Under the laws of the Cayman Islands, a mutual fund is defined as any company, trust or partnership incorporated or established in the Cayman Islands (or if outside the Cayman Islands, managed from the Cayman Islands), which issues equity interest redeemable or re-purchasable at the option of the investor, the purpose of which is the pooling of investors funds with the aim of spreading investment risk and enabling investors to receive profits or gains from investments (The Mutual Funds Law (2013 Revision) ('MFL')).
It is for this reason that 'hedge funds' fall within the definition of a mutual fund and are thus covered by the Mutual Funds Law.
Cayman Islands Monetary Authority
The Cayman Islands Monetary Authority ('CIMA') is vested with responsibility for regulating certain categories of funds (and fund administrators) operating in and from the Cayman Islands pursuant to the MFL. Not all mutual funds are regulated. Funds that meet the criteria set out in section 4(4) of the MFL are exempt. The ongoing supervision of funds and fund administrators falls under the remit of CIMA's Investments and Securities Division.
Regulated Mutual Funds – Categories
There are 3 main categories to be considered, namely licenced, administered and registered.
1. Licenced Mutual Fund
Pursuant to MFL section 4(1), a mutual fund operating in and from the Cayman Islands must have a licence unless:
- A licensed mutual fund administrator is providing its principal office;
- It meets the criteria set out in section 4(3) MFL, which allows for funds to be registered, or
- It is exempt from regulation under section 4(4) MFL.
The MFL is drafted in such a way that it benefits larger institutions which have already established a solid reputation and which do not propose to appoint Cayman Islands service providers.
2. Administered Mutual Fund
An administered mutual fund is one which has a CIMA-licensed mutual fund administrator providing its principal office. This means that the licensed Mutual Fund Administrator bears responsibility for regulatory matters for the fund which will have more than 15 investors and which is not a licensed or registered mutual fund.
3. Registered Mutual Fund
A Registered Fund must have either:
- a minimum aggregate equity interest of CI$80,000 (US$100,000) purchasable by a prospective investor or
- the equity interests must be listed on a stock exchange approved by CIMA.
A Master Fund must have either:
- a minimum aggregate equity interest of CI$80,000 (US$100,000) purchasable by a prospective investor in the master fund or
- the equity interests of the master fund must be listed on a stock exchange approved by CIMA.
A list of approved stock exchanges can be found on the CIMA website.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.