06/03/2009

Cayman Islands May Disclose Fund Details

Cayman Islands, home to more hedge funds than any other offshore jurisdiction, is eyeing a plan to improve the transparency of some 7,000 hedge funds that are domiciled in the British territory.

Its financial regulator, Cayman Islands Monetary Authority, is considering the posting of a number of details about hedge funds, including the names of directors and service providers, on its Web site (www.cimoney.com.ky). The site currently provides little more than the name for each of the funds registered with the authority.

"The site doesn't provide our stakeholders with a lot of beneficial information," said Yolanda McCoy, head of the authority's investments and securities division. "One of our primary objectives is to enhance the overall transparency of the hedge fund industry. We hope to have this organized by late 2009."

The move comes as offshore jurisdictions, including the Cayman Islands, Bermuda and the British Virgin Islands, have come under increased scrutiny due to their reputation as lightly regulated tax havens. At the most recent G-20 summit, held in London in April, some world leaders threatened sanctions against "non-cooperative jurisdictions."

At the same time, Cayman Islands officials have heard from institutional investors seeking more transparency in order to aid their due diligence of hedge fund managers. The expanded Web site would provide investors with quick access to the names of prime brokers, auditors, administrators and other firms servicing hedge funds. Investors also would be able to see whether a fund's directors are simultaneously sitting on the boards of numerous other funds - a common occurrence in off-shore jurisdictions. In the past, some investors have raised concerns about directors being stretched too thin to provide adequate oversight.

Ingrid Pierce, who heads the Cayman Islands hedge fund practice for the law firm Walkers, said the Cayman Islands Monetary Authority already collects key fund data such as audited performance, assets under management and investment strategy. "Expanding its electronic reporting into a searchable database, featuring information about funds and their service providers, would make it an indispensable information tool and will solidify its standing in the offshore hedge fund industry," said Pierce.

The authority will be working with industry representatives, including the local chapter of the trade group Alternative Investment Management Association. The industry will seek to strike a balance between the due-diligence needs of prospective investors and the privacy concerns of existing investors. For example, audited fund statements likely would remain off limits to outside investors. Even so, some directors and fund managers are expected to oppose any efforts to increase the amount of available data. Three out of four hedge funds are registered in the Cayman Islands, according to the monetary authority. The authority's most recent data show funds with a combined $3.2 trillion under management were domiciled in the Caymans in 2007. About 30% of the assets were run by firms based in New York, 20% by firms in the U.K. and 8% by firms in Connecticut.

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