Global offshore law firm Walkers has predicted that 2005 will be another record year for the registration of hedge funds in the Cayman Islan...

Global offshore law firm Walkers has predicted that 2005 will be another record year for the registration of hedge funds in the Cayman Islands. According to Walkers, this will be driven by hedge funds based in Asia and the Middle East, and the growing demand for higher returns by institutional and individual investors. For the first nine months of 2005, the Cayman Islands Monetary Authority reported that more than 960 funds have been formed, with an increase of 361 funds in the third quarter of 2005, a 15 per cent increase over the same time period in 2004. In 2004, a then-record 1,405 new hedge funds were formed in Cayman during the entire year. According to Walkers partner Mark Lewis, side pocket allocations are becoming more standard. As fund managers are constantly trying to generate higher rates of return in an increasingly competitive marketplace, they are using side pocket investments as off-market and illiquid vehicles. The coming year will also bring increased regulation of hedge funds by the US Securities and Exchange Commission given the approach of the 1 February 2006 registration deadline and the work being done by investment managers to prepare their filings. Like hedge funds, private equity funds also saw a steep increase in activity in 2005 for a wide range of reasons, and in a variety of jurisdictions. "Private equity funds and hedge funds seem to be moving closer in terms of structure and strategy. We anticipate seeing even more of this and we are actively working for our clients on a number of these 'hybrid' funds which will be launched early in the New Year," said Iain McMurdo, a Walkers Investment Funds partner. He added: "In addition to an increase in activity in jurisdictions such as Asia, the sheer size of private equity deals continues to grow as groups continue to take business units, or entire companies, private." Another area of expected growth in 2006, according to Walkers, will be Shariah-compliant investment funds. With the continuing emergence of the Dubai International Finance Centre as a major global financial hub, the importance of Dubai in the capital markets is anticipated to increase. Over the past two years, the equity markets in Dubai have been among the world's top performers, with a 41 per cent increase in the private equity industry since 1998. Current private equity investments total around $1 billion.