Cayman Islands Hedge Fund Trends: Fee And Liquidity Terms

As investor expectations, regulatory requirements and global market dynamics continue to evolve, the hedge fund sector is responding with increased flexibility and innovation when determining fee and liquidity terms.

In this article, we analyse the fee and liquidity terms of the open-ended funds launched by the Maples Group during 2024 and in the first three quarters of 2025. The Maples Group advises on approximately 33% of all Cayman Islands open-ended funds¹, providing a distinctive window into current market practice.

Fee Terms: Management and Incentive Fee Rates

The majority of funds launched in 2024 and in the first three quarters of 2025 continued to employ the classic management and incentive (or performance) fee model, with approximately 74% of the funds launched in 2024 charging both management and incentive fees, rising to 82% for funds launched in the first three quarters of 2025. However, the traditional '2 and 20′ fee model is no longer dominant, with most management fee rates now set below 2% per annum, while the 20% incentive fee rate remains standard.

Of the funds charging management fees, more than half of the funds launched in 2024 and in the first three quarters of 2025 applied different management fee rates across classes, reflecting a broader industry move towards greater fee customisation and negotiation, particularly for early or strategic investors. Founders' and seed classes with lower or no management fees were also widely used to attract cornerstone investors.

There was a broad spread of management fee rates observed, with 1%, 1.5% and 2% being the most prevalent management rate, observed in over 60% of funds launched in 2024 and in almost 70% of funds launched in the first three quarters of 2025. A management fee rate of over 2% was the least common, being observed in just over 5% of funds launched in 2024 and in the first three quarters of 2025.

Variable management fee mechanics, where the fee rate changes based on the fund's net asset or total investment by investor, were also observed in a number of funds. Approximately 10% of funds launched in 2024 and the first three quarters of 2025 that charged management fees reported variability based on net assets and nearly 15% reported variability based on total investment by investor for funds launched in 2024 that charged managed fees, decreasing to 7% of the funds launched in the first three quarters of 2025.

Incentive fee structures also showed a degree of variation, although the 20% incentive fee remains the industry standard. Approximately half of the funds launched in 2024 and the first three quarters of 2025 had an incentive fee rate set at 20%. The next most common rate was 15%, then 10%, followed by the "more than 20%" category.

As with management fee rates, multiple incentive fee rates across classes were also observed, with approximately 47% of funds launched in 2024 having such arrangements, falling to 31% for funds launched in the first three quarters of 2025.

Variable incentive fee rates were rare, with only approximately 2% of funds launched in 2024 and the first three quarters of 2025 reporting net assets-based variability and 9% reporting variability based on total investment by investor.

Fee Terms: High-Water Marks, Hurdles and Fee Calculation Methods

High-water marks, which ensure that incentive fees are only charged on new profits above a previous peak, are the norm where incentive fees are present. A high-water mark or loss carry-forward provision was present in approximately 90% of the funds that charged an incentive fee which were launched in 2024 and the first three quarters of 2025. Modified high-water marks, which allow for partial fee accruals even when the fund is below its previous high, were rare, with only 3% of such funds adopting modified high-water marks.

Hurdles, representing minimum return thresholds that must be met before incentive fees are payable, were observed in approximately 50% of the funds that charged an incentive fee which were launched in 2024, falling to approximately 35% of such funds that were launched in the first three quarters of 2025. Where hurdles are used, they serve as an additional layer of investor protection by ensuring that incentive fees are only paid when returns exceed a specified benchmark.

In terms of incentive fee calculation mechanics, series accounting was the prevalent mechanic utilised in order to ensure investors are charged incentive fees only on the performance of their shares or interests. Equalisation accounting has steadily declined in popularity, with only 5% of the funds launched in 2024 utilising equalisation accounting, falling to 3% for the funds launched in the first three quarters of 2025.

Incentive fees were most commonly structured as an allocation to a specific class/series of interests (usually held by the investment manager or an affiliate) rather than as a fee payable under a contractual agreement (such as the investment management agreement). Two thirds of the funds launched in 2024 and the first three quarters of 2025 structured their incentive fee payments as an allocation.

Fee Terms: Fee Caps and Pass-Through Expenses

Investor cost containment, while topical and becoming increasingly common, is not yet widespread. Only 12% of the funds launched in 2024 disclosed a cap on organisational or establishment expenses, falling to 8% for the funds launched in the first three quarters of 2025, while 15% of funds launched in the 2024 disclosed a cap on annual expenses, falling to 12% for funds launched in the first three quarters of 2025.

At the other end of the spectrum, pass-through expenses, where certain investment manager overheads (which may include salaries and bonuses of portfolio managers) may be charged to the fund, are becoming more common, with 9% of the funds launched in 2024 disclosing pass-through expenses, rising to 13% for funds launched in the first three quarters of 2025.

Liquidity Terms: Redemption Frequency, Notice Period and Lock-Up Provisions

Liquidity terms, including redemption frequency and notice periods, are critical for investors assessing hedge fund investments. A large majority of the funds launched during 2024 (78%) and in the first three quarters of 2025 (88%) offered monthly or quarterly redemption cycles. A significant minority of funds offered daily redemption cycles, 11% of the funds launched in 2024 and 6% of the funds launched in the first three quarters of 2025.

A similar pattern is observed when assessing redemption notice periods. Of the funds launched in 2024, 62% had a redemption notice period falling within the range of 1 and 3 months (inclusive), and of the funds launched in the first 3 quarters of 2025, this rose to 69%.

Lock-up provisions, which restrict investor redemptions for a set period, are relatively common, with 46% of the funds launched in 2024 imposing a lock-up, compared with 50% of funds launched in the first three quarters of 2025.

Of the funds that imposed a lock-up period, a similar proportion of funds imposed either a hard lock-up (which prohibits any redemptions during the lock-up period) or a soft lock-up (which allows redemptions during the lock-up period subject to a fee), with the remainder of such funds imposing both a hard lock-up and a soft lock-up (with the soft lock-up period sometimes being imposed after the end of a hard lock-up period). The exact proportions were as follows:

• 36% of such funds that launched in 2024 and in the first three quarters of 2025 imposed a hard lock-up only;
• 39% of such funds that launched in 2024 imposed a soft lock-up only, rising to 46% of such funds that launched in the first three quarters of 2025;
• 25% of such funds that launched in 2024, and 18% of such funds that launched in the first three quarters of 2025 imposed both a hard lock-up and a soft lock-up.

In terms of length, a year-long lock-up period was by far the most common length for both hard lock-ups and soft lock-ups. For funds with a soft lock-up, 92% of such funds launched in 2024 charged a redemption fee of 2% or more of the redemption proceeds for redemptions requested prior to the expiry of the lock-up period. The equivalent portion for such funds launched in the first three quarters of 2025 was 90%.

Liquidity Terms: Redemption Gates and Thresholds

Redemption gates which limit the amount or number of a fund's shares or interests that may be redeemed during a redemption cycle if redemption requests exceeding a certain threshold are received are an important tool for managing fund liquidity and protecting remaining investors during periods of high redemption activity. 51% of the funds launched in 2024 had a redemption gate, and a comparable 49% of funds launched in the first three quarters of 2025 had a redemption gate.

Among the funds that launched in 2024 and in the first three quarters of 2025 that disclosed a redemption gate, fund level gates (where the redemption limitation is applied by reference to the net asset value of the fund or its master fund) were the most common, with fewer funds applying class or series level gates and investor level gates.

The most common threshold for triggering the application of the redemption gate (regardless of whether the redemption gate is a fund level, class level or investor level gate) was 25%, applied by 44% of funds launched in 2024 that had a redemption gate, rising to 51% for funds launched in the first three quarters of 2025.

Liquidity Terms: Side Pockets

Side pockets remain a relevant feature in hedge fund structures, particularly for managing illiquid or hard-to-value assets. Of the funds launched in 2024, 37% had the power to side pocket; for the funds launched in the first three quarters of 2025 the proportion of funds with the power to side pocket was a comparable 36%. The use of side pockets is particularly prevalent among Asian managers and their inclusion in this region is on the rise as managers seek greater flexibility in managing illiquid or hard to value assets.

Where side pockets are used, investor participation is most often mandatory, this being the case in 66% of the funds launched in 2024, and 78% of the funds launched in the first three quarters of 2025.

Caps on the amount that can be allocated to side pockets are not common, only 28% of the funds with the power to side pocket that were launched in 2024 included such a cap, decreasing to 22% of such funds that were launched in the first three quarters of 2025. Where a cap was included, this was most often by reference to the net asset value of the fund or its master fund, and the maximum limit was most commonly 20% or a lower percentage.

Conclusion

Taken together, these data points depict a market that is steadily recalibrating. Management fees are trending below 2% while the 20% incentive fee rate endures. Fee customisation is widespread, but truly variable economics remain the exception. Investor cost controls via hard caps are still limited even as pass-throughs gain ground.

On liquidity, the centre of gravity remains monthly or quarterly dealing with 1–3 months' notice, frequently coupled with lock-ups and increasingly precise tools gates at a 25% trigger and thoughtfully drafted side-pocket provisions to manage stress and illiquid investments.

Cayman Islands hedge funds continue to prioritise alignment and resilience, combining strong investor protection with operational flexibility to suit today's market and prepare for the next cycle of volatility.

Footnote

1. For other trends and comparative data, read the full Cayman Islands Trends & Insights: Open-Ended Funds Report 2025.