CAYMAN ISLANDS Trends and Developments Contributed by: Dan Beckett, Iain Anderson, Joni Ebanks, Christina Gordon and Alex Howard, Maples Group
Private equity has proved popular with Japanese banks, pension funds, life insurers and other institu - tional investors seeking to rebalance their portfolios into private equity in the search for higher yields over a number of years, including foreign private equity. In addition, all of the top Japanese life insurers have said they plan to increase investment in alternative assets going forward. Japan is currently undergoing a structural transfor - mation that is reshaping its asset management land - scape, with significant implications for private equity. In 2023, assets under management in Japan surged by 18% – the fastest growth rate globally – making Japan the world’s second-largest source of Cayman Islands fund flows. This remarkable growth is under - pinned by powerful demographic and policy shifts: by 2050, 39% of the population is projected to be over 65, driving an urgent need for income-generating assets. The government’s ambitious reforms, includ - ing a clear target to double household investment income by 2027, are accelerating allocations to pri - vate equity, credit, infrastructure and real assets. Japanese households hold over USD7 trillion in cash and deposits – more than 50% of household assets, the highest ratio in the G7. This vast, under-deployed pool of capital is now being mobilised, with retail and high net worth flows into offshore funds, including evergreen funds providing exposure to private equity, private credit, infrastructure and other private assets. The expanded NISA programme and regulatory sup - port for private market participation are further fuelling this reallocation. With an ageing population and infla - tion eroding cash savings, the Japanese government has actively encouraged a shift to investment. The authors therefore expect to see more such semi-retail offerings of funds investing in private assets going forward. Global Structures A number of managers will utilise a mix of parallel fund vehicles to maximise the global distribution of their funds and manage downstream assets. By way of example, managers targeting investors in multiple regions, including Europe, may look to offer paral - lel Cayman Islands, Delaware and Luxembourg fund options, or a variation on that arrangement such as a
master-feeder fund structure with a Cayman Islands closed-end fund vehicle operating as a feeder fund into a European (such as an Irish or Luxembourg) master fund. Similarly, a Cayman Islands closed-end fund vehicle may set up holding or trading vehicles in various European jurisdictions (such as Ireland or Luxembourg) to facilitate its investment objectives. Regulatory A sophisticated legislative and regulatory framework has enabled the Cayman Islands to respond to the challenges and opportunities arising out of evolving, and often conflicting, regulatory developments. Sev - eral key regulatory developments in recent years are outlined below. The private funds regime The Private Funds Act (As Revised) came into force in 2020 and provides a regime for the regulation of closed-end funds (private funds) by CIMA. The new regime introduced a proportionate regulatory overlay for private funds with several benefits, was respon - sive to recommendations by international partners and reflects the Cayman Islands’ commitment as a co-operative jurisdiction, as affirmed by various inter - national organisations. It covers similar ground to existing or proposed legislation in a number of other jurisdictions. Furthermore, in April 2023 CIMA released a series of updated and new regulatory measures for regulated entities (including private funds), which included the Statement of Guidance on Corporate Governance for Mutual Funds and Private Funds, the purpose of which is to provide guidance on the minimum expec - tations for the sound and prudent governance of regu - lated funds. It sets out the key corporate governance principles pertaining to the operators of regulated funds as a guide to CIMA’s expectations with regard to governance. CIMA also issued: • The Rule and Statement of Guidance – Internal Controls for Regulated Entities, which requires reg - ulated entities (including private funds) to establish, document and maintain an adequate and effective system of internal control; and
106 CHAMBERS.COM
Powered by FlippingBook