The Allure of the Cayman Islands for Japanese Investors

Japanese investors have long used domestic trusts to execute their investment programs.  Increasingly, however, Japanese investors are turning to Cayman Islands unit trusts as they seek to implement more complex strategies and/or deploy or raise capital in the offshore alternative investment industry. 

The Cayman Islands has been the preeminent offshore alternative funds jurisdiction for decades and continues to be the jurisdiction of choice for Japanese investment managers, institutional and individual investors alike. In addition to a robust infrastructure, sophisticated legislative and judicial system, and large network of financial service providers, the Cayman Islands’ unit trust offers an especially attractive product for Japanese investors, due to its similarity to the domestic investment trust, its speed to market, and associated historical tax benefits. 

Other attractions of the Cayman Islands unit trust include its increased flexibility, which allows investment strategies, hedging and/or currency exposures and distribution features to be implemented that it is often not possible to implement through other vehicles. In addition, Japanese investors are increasingly seeking to allocate increasing amounts of capital in overseas markets, in the search for yield, to be managed by overseas managers - who fortunately are equally familiar with the Cayman Islands as the preeminent offshore jurisdiction.  As a result, the Cayman Islands unit trust has become the de facto investment vehicle of choice for Japanese managers and investors as well as US-based managers seeking to raise capital from Japanese investors and has served to help strengthen the Cayman Islands-Asia connection.

The Cayman Islands has embraced this global trend of institutionalisation and maintains a commitment to the highest standards of professionalism and client service and boasts a breadth of expertise and broad talent pool with many of the large administrators, auditors and banks physically located on island.  Additionally, the regulatory environment is deemed compliant with international standards and its advocacy of, and commitment to, global transparency and tax information exchange initiatives continues, leading where other jurisdictions follow.  Due to these dynamics, the Asian market, including Japan, has recognised it as a quality financial services jurisdiction in which to do business.

As institutional investors and regulators have increased their demand for stronger governance and oversight of investment funds, particularly post-financial crisis, the use of professional independent trustees has similarly risen sharply.  The use of a professional trustee results in an independent fiduciary – one who is unaffiliated with an investment manager – having legal title to the fund assets and the execution of their duties occurs with the view of safeguarding the assets and protecting the interests of the unitholders.  Further contributing to the use of independent trustees are recent legal and regulatory reforms which have restricted, a number of bank-affiliated custodians and fund administrators from providing certain services, including acting as a trustee.  This has also resulted in independent trustees taking a more active role in some of the administration and operational functions of a fund which may include reviewing monthly fees and expenses and, in some cases depending on the strategy, serving as a Commodity Pool Operator as defined by the CFTC. 

As a professional independent trustee and active market participant, MaplesFS provides robust governance and oversight services to unit trusts which have been established to facilitate investment by Japanese investors.  To meet the many demands of the industry, MaplesFS employs a diverse team of dedicated unit trust practitioners – previously practicing lawyers, fund accountants, auditors, investment advisors and regulators – with significant experience providing services to and working within the Japanese marketplace. This expertise, coupled with a highly responsive approach to client service, ensures clients are thoroughly supported clients in navigating the complexities of today’s business landscape.