In June 2011 the Cayman Islands government announced a proposal
to amend the Mutual Funds Law ("2009 Revision") (the
"Mutual Funds Law") to require Cayman Islands master
funds that have regulated feeder funds as part of their structure
to be subject to new registration and filing requirements. A draft
bill containing these proposals was published on 20 October 2011.
Following consultation by the Cayman Islands government and the
Cayman Islands Monetary Authority ("CIMA") with industry
experts a revised version of the bill (the "Bill") was
passed by the Legislative Assembly of the Cayman Islands on 5
Cayman Islands Master Funds – A Favoured
Master-feeder fund structures have long been favoured by fund
managers as a means of implementing a tax effective structure for
both taxable and tax-exempt investors. Most often the Cayman
Islands, with its efficient regulatory regime and high quality
service providers, is the neutral offshore jurisdiction of choice
for establishment of a master fund and its offshore feeder fund.
Although the precise figure is not known it is anticipated that
there may be over 4,000 existing master funds which may be affected
by the proposed regulations.
At present most types of Cayman Islands domiciled feeder funds
that are regulated by the Mutual Funds Law do not require a mutual
fund licence but are subject to registration and reporting
requirements under Section 4(3) of the Mutual Funds Law and must
pay annual fees to CIMA. However, the Mutual Funds Law does not
currently impose specific requirements on Cayman Islands domiciled
master funds and, since registration and reporting is not required
by mutual funds with fifteen or fewer investors, the vast majority
of Cayman Islands master funds are exempt from the existing
registration and reporting process.
New Obligations for Master Funds
The Bill, which at the time of writing has not yet been
officially published, amends the Mutual Funds Law so that:
New registration requirements will apply to Cayman Islands
incorporated or established master funds that have one or more
Cayman Islands regulated feeder funds as part of their structure.
These master funds will be required to provide CIMA with
information in a form that will be prescribed by the regulatory
The new regime is not intended to apply to master funds
established or incorporated outside the Cayman Islands, or to
master funds without Cayman Islands regulated feeder funds, so
master funds whose Cayman Islands feeder funds have no more than
fifteen investors will not be caught by the new provisions.
Additionally, closed ended funds, which are not subject to the
Mutual Funds Law, will not be affected by these changes;
Cayman Islands incorporated or established master funds that
are caught by the changes to the Mutual Funds Law will be required
to pay an annual registration fee of approximately $3,030 USD to
Affected master funds will be required to provide CIMA with a
copy of the fund's current offering memorandum, where such a
memorandum exists, and otherwise will be required to file certain
information in the prescribed form;
Material changes to the prescribed information provided to CIMA
or to the contents of any offering document will trigger a
requirement on the master fund to resubmit the information to the
regulatory authority within a statutorily prescribed period of
Affected master funds will be required to have their accounts
audited annually by a CIMA approved auditor;
The amendments to the Mutual Funds Law mean that master funds
will not be able to take advantage of the exemption from
registration for mutual funds in which equity interests are held by
not more than fifteen investors, although unregulated feeder funds
will continue to benefit from this exemption; and
Existing master funds that are affected by the legislative
changes will not be grandfathered but will have 90 days to comply
with these new requirements once they are passed into law. This
period may be extended by regulations for a further period not
exceeding sixty days.
Timelines and Updates
Once the Bill is published in the Cayman Islands Gazette it will
become law. The next issue of the Cayman Islands Gazette is due to
be published on Monday 19 December 2011.
Further information and updates to this briefing will be posted
to the author's 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.
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