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

TLDR: In this article, the authors present an analysis of the Cayman offshore financial center (OFC) and show that the United States is the largest counterparty in all segments with Japan playing an important role too.

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...