
CAYMAN FUNDS | 2018 5
That seems a low number in absolute terms, and I think we had 1,000
new structures over the course of that year. The low volatility has
made it harder to create differentiation among investment products,
which has led to the search for improved efficiencies, profitability and
return to the investors. The larger managers are better equipped to
take advantage of that.
The barrier to entry over the last couple of years has been a very
practical one in terms of capital-raising. If there is increased volatility in
the market, and strategies can differentiate, the barriers to entry then
become the cost of setup. In that respect the regulatory burden is a
primary concern, both onshore and offshore.
It’s important that we don’t view this in isolation. Yes, there have
been changes in Cayman, yes there’s enhanced reporting, but there’s
also enhanced regulation onshore. Wherever a manager is setting up,
what they are required to do now from a regulatory perspective is
different from what it looked like six or seven years ago. That’s an
evolution for the industry as a whole.
Smith: That ties in with CIMA’s experience: we are seeing more
existing funds launching new asset classes, primarily through
segregated portfolio companies, than we are seeing new launches.
It appears to be easier than launching a standalone fund. We also see
different managers using different structures, included segregated
portfolio companies but it is certainly a trend that these existing
managers are creating emerging managers platforms rather than
new managers themselves setting up their own standalone fund.
Of course, from a regulatory perspective, these platforms create
certain challenges but it is certainly one of the responses we’re seeing
to the cost issue.
MacKay: The exercise that CIMA is doing of gathering the details
on the segregated portfolios that exist within the structures will
bring important transparency to the segregated portfolio companies
in particular. Some other jurisdictions such as Ireland report fund
numbers to include individual portfolios, whereas currently Cayman
doesn’t. It’s comparing apples and oranges.
Smith: The information on number of segregated portfolios per
segregated portfolio company should be available within a few
months. In addition to the exercise of updating the information for
existing funds, CIMA now has the online reporting system—whereby
when adding a new portfolio this information must be provided to
CIMA and is then automatically recorded in its system.
Previously, the existence of a new portfolio came to the Authority’s
attention usually because of some issue arising and we would then
realise that it’s a segregated portfolio that we didn’t know existed.
There are some challenges around tracking these portfolios but
hopefully this reconciliation exercise and enhanced reporting
requirement will ensure that CIMA has accuracy in terms of number
of segregated portfolios that exist.
Ingrid Pierce: I agree about the jurisdiction being robust. The number
of registrations is healthy and while we have seen some changes the
market has also changed. We haven’t had a lot of startups although
we’ve seen the larger managers start to do more things. I am also
seeing some newer managers pushing ahead; given the number of
terminations some people have spun out of closing shops and set up
their own shops and they are now coming online.
If you look at those managers registered with the SEC, over 50
percent are US domiciled, as you would expect, but 36 percent
are Cayman-based. The next highest number drops down to only 4
percent, so Cayman remains the domicile of choice.
If you look at the more closed-ended structures such as private
equity, again for those subject to registration in the US, Cayman is the
number one with 52 percent of the market share and the US drops
down to nearly 35 percent.
The second point is we shouldn’t just focus on the registered space,
because Cayman has a whole range of funds and products that are
not registered with CIMA, either for a sound structuring reason, or
because there is a single distributor, or for other good reasons. Those
statistics are not captured so the market is much bigger than first
appears just based on those numbers.
Chris Bodden: I agree and have observed increased interest in private
equity and other closed end vehicles, both from investors seeking
better returns and managers seeking ways to differentiate themselves
in order to attract and retain capital. Typically it is our larger managers
with robust infrastructure who are successful in expanding into this
space or offering multiple product types to their investors.
This continues the trend of large managers getting larger. New
managers are finding it increasingly difficult to launch and have
to be innovative in the way they differentiate themselves from the
rest of the market, most of which revolves around lower fees or fee
structures they feel will be attractive to investors.
Given the number of existing managers, new entrants struggle to
attract capital and have an increasingly smaller window in which to
execute on their strategy before investors return to more established
fund complexes.
Monette Windsor: It’s not just the managers who are continuing to
choose Cayman as the preferred domicile, investors are driving this
decision as well. The large institutional investors, whether they’re
putting money into well-known managers or newer startups, they’re
comfortable with Cayman.
Comfortable with the pro-business government that we have, the
stable monetary authority that has been very transparent and all
“Securities and capital markets
regulation, on the other
hand, has remained more
nimble and arguably more
responsive.” Heather Smith