Most offshore funds formed last year by US managers were established in the Cayman Islands, a report by Seward & Kissel’s Investment Management Group has shown, although rival domiciles such as Bermuda have started featuring more.
The Seward & Kissel New Hedge Fund Study covers newly-formed hedge funds sponsored by new US-based managers entering the market. The study covers the 2014 hedge fund launches of relevant Seward & Kissel clients.
Sponsors who offered both US and offshore funds set up master-feeder fund structures over 95 percent of the time, the report found. And most offshore funds were established in the Cayman Islands, although other jurisdictions such as Bermuda began to re-establish their presence in the industry.
The report also noted that, following the trend it first saw in 2012, there continued to be a fair number of managers who initially launched just a US stand-alone fund (approximately 30 percent), many of whom were seeking to build a track record in order to attract offshore and US tax exempt investor interest down the road.
Some 73 percent of the funds had equity or equity-related strategies (up from 65 percent in the 2013 study).
Incentive allocation rates continued to be set at 20 percent of net profits across all strategies.
The past disparity in management fee rates between equity and non-equity strategies was essentially eliminated and averaged out at about 1.7 percent.
Most master-feeder funds continued to opt to rely on the Section 3(c)(7) exemption, however, about half of the stand-alone funds relied on the Section 3(c)(1) exemption.
Other key findings of the report included the fact that 19 percent of funds implemented a management fee rate that tiered down to lower rates as assets surpassed certain benchmarks. Of this 19 percent, all were equity funds.
Some 81 percent of funds permitted quarterly or even less frequent redemptions (as compared to 89 percent in 2013), while 19 percent of funds permitted monthly redemptions in 2014 (as compared to 11 percent in 2013). Moreover, as in 2013, 85 percent of all funds had some form of lock-up or gate.
Cayman, Seward & Kissel’s Investment Management Group, North America, The Seward & Kissel New Hedge Fund Study