The anatomy of the Cayman Islands offshore financial center: Anglo-America, Japan, and the role of hedge funds

ABSTRACT

The Cayman Islands is a key node in contemporary global finance, yet it is severely under-researched. This paper compiles the first ‘anatomy’ of the Cayman offshore financial center (OFC), utilizing all sources of publicly available data about the three main segments: banking, direct investment, and portfolio investment. The analysis is performed both diachronically to see when large inflows occurred and geographically to determine what role certain countries play in different segments. This dissection of the Cayman OFC shows that the United States is the largest counterparty in all segments with Japan playing an important role too. In fact, when excluding long-term Treasuries, Cayman is the largest holder of US securities in the world. Hedge funds are the main factor for this strong Cayman-US link. About 60% of global hedge fund assets are legally domiciled in Cayman – an extraordinary spatial concentration in such a tiny jurisdiction. A novel contribution to the analysis of the Cayman OFC is the introduction of the Anglo-America/Anglosphere approach. This approach provides one plausible explanation for the unparalleled rise of the Cayman OFC by seeing this jurisdiction as one node in an Anglo-American triangle together with the USA and the UK, Cayman's sovereign power.

KEYWORDS:

• Cayman Islands
• offshore financial centers
• tax havens
• Anglo-America
• hedge funds
• Japan

ACKNOWLEDGEMENTS

Alex Cobham, Jeremy Green and Herman Schwartz have provided insightful comments to earlier versions of this paper. I thank Gian-Maria Milesi-Ferretti for advice concerning the use of data from the Bank of International Settlements and the IMF. All remaining errors are my own.

Disclosure statement

No potential conflict of interest was reported by the author.

Additional information

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Jan Fichtner

Jan Fichtner is postdoctoral researcher in the CORPNET project at the University of Amsterdam where he focuses on the re-concentration of corporate ownership through the rise of very large passive asset managers, such as BlackRock and Vanguard. His research interests lie in International Political Economy, particularly Global Finance (structural power, financialization, hedge funds, offshore financial centers).