Local fallout likely from Cayman hedge fund collapse

By VERNON CLEMENT JONES, Senior Business Reporter

vernon@nasguard.com

The Bahamas is likely to suffer fallout from the implosion of two massive hedge funds in the Caymans as some Americans decide that - even as far as hedge funds go - those in the Caribbean are too risky.

"What happened could have very significant ramifications for the Caymans and all offshore jurisdictions, including ours," said Hillary Deveaux, executive director of the Securities Commission of The Bahamas. "These types of things reinforce the idea that offshore jurisdictions in the (developing) world don't have the capacity to deal with these kind of issues, and that's a fallacy."

In the case of the Caymans, those "kinds of issues" stem from the complete and utter collapse of two of its hedge funds earlier this summer and the loss of $4 billion in investments.

Bear Stearns' High-Grade Structured Credit Strategies Master Fund and its High-Grade Structured Credit Strategies Enhanced Leverage Master Fund Ltd. were both liquidated after the bottom fell out of their "target loan market" - the no-uncertain subprime business.

In the process, thousands of American investors in the funds were cleaned out, almost overnight.....

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http://www.thenassauguardian.com/business/289558267148810.php

That bad PR coincides with renewed efforts in Washington to restrict tax-exemptions for citizens who use hedge fund vehicles offered in this country and other offshore centers.

That one-two punch could hurt The Bahamian industry, home to at least four of its own hedge funds. Butterfield Bank is perhaps the biggest player in the growing but still small local market.

While The Bahamas has umbrella legislation in place in the form of its 2003 Funds Act, there have been no more recent regulations put in place to specifically address the growing hedge fund market.