Offshore Battles: Caymans vs. Bermuda
Consider Bermuda As An Alternative?
Bermuda’s main commercial district is home to thousands of the world’s top hedge funds. But the British colony has been struggling to catch up to its Caribbean cousins, the Caymans and British Virgin Islands, in the race for the $2 trillion hedge fund industry’s fast-growing offshore business. That could soon change.
In the next 12 months, the 22-square-mile land of pink beaches and rolling golf courses expects to raise the number of registered funds by 50% to 3,000. While Bermuda dominates the offshore insurance industry, the Cayman Islands is the epicenter for hedge funds, with about 9,000 of these loosely regulated investments registered in the British territory. But Bermuda is competing hard, having recently made registration quicker, easier and cheaper. It also touts its proximity to the United States. It is only a two-hour flight from New York, while a trip to Caymans is much longer and often involves a stopover in Florida.
Managers who invest for foreigners or tax-exempt U.S. clients, such as pension funds and colleges, are attracted to offshore centers because costs are lower and regulatory requirements less stringent than in the United States. In return, hedge funds bring lucrative business to the offshore centers at a time when many islands are trying to diversify revenue away from tourism. To reach the ambitious goal of registering roughly 1,000 new hedge funds in the next year, Bermudans are jetting to international conferences. The primary targets are in Europe, the Middle East and Asia. For years, U.S. lawyers have urged hedge funds to set up in the Caymans. The Caymans occasionally suffer from a reputation of relaxed oversight, thanks to several recent hedge fund collapses. And the 1993 Hollywood movie “The Firm” is about a law firm whose nefarious activities include money-laundering in the Caymans.
