Why are so many hedge funds based in the Cayman Islands?

Question

Why are so many hedge funds based in the Cayman Islands?

Answer 1

Simple:  The banks in the Caymans refuse to release any information regarding their accounts or account holders to anyone, and there's nothing the government can do.

Answer 2

They have branches of many of the world's banks, a sophisticated, modern legal system (British) and no taxes, so that fund owners can avoid double taxation, once when the fund makes the money and again when the fund pays it out.

A US bank I worked for had a branch in the Caymans.  It had funds from US customers.  There was nothing secret or illegal about it.  It was done for large depositors who wanted to participate in the Eurodollar market which paid higher interest rates.

Answer 3

not all hedge funds are registered there.  Hedge funds register there because of the no tax and very low paperwork regulatory regime in that area which allows them to setup a multi-feeder fund structure or simply allow investments from their home country at this point in time while allowing them to expand to other areas later without having to pay undue levels of taxes or jump through hoops to get things done...less oversight and cost.

- Richard

Richard Wilson

Hedge Fund Group (HFG)

http://hedgefundgroup.org

Answer 4

All hedge funds are registered offshore, so Cayman Islands is probably as good as anywhere.

Answer 5

no info is given out  on banking account holders. so if fund goes under no one knows.

Answer 6

Bank secrecy laws are a very minor part of being based in the Caymans.

Also, not all hedge funds are registered there.

The Cayman islands and several other locales charge little to no tax on capital gains.  American citizens cannot legally put their money in a hedge fund's offshore fund.

International investors can, as well as endowments.  These types of investors would therefore put their money in a HF's offshore funds, rather than on-shore, because of the tax benefits.