If you were to guess which countries of the biggest investors in US equities you might assume that it would be one of our close economic partners like Canada or the UK, or one of the largest buyers of US government debt like China or Japan. But it turns out that the biggest holder of US equities as the Cayman Islands which holds $628 billion worth of US equities despite having a GDP of less than $4 billion.
Cayman Islands account for a quarter of US asset backed securities
Of course the reason for this discrepancy is that it’s not really people in the Cayman Islands who are investing in US equities, as you no doubt already know. The Caymans rely on financial services for virtually the entire economy, and the foreign holdings represent investments from around the world in hedge funds and mutual funds located on the island. Still, the Caymans hold only slightly more US equity than Canada which has $617 billion or the UK with $584 billion, compared to more than $5 trillion in US equities in foreign holdings.
Carlson Capital's Black Diamond Arbitrage Partners fund added 1.3% net fees in the first quarter of 2021, according to a copy of the firm's March 2021 investor update, which ValueWalk has been able to review. Q1 2021 hedge fund letters, conferences and more At the end of the quarter, merger arbitrage investments represented 89% of Read More
Long-term asset-backed securities tell a similar story. Here the Caymans are still the largest foreign order, but the scale is quite different. $109 billion worth of US asset-backed securities are held in the Cayman Islands compared to $42 billion held by Luxemburg (the second highest) and $403 billion in total foreign holdings. If you restrict it just to mortgage-backed securities, the Cayman Islands hold $86 billion out of the $211 billion worth of foreign-held US mortgage-backed securities worldwide.
Cayman Islands: China and Japan still own the lion’s share of Treasury securities
Even though the Caymans are being used to invest in US equity and corporate debt, China and Japan are still far and away the largest boners of treasury securities with $1.28 trillion and $1.08 trillion respectively, compared to Brazil which holds $254 billion or Middle East Oil Exporters (Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE combined) which together hold $222 billion in Treasury securities out of the $5.6 trillion worth of U.S. Treasury securities in holdings worldwide. Apparently people don’t go through all the trouble of putting their money in the Cayman Islands just to pick up the risk-free rate of return.