Investment funds 2025: the Cayman Islands perspective

Ogier's new Investment Funds partners in the Cayman Islands - Gemma Cowan, Jessica Crawford and Graeme Loarridge - discuss current trends in Cayman fund structuring, private equity fundraising and investment activity, and the evolution of Cayman as a leading international finance centre.

Gemma, Jessica and Graeme advise some of the leading sponsors in the funds industry across all aspects of Cayman Islands funds, from establishment, regulation and governance to ongoing operation and downstream investments for both hedge funds and private equity funds.

Read more about Ogier's new Investment Funds partners.

What are the current trends in fund formation and structuring in the Cayman Islands? 

Graeme: Over the course of 2024, we've seen a definite increase in the use of "evergreen" fund structures. These structures enable asset managers and sponsors to combine many of the useful features of traditional private funds, such as a long-term investment horizon, with many of the features of traditional open-ended funds, like continuous capital raising and the ability for investors to redeem at certain intervals. 

These features provide fund managers with greater operational flexibility. It allows them to adjust the fund's portfolio composition, investment strategy and risk profile in response to changing market conditions without the constraints of a fixed-term fund. It also allows them to adapt to investor preferences, including those seeking regular income distributions or those preferring capital appreciation.

We've also seen continued growth in the use of segregated portfolio company (SPC) structures. These allow for managers to utilise the segregation principle applicable between segregated portfolios to accommodate varied investment strategies or investor groups. These have long been a favourite structure for managers based in Latin America but we've seen increased use among North American managers as well, along with those based in other jurisdictions. 

Jessica: I agree - we've seen an uptick in hybrid offerings with many of our traditional hedge fund managers expanding into more illiquid asset classes such as private credit, real estate and private equity. This also correlates with greater use of the SPC structure, which provides sponsors with flexibility to offer open and closed-ended products on the one platform and offer bespoke terms to single investors. Other advantages include increased speed to market, reduced onboarding timetables through leveraging existing service provider relationships and an ability to execute quickly on acquisition targets.  

Gemma: One of the other trends I've seen over the past few years is a strong increase in the demand for funds-of-one, particularly from institutional investors and pension funds. Funds-of-one can offer investors increased oversight with regards to the investments and operations of the fund, greater transparency and investment mandates that more closely align with the investor's objectives, risk tolerance and investment horizons, as well as potentially reduced fees. We expect to see the popularity of these types of vehicles continue in the future. 

Graeme: Increasing regulatory compliance also continues to be a feature of the funds space in the Cayman Islands. The Cayman Islands Monetary Authority (CIMA) has increased its focus on operational and corporate governance through the release of rules and guidance relating to the governance of regulated funds, along with ongoing development of the anti-money laundering (AML) regime. Beneficial ownership has also been in the spotlight, with the entry into force of the Beneficial Ownership Transparency Act.

Finally, it would be remiss not to mention the ongoing significance of technology and digital assets on the funds space in general. The integration of technology in fund management and operations is on the rise (for instance, the use of blockchain for fund administration and the tokenisation of fund interests).

Digital asset funds, including those investing in cryptocurrencies and blockchain-based projects, are becoming more common. Even those managers who may have been historically focused on more traditional investment assets are now broadening their strategies to build in flexibility to invest in digital assets, blockchain and related technologies.

What private equity activity are you seeing in the Cayman Islands?

Jessica: The jurisdiction has continued to experience growth in the funds industry, with the total number of funds registered with CIMA reaching a record high of over 30,000 in Q4 of 2024. This is in part due to increased private equity activity, with Q4 also seeing the highest number of private funds registered since the introduction of the Private Funds Act in 2020. We are anticipating more fundraising and investment activity in the private equity sector in 2025, with a more promising economic outlook, downward trend for rates and significant amounts of undeployed capital.

Gemma: The past few years have been challenging from a fundraising perspective for some emerging managers but there is renewed optimism in the market for 2025 and onwards - we've received several instructions to establish private funds looking to invest in credit, infrastructure, real estate, private debt and venture capital. As at Q4 of 2024, private funds accounted for approximately 57% of all funds registered with CIMA, which demonstrates how Cayman continues to grow as a popular jurisdiction of choice for private funds, in addition to being a long-established hedge fund domicile. 

How are current trends in Cayman funds influencing the global investment landscape? 

Graeme: The increased regulatory compliance requirements in the Cayman Islands are setting higher standards for transparency and accountability globally. This may be encouraging fund managers and investors to adopt more rigorous compliance practices, which in turn should enhance investor protection and market integrity worldwide. 

In addition, the integration of technology in fund management, including the use of blockchain and the rise of digital asset funds, is having a transformative impact on the global investment landscape. The expectation among some sectors of the industry is that these technological advancements can enhance efficiency, transparency and security in fund operations, and will continue to reveal new investment opportunities in the digital economy. 

The Cayman Islands’ favourable regulatory environment for digital assets is setting a precedent for other jurisdictions to follow. In addition, the Cayman Islands' greater emphasis on governance practices, driven by investor demand for better oversight and risk management, has a knock-on effect, raising governance standards in other jurisdictions and across the global investment industry.

This trend is promoting the adoption of best practices in fund governance, including the appointment of independent directors and the implementation of robust risk management frameworks, which in turn enhances investor confidence and market stability.

What are the main advantages that Cayman offers to fund managers and investors and how do you anticipate these advantages evolving in the future? 

Jessica: The Cayman Islands offers a wide range of flexible fund structures to cater to different investor bases and products, with a streamlined formation process and greater speed to market compared to other offshore jurisdictions. We expect to see further operational efficiencies emerging in the future with regulators and local service providers embracing digital innovation and AI and blockchain solutions for compliance, client onboarding, risk assessments and fraud detection.

A key advantage for investment funds is obviously the Cayman Islands' tax neutrality, which allows for efficient pooling of capital across jurisdictions without additional tax layers. There is no expectation that this position will change given the Cayman Islands' strong economic alignment to the investment funds sector, robust tax transparency regime and the OECD's focus on multi-nationals. We expect that the Cayman Islands will continue to be a jurisdiction of choice for institutional investors and global fund managers when making structuring decisions. 

Gemma: Cayman's tax neutrality is definitely an important factor, and on the investor side, the recent enhancement of Cayman's corporate governance regime gives investors the confidence that the funds they are investing in have good corporate governance and robust internal controls. This is a further example of the alignment of the financial services industry, the ministry and the regulator working together to ensure that Cayman adheres to international standards and remains a market leading funds jurisdiction.  

Graeme: With the size and sophistication of Cayman's investment funds sector, and the financial services sector more generally, regulatory compliance is fundamental to Cayman's success as an international financial sector.

The Cayman Islands continues to respond to and pre-empt international developments with respect to regulatory best practice. The result is that the Cayman Islands now represents a gold standard internationally, in terms of regulatory compliance and service provider sophistication. 

This, coupled with a mature and well-developed legal system, based principally upon English common law, provides for continuing (and increasing) confidence among both managers and sponsors of investment funds and investors of all classifications, from high net worth individuals to institutional investors.    

What are the biggest challenges currently facing the Cayman funds sector and how are these challenges being met? 

Jessica: Two key challenges faced by the jurisdiction are the continued pressure to implement international regulatory standards set by organisations such as the EU, OECD and FATF, and reputational challenges around transparency, which historically may have been a deterrent to European investors.

The Cayman Islands government is committed to upholding its position as a major global financial centre and has been proactive in implementing a series of regulatory reforms, such as bringing private funds into scope of regulation and implementing AML, FATCA / CRS, data protection and beneficial ownership compliance measures to enhance transparency and align with international best practices.  

Public relations and diplomatic efforts of the government and industry bodies are changing perceptions and reinforcing Cayman's critical role in facilitating global capital flows and investment activity. 

Gemma: It is true that Cayman has become more focused on regulation and adherence to international standards in recent years, but good governance is a good thing for the industry. Ogier works closely with other industry bodies and stakeholders to review and provide input on updates to key legislation to ensure that the Cayman funds industry remains competitive while also meeting, or exceeding, international standards. 

Graeme: The Cayman Islands has, and can continue to, overcome these challenges by demonstrating, through both refinement and enforcement, its commitment to ongoing development of its legal and regulatory frameworks upon the global stage. 

Its focus on increased regulatory compliance and transparency is a global trend which has impacted, and will continue to impact, all jurisdictions. The Cayman Islands is ahead of the game when it comes to developing robust compliance frameworks and those jurisdictions which have been slower or more resistant to regulatory development will continue to find themselves behind the curve when compared with the Cayman Islands. 

How Ogier can help

Described by Legal 500 as "one of strongest in the Cayman Islands", Ogier’s full-service Investment Funds team has been operating as a market leader for more than 25 years.

One of the largest and most experienced firms in Cayman, Ogier can advise on the full range of fund products, including hedge, private equity, hybrid, venture capital, virtual assets and crypto funds, energy, ESG and impact funds.

Contact one of the team to find out more. 

About Ogier

Ogier is a professional services firm with the knowledge and expertise to handle the most demanding and complex transactions and provide expert, efficient and cost-effective services to all our clients. We regularly win awards for the quality of our client service, our work and our people.

Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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