Cayman Islands aims to enhance hedge fund transparency

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The global push for more transparency in financial services has reached the small tax-advantaged havens that hedge funds and other investment vehicles depend on for favorable tax treatment.

The Cayman Islands has joined Jersey, the Isle of Man, the Bahamas and others in seeking greater transparency when it comes to hedge funds.

The Financial Times notes that, "The British overseas territory, which wants to shed its reputation for clandestine financial activity, is introducing sweeping reforms that will make public the names of thousands of previously hidden companies and their directors…the islands' powerful monetary authority, CIMA, has outlined plans to create a public database of funds domiciled on the island for the first time. The database will also list funds' directors, pending an ongoing consultation process due to close in mid-March. CIMA, which did not respond to a request for comment, also plans to require directors to undergo a vetting process to ensure they are qualified to act as fiduciaries for investors."

The FT uncovered some dubious practices recently regarding directors of hedge fund boards. It seems some were sitting on the boards of hundreds of funds, making it impossible to provide real oversight. One person was listed on the board of 567 entities.

You might think hedge funds and other alternative vehicles will simply switch domiciles, but that's not likely to happen, given that big U.S. limited partners in general are behind the move for more transparency, which has already had a profound effect on the compliance and administrative aspects of the hedge fund industry.

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