U.S. and European hedge funds register in the Cayman Islands to attract global investors, as it is often more tax efficient for them to invest through offshore locations than to invest directly in a domestic hedge fund.
There are more hedge funds domiciled in the Caymans than in any other jurisdiction, including competitors British Virgin Islands and Bermuda, and CIMA has been pushing to maintain that lead.
The industry growth comes despite a year-long financial market credit crisis that has caused many hedge funds to post slumping returns.
Still, there hasn't been "a significant spike" in fund terminations, according to Walkers, a major Cayman law firm whose clients include many hedge funds.
"There have been some forced closures; but in cases where funds are struggling, the managers we work with are being pro-active by placing hard-to-value securities in side pockets, suspending redemptions and imposing (redemption) gates," said Walkers attorney Nick Rogers in a statement. "Such measures may enable a fund in distress to ride out the storm or to wind down its affairs in an orderly manner."
While Cayman authorities in recent years have made a major effort to cooperate with U.S. investigators into possible tax fraud through offshore tax havens, they still face criticism from U.S. lawmakers.
The U.S. Government Accountability Office recently found that there is one mutual fund or hedge fund for every five residents in the Cayman Islands, prompting some lawmakers on the Senate Finance Committee last week to call for stronger laws to prevent tax cheating.