The Cayman Islands is the leading offshore domicile for hedge funds, and as regulators and investors have placed more stringent requirements on good governance and oversight, independent directors have taken up the mantle of supporting the asset management industry.
A growing sector of Cayman’s financial services industry is the provision of independent directors on various structures, such as hedge funds, private equity funds, special purpose vehicles, and insurance companies. Corporate Governance in general has become a major touch point in the financial services industry worldwide, following a number of high profile cases where investors were defrauded, in part due to insufficient independent oversight. In addition, during the global financial crisis, independent directors from the Cayman Islands added significant value when hedge funds were faced with making difficult decisions, for example, ensuring that all decisions were made in accordance with the fund documents and that all shareholders were treated fairly. This has not been lost on the institutional investors who are, for the most part, making it one of their investment requirements that there is a majority of independent directors on the board. In addition to the extra layer of oversight provided, a significant benefit of appointing a local, Cayman director to a Cayman entity is that local service providers are current with all relevant legislation, and can ensure that the structure is compliant with their legal requirements where necessary.
The use of independent directors has been brought into increased focus following the implementation of the Economic Substance requirements, which came into effect in the International Tax Co-operation (Economic Substance) Act, 2018, passed in December 2018. This legislation does not currently apply to investment funds, but requires all other relevant entities to prove that their “Mind and Management” is located in the Cayman Islands in order to allow them to claim the tax benefits of being domiciled in an offshore jurisdiction.
For a list of the top firms in the Cayman Islands who offer independent director services please see here: