If even President Obama can make ill-informed and naive comments on a subject, it is a fair bet that the subject is likely to be an area of widespread ignorance. Such is the plight of the Cayman Islands and similar jurisdictions widely used in the modern financial world. Just as hedge funds have been blamed in the media for all manner of ills because it is easier to use a catch-all media soundbite than to look at the numerous multi-faceted causes of the financial crisis, so the Cayman Islands and its army of professionals have been held out as charlatans, allowing unregulated hedge funds to wreak havoc on the world’s financial system and compound the error by allowing individuals and entities to hide vast sums and deprive major economies of much-needed tax revenue. When The Times writes “The Cayman Islands Financial Services Association – I suppose there must be such a thing”, it is clear that the world at large is looking at comical clichés rather than reality.

Of course, while the politicians are happy to keep making the pronouncements (there are no votes offshore) and the media laps it up, it can become self-perpetuating. However, any detailed analysis of the events of last year largely absolves the hedge fund industry of blame. Similarly, analysis of the offshore model used by such funds shows that the current system has worked well.

Cayman has long been the domicile of choice for hedge funds, going back 15 years or so. I have been a funds lawyer for all of that time and have seen the country evolve to serve the purpose of a major financial centre in keeping with the modern world. At the time the industry was starting to grow, Cayman’s mutual fund legislation, coupled with a tax-neutral basis, worked well and resulted in a rapid growth in the number of funds domiciled there. This in turn led to a growing body of lawyers and other professionals who were expert in this area establishing themselves in Cayman. For example, I am currently involved in a multi-party matter requiring teams of lawyers from five different firms to be involved. How many jurisdictions around the world have that number of expert firms, with more on the sidelines to choose from? This wealth of expertise has built up over many years and has stood the country in good stead. In addition, the courts, based on the British system, and drawing on a panel of judges who have a good understanding of the industry – as it is such an important part of the economy of the country – are providing an excellent forum for dispute resolution. Instead of the gin-addled, panama hat wearing colonial/Gene Hackman figure carrying bags of cash (pick your own stereotype), Cayman is based on top professional firms staffed by dedicated experts.

As well as the quality of the professionals involved, when looking at the suitability of a jurisdiction in which to establish a fund, the question of the framework of regulation is key. For many years, part of Cayman’s undoubted appeal was that its regulation was light touch and the process was simple and straightforward. Companies can be incorporated on a same-day basis for example and, essential to the hedge fund world, there is no limitation on the investments which can be made. The golden rule is that provided the investor is given all necessary information on which to base a decision whether or not to invest, then the manager is free to pursue that mandate with no external limitations.

The offshore world is a market place, with the leading players looking to attract funds to their domicile. As a result, there was a move by many countries to make their legislation more like Cayman’s – Jersey, Guernsey and Ireland amongst others came in with their look-a-likes. The cry in the pre-crash days was “look, it is almost as easy to do business here as in Cayman, come to us”. “The Irish SuperQIF – Authorisation in 24 Hours” was the heading on the proclamation from PwC’s Dublin office. While the heads of government in major onshore centres were promoting their new lighter touch regulation, everyone seemed to be playing the same game. Cayman found it easier as it did not have the overhang of a retail funds industry with its resultant legislation to protect granny and her £20/month savings scheme. On the funds side, it has always been an institutional industry and the same level of regulation is not required to protect investments by the big and ugly.