The Cayman Islands Government has approved an amendment to the Private Funds Law 2020 (the "PFL"). The amendment is significant because it broadens materially the definition of "private fund" under the PFL.
What is the scope of the amendment?
The amendment removes the following elements from the definition of "private fund" under the PFL:
- whilst single investor structures and individual investment management arrangements continue to be excluded, it is no longer necessary that the structure be established for the purpose of spreading investment risk;
- the requirement that the business of the relevant entity include the offering and issuance of investment interests has been amended so that investments interests are required to be offered or issued by the relevant entity;
- whilst it remains a part of the definition that the investments of the relevant entity are required to be managed, it is no longer required that the manager or operator receives a reward (whether directly or indirectly) for the management of those investments.
What entities are affected by the changes?
If your Cayman entities have been considered previously for registration under the PFL, and if you have concluded that registration is not required, it may be necessary to revisit those conclusions in certain circumstances. Whilst it is impossible to be definitive, this will be of particular relevance to:
- structures where no fees are payable, or carried interest earned, whether directly or indirectly by any person associated with the fund sponsor or operator;
- structures established to hold a single asset;
- alternative investment vehicles (AIVs) established in the Cayman Islands; and
- certain master fund structures.
Affected entities are required to register as private funds with the Cayman Islands Monetary Authority by 7 August 2020.
In many instances, the reclassification process will not be completely straightforward and so should be commenced as soon as possible. Whilst we will be as proactive as possible in communicating with clients directly, please do not hesitate to reach out to your usual Walkers contact or any of the below in order to discuss your Cayman entities.
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.