Increased demand for private equity seems to be derived by their
willingness to offer new, customised solutions to investors which
leads to improved, bespoke products being offered in response to
changing investor demands.
Another shot in the arm for the jurisdiction is the recent news
that Cayman has avoided the EU’s updated list of non-cooperative
jurisdictions. While the confirmation that Cayman continues to
conform to international standards is pleasing, it is not without a
couple of notes of concern.
First, Bermuda was added to the list and more crucially, mutual
funds will be an area of additional scrutiny with respect to economic
substance requirements so again we are left with the feeling that
there is more to come. However, it is worthwhile pausing to reflect
on the partnership between the government and private sector that
has only strengthened through this arduous process. Cayman should
be very proud of this.
The top two primary strategic priorities for managers are asset growth
and talent management. Fundraising has never been as challenging or
competitive for fund managers as investors’ demands for customised
and outcome-specific products evolve and grow. Primarily, investors
have demonstrated an increasing desire to influence the investment
and operational decisions of the manager, according to EY. Fund
managers are expanding their horizons with respect to nextgeneration
talent, looking at those with capabilities suitable to the
digital age. Investors agree.
As artificial intelligence (AI) and machine learning strategies (MLS)
are further developed and improved, it is inevitable that managers
will incorporate them into their investment and operational decisionmaking
processes. Eighty-eight percent of managers predict that AI
and MLS will be of greater importance by 2023, according to financial
data provider Preqin in ‘The Future of Hedge Funds’.
Sixty percent of hedge fund managers either use, or expect to use,
AI, versus 26 percent of those in private equity, EY reports, which
indicates that hedge fund strategies may be better suited to use of AI
and MLS over private equity. While 76 percent of investors believe that
AI will be somewhat or critically important to support their investment
process (according to the EY Global Alternative Fund Survey 2018)
and one in four would pay more for a manager using AI, very few have
been able to quantify the benefits of doing so.
Cryptocurrencies have had a turbulent year and their extremely
high volatility means that managers and sophisticated investors
will continue to remain sceptical of investment potential in the
short to medium term. Ninety percent of funds have no plans to
“Investors will continue
their current trend of
further diversifying their
portfolios and developing
invest and only 3 percent currently invest, which is consistent with
investors as 88 percent do not plan to invest and 6 percent are
Where funds are investing in cryptocurrencies, their preference is
to invest in securities of companies whose primary activities relate to
cryptocurrencies rather than the currencies themselves or products
tied to their value.
Investors will continue their current trend of further diversifying
their portfolios and developing their sophistication by increasing
their exposure to illiquid strategies. The total capital invested into
private equity is expected to surpass that in hedge funds by 2023 to
$4.9 trillion, a growth of 58 percent on current levels, according to
Prequin, to become the largest alternative asset class. Total hedge fund
capital is expected to grow by 31 percent to $4.7 trillion during the
same period, which is the smallest growth in percentage terms of all
alternative asset classes.
North America has long been the leading region for alternative
asset investment, but more investors in Europe and Asia-Pacific are
increasing their allocations to the space and emerging markets are
becoming increasingly involved, with the Middle East primed to be
the largest contributor of new capital.
A majority of managers predict that capital from Europe and Asia-
Pacific will increase by 2023 but 42 percent believe that capital
from North America will decrease, leading to a stabilisation or slight
shrinkage in the number of active hedge funds.
Fund managers are of the view that changing investor preferences,
regulatory risk, and talent attrition pose the greatest risks to the
industry, which is broadly supported by investors although they have
fewer concerns regarding regulation, EY reports.
How fund managers respond to these risks, particularly evolving
investor demands for active partnership, and how they use AI to reduce
operational cost will affect their ability to succeed in the future.
CAYMAN FUNDS | 2019 19
Table 1: Mutual funds and administrators 2012 to 2018
Mutual funds Mutual fund administrators
Registered Master Administered Licensed Total Full Restricted Exempted Total
2012 8,421 1,891 408 121 10,841 90 32 2 124
2013 8,235 2,635 398 111 11,379 88 31 2 121
2014 7,835 2,685 386 104 11,010 84 29 2 115
2015 7,654 2,805 380 101 10,940 82 24 2 108
2016 7,293 2,840 363 90 10,586 84 21 1 106
2017 7,331 2,816 331 81 10,559 78 18 1 97
2018 7,582 2,911 321 75 10,886 78 13 1 92
Source: Statistics provided by the Cayman Islands Monetary Authority as at September 30, 2018