The Cayman Islands' funds sector has continued to demonstrate exceptional resilience and adaptability in the face of global market uncertainty, writes Geoff Ruddick, Managing Director and Country Head - Cayman Islands at Hawksford, as he shares his reflections on 2025 and outlook for 2026…
Despite the headwinds and market volatility affecting many competing jurisdictions Cayman has emerged with renewed strength, reinforcing its status as the domicile of choice for global fund managers and investors with the latest figures showing 13,119 funds registered under the Mutual Funds Act, highlighting the jurisdiction’s depth and resilience.
Throughout 2025, we've seen particular growth in private credit, private equity and digital asset strategies - including crypto funds and tokenised investment structures - while segregated portfolio companies (SPCs) increasingly gained traction due to their flexibility.
This diversification is likely to continue in 2026, with long/short and long-only equity strategies remaining dominant, while macro, multi-strategy and fund of funds structures will maintain significant market share.
Interestingly, we have seen a marked shift away from the traditional "classic" master-feeder model – particularly among Asian and European managers – towards more streamlined single- and double-legged structures with Cayman exempted companies and stand-alone funds in particular, proving a popular solution due to their versatility and efficiency.
Of course, challenges remain. Compliance costs continue to rise and misperceptions from onshore regulators, governments and the media - particularly around tax and transparency - can distort Cayman's image. At the same time, global regulatory developments are creating additional pressures, as initiatives in the EU, UK and US aim to harmonise requirements that were once jurisdiction specific.
Cayman must therefore strike a careful balance between preserving its flexibility and aligning with international expectations if it is to remain competitive in 2026 and beyond.
Regulation
Recent regulatory developments will continue to influence the client decision-making process as we look to the next 12 months.
The Private Funds Act, for example, has increased baseline operational complexity - but, in practice, it has also formalised what were already widely adopted best practices. Consequently, the impact has been manageable for serious participants and these changes have enhanced Cayman's credibility going forward.
Meanwhile, recent enhancements to Cayman's CRS regime and the introduction of CARF (Crypto-Asset Reporting Framework), effective from 1 January 2026, require entities to review their reporting processes and ensure readiness for expanded data collection and disclosure requirements.
The beneficial ownership regime has also added an administrative layer, generally handled efficiently via service providers and legal counsel.
Similarly, economic substance rules have had a limited direct impact on funds themselves, applying more meaningfully to fund managers with local operations. Nonetheless, these developments contribute to a slightly more involved setup process, especially for new entrants or less-experienced managers.
Even so, Cayman's financial ecosystem has adapted quickly, helping clients navigate the added complexity and strengthening investor confidence in the jurisdiction's regulatory framework as we start the new year.
Global complexity
Administrators servicing Cayman-domiciled funds are increasingly required to navigate a multi-layered compliance landscape.
FATCA and CRS obligations are business as usual, but their complexity - particularly for global investor bases - continues to demand robust systems and constant updates.
Cross-border reporting, AIFMD compliance for EU-marketed funds and SEC-related obligations for US-focused funds further add to the operational burden. The trend is clear: administrators must now operate within a global compliance framework, not just a local one.
This is giving rise to increasing pressure to implement automated compliance monitoring and data validation tools - both to improve accuracy and to satisfy investor due diligence.
Cybersecurity has also become a critical priority, placing greater expectations on administrators around safeguarding sensitive investor and Net Asset Value (NAV) data.
Collaboration will be key with administrators looking to work more closely with independent directors - especially as investor demands around transparency and governance continue to rise - to ensure compliance obligations are met without compromising fund performance or investor service.
Sustainability
Naturally, ESG has moved well beyond a niche concern and is expected to remain a focus. Today, it's a standard part of allocator due diligence, particularly for managers targeting European or North American investors and, while Cayman doesn't currently have a formal ESG regulatory regime, the jurisdiction remains highly accommodating to ESG-aligned strategies.
In practice, ESG integration tends to happen at the investment manager level, rather than at the investment fund domicile. Cayman's flexible structure enables managers to implement whatever ESG policy framework best fits their strategy, whether aligned with the EU's Sustainable Finance Disclosure Regulation (SFDR) or bespoke.
That said, there is an opportunity for Cayman to develop ESG certification tools or disclosure templates that support managers seeking to enhance transparency and comparability. Other jurisdictions are positioning themselves competitively on the ESG front - and Cayman will need to ensure it keeps pace with evolving investor expectations over the next 12 months.
We're also seeing shifts in fee structures and liquidity terms, driven by investor sensitivity and demand for alignment. The "2 and 20" model is becoming increasingly rare, with most managers offering reduced management fees and flexible redemption terms - including gates and lock-ups - designed to ensure stability and support ESG-orientated capital.
Future focus
Cayman's future will undoubtedly be shaped by its ability to embrace innovation, while remaining compliant with evolving global standards.
Opportunities lie in the continued growth of digital asset funds - including tokenised securities and crypto investment vehicles - and in the use of blockchain for fund recordkeeping, digital identity and NAV calculations.
It is worth adding that Cayman is well-positioned to serve as a "regulatory sandbox" for fintechs and emerging managers looking to launch innovative strategies in a flexible yet credible jurisdiction.
And while geopolitical shifts – such as US-China tensions, regulatory duplication and new EU frameworks - present challenges, Cayman's commitment to strong governance, transparency and institutional professionalism will be key to weathering such storms.
Proactive engagement with global regulators, harmonising essential compliance tools where appropriate and maintaining flexibility in fund structuring will be critical as Cayman's funds industry looks forward to another year of progress and innovation.
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