Iain McMurdo, Maples and Calder
Funds registered with the Cayman Islands Monetary Authority have stayed constant for 2015, with the number of funds being terminated roughly matching the number of new registrations, so the total number of funds registered remains at just under 11,000. This is not surprising given the maturity of the regulated market in the Cayman Islands. To put these numbers in perspective, this figure is close to the total number of funds registered by the next three largest offshore jurisdictions taken together. This trend has been mirrored in the other offshore jurisdictions where we have seen new registrations remain steady or showing a slight decline. Ireland seems to be the exception, with a net increase of over 400 new funds registered, bringing the total to 6,201 as at 31 December 2015.
The closed-ended fund space has seen unprecedented growth in the past two years, with 2014 and 2015 both being exceptional years for the formation of private equity and other closed ended fund strategies. The capital raised in these years and the dislocation in the market with respect to pricing has resulted in increased levels of capital waiting to be deployed.
This year has been a buoyant year for fund formation at Maples and Calder but it remains to be seen if the numbers can eclipse those from 2015. Given the number of partnerships formed to date this year in the Cayman Islands it looks unlikely that the number of entities created will beat last year’s record numbers, but the market remains very healthy indeed.
The challenges facing law firms in the Cayman Islands are not that dissimilar to those faced in other jurisdictions. There remains fee pressure from clients who are themselves facing higher costs associated with their own businesses, due to increased regulation. We are looking at how we can add value to transactions, work more efficiently (and therefore more profitably) and continue to differentiate our services from those of our peers. The jurisdiction remains committed to meeting the standards expected for regulation and transparency across the world, and is well prepared to meet those challenges and be a model for other jurisdictions who seek to adopt similar high standards of regulation and transparency.
This is undoubtedly true. The number of law firms in the Cayman Islands has increased significantly over the past decade, with law firms from other offshore jurisdictions setting up Cayman Islands offices. In addition these firms have extended their reach globally, setting up offices in key financial jurisdictions.
Maples and Calder has the advantage of being the largest law firm in the Cayman Islands and has long been considered the leading firm. However, with such increased competition one cannot afford to be complacent. Our priorities are quite simple: focus on our clients’ needs and ensure we support them; be at the forefront of the changing regulatory landscape and demonstrate our technical ability with thought leadership in this area; ensure our lawyers are supported with technical training and know-how support to ensure our services are consistently excellent; and invest in technology to improve efficiency.
Given that we are currently facing Brexit and a historical US election, I wouldn’t like to make too many predictions. If the UK successfully negotiates an exit from the EU and new trade treaties with the rest of the world then this will be net positive for the funds industry in the UK, and therefore positive for our London and Dublin offices. Given that the Cayman Islands is the favoured jurisdiction of choice for UK, US and Asia managers, I would hope that in addition to the UK both Chinese and the US economies continue to perform well.
Changing regulation continues to present challenges for clients. It is clear that global reporting of investor information to relevant tax authorities is now a reality. Increased regulation within Europe may affect the strategies of non-EU managers with respect to both capital raising and deployment. Managers who are committed to Europe should consider the most efficient ways to outsource some of the regulatory burdens otherwise imposed upon them. Given the increased regulation across open-ended and closed-ended funds, if the subscription documents are unduly onerous, high-net-worth and family office investors may consider greater concentration of their investments with fewer managers. I foresee continued consolidation within the investment management industry as greater scale leads to improved efficiency.