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Why do global fund managers choose the Cayman Islands for private and hedge funds?
Introduction
In our annual white paper, we noted that 2024 was characterised by elections, inflation and the rise of AI. These themes and the rapidly evolving geopolitical environment have continued to dominate the headlines into 2025. Amongst this somewhat uncertain environment and fragile market confidence we have observed a steady increase in the number of funds registered in the Cayman Islands.
Cayman Islands - domiciled funds increase in numbers
The SEC's private funds statistics suggest that the Cayman Islands remain second only to the United States as the domicile of choice for private funds. As of the first quarter of 2024, data from the SEC revealed that Cayman Islands funds accounted for 31.6% of the net assets of all private funds included in the SEC's data. In addition to leading the offshore charge for private fund formation, the Cayman Islands accounts for 53.6% of all qualifying hedge funds net assets reported to the SEC. The data of the Cayman Islands Monetary Authority (CIMA) shows that the number of funds registered with CIMA is at an all-time high. According to CIMA, the number of registered open-ended funds rose from 12,805 in Q1 2024 to 12,858 by year-end, while closed-ended funds increased from 16,787 to 17,292.
How Cayman compares with other domiciles
According to data from the SEC, the next largest fund domiciles after the Cayman Islands are Luxembourg (5%) and Ireland (3.2%), which have carved out niches catering primarily to European investors and regulations.
Why do investors and fund managers choose the Cayman Islands?
There are many factors that continue to contribute to the success and dominance of the Cayman Islands as a domicile of choice for investment fund sponsors. Together with the long-established Mutual Funds Act, the Private Funds Act, now firmly anchored in Cayman's regulatory landscape, continues to provide a consistent regulatory foundation for Cayman Islands private funds that is flexible enough to be efficiently implemented by managers, but also robust enough to provide the reassurance institutional investors increasingly demand. This legislation alongside associated rules and guidance has put investor protection and ease-of-use at the forefront and reinforced the Cayman Islands' reputation as a robust and forward-looking jurisdiction for investment funds.
What's next?
Although fundraising activity continued to be challenging in 2024, we saw tentative signs of an increase in M&A activity. If this continues it should provide further confidence for investors and create a positive feedback loop for further fundraising by our investment fund clients. In addition, the increased focus by fund managers on alternative sources of capital such as the insurance industry and high net worth individuals, will see Cayman Islands vehicles feature in innovative fund structuring. While macro-economic factors will ultimately determine the strength of the fundraising environment, the inherent flexibility of Cayman Islands legal structures, their familiarity for global investors and the robust legal and regulatory framework in which they operate, continue to provide a solid foundation for virtually any type of capital-raising activity.
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