How do the Cayman Islands play a role in the Latin American investment funds space?
What can be said about the growth of investment funds?
What about capital flows and joint venture?
Are there other trends in investment funds strategies?
Are any of these trends expected to change in 2022?

This article is a Q&A about the developing role that the Cayman Islands play in the Latin American investment funds space.

How do the Cayman Islands play a role in the Latin American investment funds space?

The rationale for the use of Cayman Islands structures is essentially twofold:

  • setting up Cayman funds to attract investment and facilitate capital flows from within Latin American countries into international markets and products in a cost-effective manner; and
  • establishing Cayman funds to raise international capital to flow into Latin America for investments within the region.

The Cayman funds industry has a long history of working with the largest institutions in Latin America to set up Cayman investment fund structures, and there has always been a strong Brazilian presence in Cayman in terms of offshore structuring. For example, Banco do Brasil holds one of the oldest banking licences in Cayman (in place since 1976), and the Cayman Islands Monetary Authority (in its role as the regulator of the financial services industry) has had a Memorandum of Understanding in place with its Brazilian counterpart since 1999.

What can be said about recent activity and growth in this market?

In recent years, there has been substantial growth in the number of Cayman funds being set up as access vehicles for Brazil-based asset managers, sponsors and family offices to invest or increase their allocation in international markets and products. This increase in outward capital flows has been driven largely by the impressive and steady growth in Brazil's domestic funds industry, with sustained low-interest rates causing investors to diversify their holdings, reallocating capital from local fixed income products and savings accounts to more sophisticated products, including hedge funds with alternative strategies and exposure to international markets. The rise of digital investment platforms, serving as a distribution channel for local funds, and the consequent wider participation by non-institutional investors in alternative financial products, has also contributed significantly to this growth.

More recently, there has been a considerable increase in activity and outbound flows also from Chile, both on the asset management side, with Chilean managers identifying Cayman as a preferred jurisdiction for their capital raising and international investments, and also on the investor side, with the handful of large pension funds continuing to invest in Cayman-domiciled private equity funds.

What about capital flows into Latin America?

Start-up companies in Latin America are attracting record-breaking levels of venture capital funding, much of which is coming from outside the region via Cayman structures and is responsible for the largest increases in capital flows into Latin America. In addition to the traditional venture capital investors, many Brazilian asset managers, family offices and wealth management platforms are setting up dedicated venture capital funds in Cayman, or new venture capital strategies within their existing Cayman funds, to participate in seed and subsequent series financing rounds.

These start-up companies will typically establish a holding company in Cayman as their preferred equity financing vehicle, with Cayman traditionally being the preferred (and sometimes required) jurisdiction for investors, often raising multiple rounds of series financing on their way to an eventual, or hopeful, initial public offering. The maturing start-ups are then purchasing other businesses, both competitors and those offering complimentary services, acquiring growth with horizontal and vertical integration, which is often in exchange for the issuance of shares to the founders of the target company, driving further M&A transactions in Cayman.

Have there been other trends in investment funds strategies?

While public equities strategies remain strong, there has been a shift towards private equity, distressed debt, litigation financing and venture capital investment strategies, as well as fund of fund strategies, with closed and opened ended funds being set up in Cayman as access vehicles for Brazilian managers to distribute locally, often in partnership with larger international asset managers. Established managers have increasingly taken up positions in digital assets (mostly Bitcoin and Ether) and a growing number of emerging managers are setting up funds in Cayman focused on a wide range of digital asset investment strategies as that market and asset class continue to evolve.

Are any of these trends expected to change in 2022?

In recent months, nominal interest rates have risen sharply in Brazil to combat high inflation, so some increase in investor demand for fixed income products should be expected, along with some reallocation by investors into traditionally safer asset classes as the country's presidential elections approach. However, this is not predicted to stymie the growth in Brazil's domestic funds industry nor the increased diversification and outbound directional flows of money that have driven the demand for new Cayman fund structures, which has not slowed in the first quarter of 2022. In Chile, the current political and economic uncertainties can be expected to continue to drive outbound investment and the establishment of fund structures abroad to facilitate these flows, including in Cayman.

For further information on this topic please contact Tim Cone or Giorgio Subiotto at Ogier by telephone (+1 345 949 9876) or email ([email protected] or [email protected]). The Ogier website can be accessed at