Tag Archives: Setting up a fund in the Cayman Islands

The Private Funds Law (“PF Law”) which provides for the registration of closed-ended funds (termed ‘private funds’) with the Cayman Islands Monetary Authority (CIMA) came into force on 7 February 2020.

Definition of Private Fund
A vehicle will be a ‘private fund’ where:

(a)          its principal business is the offering and issuing of its investment interests the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and enabling investors to receive profits or gains from such vehicle’s investments;

(b)          its investment interests carry an entitlement to participate in the profits or gains of the vehicle and are not redeemable or re-purchasable at the option of the investor, i.e. are closed-ended;

(c)           its purpose or effect is the pooling of investor funds with the aim of spreading investment risks;

(d)          the investors do not have day-to-day control over the investments;

(e)          its investments are managed as a whole by or on behalf of the operator, directly or indirectly, for reward based on the assets, profits or gains of the vehicle; and

(f)           it does not constitute a ‘non-fund arrangement’, as listed in the schedule to the law (i.e. pension funds, contracts of insurance  etc.)

Which private funds are caught?
The PF Law applies to private funds set up as Cayman Islands partnerships, companies, unit trusts and limited liability companies unless otherwise deemed to be out of scope.  The PF Law also applies to non-Cayman Islands private funds which make an ‘invitation to the public in the Islands’.

Registration Process
All fund vehicles within the scope of the definition of a private fund as stipulated by the PF Law must register with CIMA, including both existing and new structures and will be required to pay an annual fee of CI$3,500.00.

Exempt to the registration requirement include regulated mutual funds and EU-connected funds, non-fund arrangements, and certain overseas private funds that solicit the Cayman Islands public for investments.

Once registered, private funds falling within the scope of the Law cannot continue or attempt to continue business in the Cayman Islands by receiving capital contributions from investors.

A new private fund must (a) submit its registration application within 21 days after accepting capital commitments from investors; and (b) be CIMA-registered before it accepts capital contributions from investors.

Mutual Funds (Amendment) Law

The Mutual Funds (Amendment) Law, 2020 (“MFL”) came into force on 7 February 2020. The MFL provides for the registration of previously exempted mutual funds with the Cayman Islands Monetary Authority (“CIMA”) as well as certain other amendments to the Mutual Funds Law (2019 Revision) (the “Law”).

Registration and Local Audit Requirement for Section 4(4) Funds
Mutual funds that were previously exempted from registration under Section 4(4) of the Law on the basis of having 15 or fewer investors, a majority of whom could appoint or remove the operator of the fund (“section 4(4) funds”), will now be required to register with CIMA and become subject to certain regulatory obligations.

This requirement will apply to all standalone funds, feeder funds and master funds that are structured as section 4(4) funds.

In addition to registration, a section 4(4) fund will need to pay an annual fee to CIMA of CI$3,500.00 and file a certified copy of an extract of its constitutional documents with CIMA showing that a majority in number of its investors are capable of appointing or removing the operator of the fund.

A section 4(4) fund will not, however, be required to file an offering document (or any amendments) with CIMA and further, a section 4(4) fund is not required to have a prescribed minimum investment amount.

Director Requirements
A section 4(4) fund is required to have at least 2 natural persons acting as the operators of the fund and said persons will need to be registered with CIMA under the director registration and licensing law (as Revised).

Local Audit Requirement
Section 4(4) funds now have the same annual audit and annual return requirements that currently apply to regulated mutual funds under the Law.

As such, each Section 4(4) fund will need to have its accounts audited annually by a Cayman Island based auditor and to file such audited accounts with CIMA within six months of the end of each financial year, together with an annual return in CIMA’s prescribed form.

Timing for Registration
The MFL provides that existing section 4(4) funds will have six months to register with CIMA and to comply with the new requirements (i.e. up until 7 August 2020).

An existing section 4(4) fund that registers with CIMA in 2020 will not need to file its audited accounts in respect of any prior financial year, but will be required to appoint a Cayman Islands-based auditor to conduct the audit of its accounts for all financial years ending after the date of its registration with CIMA.

CIMA Oversight
The MFL extends many of CIMA’s enforcement powers in respect of regulated funds to cover Section 4(4) funds following their registration.

Key Contact

Peter de Vere
Head of Corporate and Commercial
Tel: 1 345 815 7360
pdevere@hsmoffice.com