This Briefing Note offers an introduction of authorized considerations and the task associated with setting up and using an open ended fund in the Cayman Islands.
This Briefing Note is meant to make an overall summary of the placement in law as during the day of publication shown above, plus is to not be considered as specific authorized advice applied to certain problems or problems. If such recommendation is needed, please contact among the Ogier partners mentioned here.
Fund Formation, statutory requirements and construction
Probably the most frequent kind of entities being used for Cayman open ended fund structures are exempted companies, exempted limited partnerships (ELPs) and limited liability companies (LLCs).
Investment money might be set up in various plans, with the correct framework usually pushed through the tax treatment and geography of the potential investors and also the fund’s portfolio; the place of the manager; the asset classes and also diversification of the portfolio; and investor and sponsor familiarity.
Typical structures affecting Cayman cars are (I) a stand alone fund, by which most investor monies are pooled in one vehicle making immediate investments, (ii) a side-by-side arrangement, by which a Cayman stand alone fund operates in parallel to an onshore stand alone car with an identical investment strategy (though another investor base) and the 2 cars perform exactly the same trades, and (iii) a master feeder structure. The usual master feeder structure entails US tax exempt investors & non US investors purchasing a Cayman exempted company feeder fund, US taxable investors investing in a Delaware limited partnership feeder fund, so the 2 feeder funds investing collectively into one master fund (typically a Cayman exempted business or maybe a Cayman ELP), with the master fund maintaining the underlying portfolio investments.
Several variations are possible and it’s crucial that fund sponsors take guidance from regulatory experts and onshore tax to settle over the maximum structure.
Mutual Funds Act (Revised)
The Mutual Funds Act (Revised) (MF Act) may be the primary Cayman Islands legislation relevant to open ended investment funds. The MF Act refers to’ mutual funds’, being’ LLC, partnership, unit trust, or a company which issues equity passions, the goal or maybe outcome of that will be the pooling of investor money with the target of spreading enabling investors as well as investment risks within the mutual fund to get income or income from the acquisition, holding, disposal or management of investments…’.
‘Equity interest’ is extra defined to involve a share, trust unit, partnership interest or maybe LLC interest that is repurchasable or “redeemable with the choice of the investor”. As a result, the MF Act pertains solely to open ended funds, since interests in closed ended finances aren’t redeemable at the choice on the investor. Closed-ended funds could fall within the meaning of a’ private fund’ under the Private Funds Act (Revised) and if and so is governed by regulation by that law.
The MF Act calls for that’ mutual funds’ falling within the above mentioned description be authorized and licensed with the Cayman Islands Monetary Authority (CIMA) under the MF Act in an effort to continue small business in or even from the Cayman Islands. A car with one investor (which investor isn’t a mutual fund documented with CIMA) isn’t a mutual fund, on the foundation that there’s no’ pooling’ of investor money.
Master funds are viewed as registrable mutual funds if:
(a) they’re integrated in Cayman and also hold investments as well as do trading tasks just for the primary goal of applying the complete purchase approach of only one or maybe more feeder funds documented with CIMA; or perhaps
(b) they normally are within the meaning of a mutual fund, for instance a Cayman master fund in a mini master framework in which the one feeder fund is a Delaware LP though the master fund additionally takes in investors directly.
You will find 4 kinds of registrable mutual funds:
(a) a fund authorized under Section 4(3) of the MF Act (s4(3) fund) this’s undoubtedly the most frequent type of mutual fund. The major requirement is the fact that the least first investment purchasable by a potential investor is US$100,000. It’s presently the situation that master finances are usually authorized under Section 4(2) of the MF Act;
(b) a fund authorized under section 4(4) of the MF Act (limited investor fund): this’s a mutual fund with 15 or maybe far fewer investors, a vast majority of whom are able to appointing or perhaps taking out the operators of the mutual fund. A small investor fund isn’t governed by the least initial purchase necessity of any s4(3) fund neither is a complete offering document needed to be sent in with CIMA; rather a message of the appropriate marketing materials or maybe a summary of terminology might be filed. Master finances are usually prohibited from committing as limited investor money, notwithstanding that they’d normally have significantly under 15 feeder funds;
(c) an administered fund: this calls for an authorized mutual fund administrator in Cayman to decide to offer the fund’s principal office and also to put on to CIMA on the fund’s behalf. The main benefit would be that the US$100,000 minimum original investment requirement that is true for a s4(3) fund doesn’t pertain to administered funds. Nevertheless, the extra responsibilities and role of the administrator may possibly increase administration fees as well as limit choice; and
(d) a qualified fund: this’s created to be ideal for retail funds and thus involves an iterative and prescriptive more practice together with the regulator.
The rest of the briefing note centers on s4(3) money, limited investor money and administered funds, described for comfort as registrable funds.
Necessity to keep and file present offering document
Under the MF Act, a regulated mutual fund (other than limited investor fund or maybe a regulated master fund) mustn’t continue or perhaps effort to continue small business in or even from the Cayman Islands unless, among many other requirements, there’s filed with CIMA a present-day offering document which:
(a) describes the equity interests that are offered in all of components respects;
(b) has such additional info as is essential to allow a potential investor in the mutual fund to produce an educated choice regarding if you should subscribe for or even buy the equity interests; and
(c) complies with CIMA’s Rule on the Items in Offering Documents – Regulated Mutual Funds.
Files being filed
An application for registration as a regulated mutual fund should be submitted electronically on CIMA’s secure portal (REEFS) and also should be accompanied by the following:
(a) a finished prescribed application form;
(b) for s4(3) money, a copy of the offering document (as described above) and also for limited investor money, a copy of the offering document (if any) or even marketing materials as well as a summary of the fund’s terms;
(c) for a small investor fund just, an authorized copy of an extract of the constitutional documents of the minimal investor fund specifying that a vast majority of the investors in number are able to appointing or perhaps taking out the operator of the limited investor fund;
(d) auditor’s consent letter;
(e) administrator’s consent letter;
(f) prescribed specifics concerning the fund’s anti money laundering officers (see’ Anti money laundering legislation’ below); and
(g) Certificate of Incorporation/Registration.