On 18 April the Cayman branch of the Alternative Investment Management Association celebrated 20 years in the jurisdiction with a reception at The Westin Grand Cayman Seven Mile Beach Resort & Spa.
The glamorous, beachside cocktail party was well attended by Cayman’s financial elite, including Premier André Ebanks and Cayman Islands Monetary Authority CEO Cindy Scotland. But beyond the cocktails, canapés and congratulations was a more significant story – Cayman’s emergence as a key global hub for alternative investment.
AIMA is the world’s main trade body for hedge funds, private credit, private equity and digital asset funds. Its 2006 arrival in the Cayman Islands came as alternative assets were taking off globally.
Between 2005 and 2007, global alternative assets under management nearly doubled to US$5.7 trillion from US$2.9 trillion, says a McKinsey & Company report. AIMA came to Cayman amid this global expansion, as the jurisdiction was establishing itself as a key domicile for international alternative investment funds.
Then the global financial crisis hit.
“During the crisis, market scandals, illiquidity, poor performance and massive redemptions in select categories crippled the alternatives industry,” wrote Nancy Szmolyan Spinetta in the McKinsey report. “Growth stalled, and some wondered whether the heyday of alternatives had passed.”
But in fact, the opposite happened. Once the dust had settled from the global financial crisis, the world adapted to a ‘new normal’ that saw central banks cut benchmark rates to historic lows. That increased the pressure on investment managers to find yield, which led them to alternative assets. By 2022 the alternative investment market had reached US$15 trillion in assets, found a report from private capital group KKR.
Interest rates climbed higher following the post-COVID recovery, yet the global expansion in alternative investments is now being driven by other factors. Governments in the developed world face record levels of public debt, while the world is experiencing the largest accumulation of private wealth in history.
That means private capital is increasingly used to fund areas like infrastructure. Another driver is innovation, with private capital expanding in non-traditional areas such as reinsurance and digital assets. As a result, KKR expects the alternative investment market to reach US$24 trillion in assets by 2028.
Cayman’s alternative advantage
Cayman stands well positioned to benefit from the global boom in alternative investments. As a tax neutral international financial centre, it is an efficient place for funds to pool capital from different jurisdictions.
Another big plus is its regulatory framework. Local companies will often complain about burdensome requirements from CIMA, but the fact that Cayman complies with global financial regulations allows it to attract the world’s largest investment managers. The jurisdiction has also moved fast to keep its regulations up to speed with the latest investment trends – for example Cayman’s Virtual Asset (Service Providers) Act is a cornerstone of its burgeoning digital asset industry.
The attendees at AIMA’s anniversary reception were proof of another of Cayman’s key competitive advantages – its ecosystem of investment professionals and service providers.
“Some people here might exaggerate the true length of Seven Mile Beach, but it’s not an exaggeration to say that Cayman punches above its weight as an international financial centre,” said Jack Inglis, the global CEO of AIMA, who delivered a speech at the reception.
Noting that 75% of the world’s offshore hedge funds are based in Cayman, Inglis said the jurisdiction could never have succeeded as an international financial centre “without the world class professional services system that exists here”.
Premier Ebanks, who also spoke at the anniversary, emphasised the importance of co-operation, saying, “The secret sauce of Cayman is the government, regulators and private sector working together.”