Cayman Islands competes Singapore and Hong Kong to entice wealthy Asians.

The Cayman Islands have retaliated against Singapore's and Hong Kong's attempts to displace them as the preferred destination for Asia's hedge funds and super-rich.

In order to promote plans to open an office in one of the two Asian cities, the financial services minister for the Cayman Islands, André Ebanks, traveled to Singapore and Hong Kong this month. The Cayman Islands' officials would assist investors in establishing and managing funds located in the Caribbean region from their first base in Asia.

The action was taken in response to Singapore and Hong Kong's approval of new fund structures that give foreign investors a place to hide money in low-taxed assets with government subsidies to help with setup fees.

Since its introduction in 2020, 889 of Singapore's new "variable capital companies" have been established, a rate that investors claim has surprised even authorities as Chinese finance pours into the city-state.

Although the adoption of Hong Kong's "open-ended fund companies" has lagged, 64 were established in 2022, up from 40 the year before.

There are many more of these vehicles in the Cayman Islands, but according to a Hong Kong-based funds specialist briefed on the plan, Cayman Islands officials "think there's a threat to their position" They didn't previously face as much competition.

According to two people with knowledge of official thinking, the Cayman Islands had been considering opening an office in Asia for years, but the swift adoption of the Singapore and Hong Kong vehicles has generated increased urgency.

Gene DaCosta, the Cayman Islands' representative for Asia, responded to inquiries from the Financial Times by saying, "Minister Ebanks and I . . . had meetings with a number of local officials, agencies and law firms [in Hong Kong and Singapore] on matters related to opening and operating a Cayman Islands government office."

According to those with knowledge of the trip, the Cayman Islands team met with hedge fund executives, fund lawyers, and trade organizations representing the private equity, hedge fund, and venture capital industries.

The authorities were attempting to reestablish their partnership in the face of what was sure to become more intense competition from Hong Kong and Singapore, according to one financier whose company uses Cayman funds.

"It was very much a two-way process, for the [Cayman Islands] government to meet stakeholders and get feedback about the jurisdiction," remarked Ann Ng, a partner at the Cayman Islands law firm Maples Group with a Hong Kong base who accompanied the officials to some of their meetings.

According to a Singapore-based adviser who spoke with the delegation, "Cayman funds represent the ‘old faithful’ of the investment world — tried, tested and trusted" to Asian investors contemplating the Hong Kong and Singapore vehicles.

Another Singapore-based financial adviser who met with the Cayman Islands group claimed that the Cayman Islands "have one particular strength: they are far away from the long arm of the Beijing government."

"Hong Kong can’t really argue that, and Singapore might have trouble, too, down the track with how things are going with mainland inflows," the consultant added. A politically delicate topic in the city-state of Singapore is the influx of capital from wealthy Chinese citizens.

According to a few of the respondents, Hong Kong would have been the natural choice for the Cayman Islands office until recently due to its more developed capital markets and longer history as a major financial hub. However, a lot of businesses, funds, and family offices have recently moved to Singapore.

By fLEXI tEAM