Given the protracted bear market in the US and European equity markets in recent years, it may be surprising to the casual observer to discover that hedge funds, and in particular offshore hedge funds, have continued to expand and attract investors. Figures released by the Cayman Islands Monetary Authority continue to reflect a strong demand for offshore services – in particular, regulated mutual funds have grown by 50% over the figures for 2000.
The appeal of hedge funds is that they aim to provide returns regardless of prevailing market conditions. The appeal of Cayman is a combination of factors. Part of the continued success of the island as the domicile of choice for offshore funds can be attributed to its recognition of the current regulatory zeitgeist. The foresight shown by the Cayman financial services industry in adopting stringent anti-money laundering policies and procedures in 2000 has paid off as the regulatory bar has now been raised onshore as well as offshore. Leaving aside the question as to whether or not there is a level playing field for both the Organisation for Economic Co-operation and Development member states and the offshore centres, the greater flexibility and lighter regulatory touch available offshore for non-retail business gives sophisticated and well-regulated offshore centres an advantage in attracting capital.
