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

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  • Jan Fichtner

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 introduction of the Anglo-America/Anglosphere approach. This approach provides one plausible explanation for the unparalleled rise of the Cayman OFC by seeing this jurisdiction as one node in an Anglo-American triangle together with the USA and the UK, Cayman's sovereign power.

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  • Jan Fichtner, 2016. "The anatomy of the Cayman Islands offshore financial center: Anglo-America, Japan, and the role of hedge funds," Review of International Political Economy, Taylor & Francis Journals, vol. 23(6), pages 1034-1063, November.
  • Handle: RePEc:taf:rripxx:v:23:y:2016:i:6:p:1034-1063
    DOI: 10.1080/09692290.2016.1243143
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    References listed on IDEAS

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    1. Zucman, Gabriel & Fagan, Teresa Lavender & Piketty, Thomas, 2015. "The Hidden Wealth of Nations," University of Chicago Press Economics Books, University of Chicago Press, number 9780226245423, Febrero.
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    Cited by:

    1. Hearn, Bruce, 2021. "Institutional determinants of bid–ask spreads in Caribbean offshore stock exchanges," Research in International Business and Finance, Elsevier, vol. 58(C).
    2. Ronen Palan & Hannah Petersen & Richard Phillips, 2023. "Arbitrage spaces in the offshore world: Layering, ‘fuses’ and partitioning of the legal structure of modern firms," Environment and Planning A, , vol. 55(4), pages 1041-1061, June.
    3. Javier Garcia-Bernardo & Jan Fichtner & Eelke M. Heemskerk & Frank W. Takes, 2017. "Uncovering Offshore Financial Centers: Conduits and Sinks in the Global Corporate Ownership Network," Papers 1703.03016, arXiv.org, revised May 2017.
    4. Hearn, Bruce & Oxelheim, Lars & Randøy, Trond, 2021. "The Impact of Founders on Information Asymmetry vis-à-vis Outside Investors: Evidence from Caribbean Offshore Tax Havens," Working Paper Series 1419, Research Institute of Industrial Economics.
    5. Pierce O’Reilly & Kevin Parra Ramírez & Michael A. Stemmer, 2021. "Exchange of Information and Bank Deposits in International Financial Centres," Hacienda Pública Española / Review of Public Economics, IEF, vol. 239(4), pages 27-69, November.
    6. Kirsten Martinus & Thomas Sigler & Iacopo Iacopini & Ben Derudder, 2019. "The role of tax havens and offshore financial centers in Asia-Pacific networks: evidence from firm-subsidiary connections," Asian Business & Management, Palgrave Macmillan, vol. 18(5), pages 389-411, November.
    7. Finér, Lauri & Ylönen, Matti, 2017. "Tax-driven wealth chains: A multiple case study of tax avoidance in the finnish mining sector," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 48(C), pages 53-81.
    8. Hearn, Bruce & Oxelheim, Lars & Randøy, Trond, 2023. "The influence of business groups on board composition in offshore financial multinational enterprises," International Business Review, Elsevier, vol. 32(3).
    9. Hearn, Bruce, 2022. "The Determinants of Foreign Multinational Enterprise Firms' Board Governance in Caribbean Offshore Island Economies," Journal of International Management, Elsevier, vol. 28(4).

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