Onshore 2 Offshore

A surge in interest from Asian investors has contributed to a 100% increase in the number of hedge funds registered in the Cayman Islands during 2004, as more than 1,100 new funds were established in the jurisdiction last year, according to a new analysis released by global offshore law firm Walkers.

It means that over 80% of the world's hedge funds, which number more than 8,000, are now registered with the Cayman Islands Monetary Authority (CIMA), the Cayman-based law firm, which has also has offices in the British Virgin Islands, Hong Kong and London.

However, interestingly, the report has observed a substantial increase in investments by Asian institutional investors in US debt and equity markets carried out through Cayman-based investment funds. This has been particularly true of Japan, from where investments destined for the Caymans have grown 150% compared to the previous year.

This has helped investment inflows to the United States grow at an estimated rate of 50% per year.

It is believed by Walkers that the Cayman Islands have become a popular hedge fund domicile due to its lack of taxation, its sophisticated financial infrastructure that includes major banks and accounting firms, and the ability of funds to achieve measurable cost savings which can be passed along to investors.

"Today, hedge funds are global, and are an essential element in a myriad of investment strategies," stated Mark Lewis, a partner at Walkers and joint head of the firm's investment funds team.

"Hedge funds are essential to the liquidity of the global capital markets, a need that is only going to increase with the march to the greater globalization of the marketplace. It is clear that savvy market professionals and institutional investors recognize the enormous advantages the Cayman Islands offer when it comes to domiciling hedge funds and other investment vehicles,” he noted.

According to Walkers, Asian hedge funds have grown from 162 funds managing $13.8 billion in 1999 to more than 500 funds managing in excess of $59 billion at the end of 2004.