The Cayman Islands now has more than 10,000 registered hedge funds, increasing its dominance of offshore registries despite a global credit crunch, jittery financial markets and high-profile fund failures, officials said.
In the last week of June alone, Cayman welcomed more than 100 new funds, finishing off the second quarter with 10,037 active funds, said Yolanda McCoy, head of investment funds at the Cayman Islands Monetary Authority.
That is up from 9,413 funds as of Jan. 1, with about 10 percent of the increase driven by so-called vulture funds -- funds formed to buy securities and assets at bargain basement rates, a trend emerging from the ashes of the subprime mortgage meltdown in the United States.
Cayman's nearest offshore competitor, the British Virgin Islands, has less than a third of the number of hedge funds.
In the first six months of this year, 100 new funds were registered in the Caymans with terms such as "distressed debt" and "special opportunity" included in their titles.
Goldman Sachs Credit Opportunities Institutional and Halbis Distressed Opportunities were two such funds.
"The fund industry is Darwinian, it's survival of the fittest," said Tim Ridley, a former Cayman regulator now working as an offshore finance expert.
While several high-profile hedge funds such as those run by investment bank Bear Stearns have sunk over the past year, investment managers and fund directors say they have been maximizing efforts to keep their funds alive.
"There have been some forced closures, but in the cases where funds are struggling, the managers we work with are being proactive by placing hard-to-value securities in side pockets, suspending redemptions and imposing gates," says Walkers funds partner Nick Rogers in George Town.
"Such measures may enable a fund in distress to ride out the storm or to wind down its affairs in an orderly manner."
But while the Cayman hedge fund registry business continues to be robust, growth is slowing and industry experts wonder how much longer it will be able to shrug off the global economic slowdown.
As the No. 2 offshore center for hedge fund registrations, the British Virgin Islands have also shown minimal impact from economic troubles. The number of funds registered there has held steady at about 3,000.
"We are cautiously optimistic," said BVI Harneys fund partner Kieron O'Rourke. "Despite the overall economic volatility and generally poor returns of hedge funds in the early part of the year, we are seeing no decline in the number of new funds launched."
While North American investors are still driving the hedge funds industry, Brazil, Russia, India and China are becoming significant players.
Experts estimate that worldwide hedge funds manage between $1.5 trillion to $2 trillion.
Other offshore jurisdictions divvying up the remaining market share for hedge fund registrations are Jersey, with 1,311 funds, followed by Bermuda at 1,287, Dublin at 941 and the Bahamas with 782. (Editing by Michael Christie and Leslie Adler)