponsored a Private Funds Leadership Forum with a major US investment funds law firm at the end of 2016, attended by many of the industry’s big names, the aim being to take the temperature of the investment funds market for the coming year. Following some incredibly challenging and reasoned debates amongst ourselves, I am happy to say that, all things being equal, I’m extremely optimistic about 2017 in terms of new fund launches for both US funds and offshore funds alongside them, be that in the Cayman Islands or through my friends in the BVI. Although there might be a bump or two in the road, 2017 will be seen as a much better year than 2016 in terms of performance! Famous last words? Let’s hope not!


*More on Steven Mnuchin’s pledge was reported in HFM Week on 20 January 2017.

Ian Gobin
Having grown up in the U.K. (Chester), I have lived in Amsterdam, Brussels, BVI, Guernsey, Jersey, London and Ho Chi Minh City and am currently based in the Cayman Islands; however, the majority of my time is spent marketing in the US “pounding the pavement” as we say.

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