The Cayman Islands is challenging attempts by Singapore and Hong Kong to rival the tax haven as the preferred destinations for Asia’s hedge funds and high net worth individuals to park their assets.
This month, Cayman Islands financial services minister André Ebanks visited Singapore and Hong Kong to advance plans to set up an office in one of the two Asian financial centres.
According to a Financial Times (FT) report, this would be the Cayman Islands’ first base in Asia, and its officials would help investors to set up and manage funds based in the Caribbean territory.
The move comes after both Singapore and Hong Kong approved new fund structures offering international investors a way to shelter money in lightly taxed vehicles, with government subsidies to cover some set-up costs.
Use of Singapore’s new “variable capital companies” has exploded since they were introduced in 2020, with 889 set up so far — a pace investors say has taken even regulators by surprise as Chinese money floods into the city-state, says FT.
Meanwhile, uptake of Hong Kong’s “open-ended fund companies” has been slower, but 64 were set up in 2022, up from 40 a year earlier.
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Although far more of such vehicles exist in the Cayman Islands, officials in the British overseas territory believe their position could be threatened by newly-introduced competition.
FT claims the Cayman Islands had been planning to set up an office in Asia “for years”, but the rapid uptake of the Singapore and Hong Kong vehicles has prompted more urgency.
During the recent visit, the Cayman Islands delegation met with hedge fund executives, fund lawyers and trade bodies for the private equity, hedge fund and venture capital industries, according to people with knowledge of the trip.
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Compared to Singapore and Hong Kong, the British overseas territory remains firmly out of Beijing’s reach, which could entice investors looking to evade Chinese scrutiny.
The case against Hong Kong in this regard is evident, while the influx of capital from wealthy Chinese nationals into Singapore that has become a politically sensitive issue in the city-state could become an issue into the future.
Between the two Asian cities, Hong Kong’s deeper capital markets and longer history as a global financial centre would until recently have made it the obvious choice for the Cayman Islands office.
However, FT notes that an increasing number of companies, funds and family offices have relocated to Singapore in recent years.
