Consultancy firm Laven Partners fears investors in hedge funds have been treated unfairly in their ability to redeem cash from hedge funds, following a potential landmark court judgement in the Cayman Islands.

A recent decision by the Cayman Islands Court of Appeal to strike out winding up proceedings concerning Camulos Partners Offshore, filed by an investor, indicates an imbalance in the way Cayman law treats fund managers and investors, the firm said.

“The ruling in favour of the fund manager is a lost opportunity for the Cayman Islands. It will lead to a demand for funds in stronger jurisdictions such as Luxembourg where company law and regulations are more likely to be protective of investors' rights,” said Jerome Lussan, chief executive of Laven Partners.

"Numerous funds were crippled by the effects of the credit crunch and its impact on securities markets. This is largely because many investors lost confidence and wished to redeem their positions. Such people are now desperate to contest the unfair decisions of funds to suspend NAVs or not to repay shareholders by suspending or gating redemptions at the last minute,” he said.

“Many such funds have failed investors through poor implementation of proper risk controls and stress tests, thereby belying their apparent status as professional fund managers. They then shelter unfairly behind the law of their jurisdiction to maintain their businesses,” he continued.

“Desperate investors have sought ways of finding some form of remedy - and the winding up petition is one of the few available to creditors. However, Cayman law seems more protective of the rights of the funds as opposed to the rights of the investors. These investors have placed their trust with the managers,” he said.

He said more hedge funds are being incorporated as Luxembourg Specialised Investment Funds as opposed to those registered in the Caribbean jurisdiction.