The Cayman Islands: a guide for hedge fund managers

The Cayman Islands continue to be the pre-eminent offshore jurisdiction for hedge funds. Around 85 per cent of the world’s hedge funds are domiciled in the Cayman Islands, enabling the jurisdiction to outrank competing offshore centres (the British Virgin Islands, Bermuda and Jersey among them) as the top spot for hedge funds.

This paper explains the attractions of the Cayman Islands as a destination for managers wanting to establish offshore hedge funds offshore and examines the commercial, legal and regulatory considerations that combine to make Cayman their preferred jurisdiction.

Hedge funds established in the Cayman Islands will typically take the form of a company, a limited partnership or (less commonly) a unit trust. If statutory segregation between assets and liabilities of sub-portfolios is desired, the SPC model will be attractive. Each of these vehicles can be used as a standalone fund, a fund of funds or as part of a master-feeder structure. Their managers need not be domiciled in the Cayman Islands (more about this later)…