Cayman Islands: Mutual Funds: Cayman’s Remarkable Success

Last Updated: 13 August 2003
Article by Peter Stafford

A multi-class fund may be established as an "exempted segregated portfolio company", which secures statutory protection from the risk of cross-class liability for each segregated portfolio of the SPC

Taking account of the volatile and at times treacherous post 9/11 securities markets facing investors worldwide, the Cayman mutual funds industry fared amazingly well in 2002. The Cayman Islands Monetary Authority (the Authority) reported that the number of regulated mutual funds established in Cayman grew 17% last year. The TASS Research database shows that Cayman is now home to 45.6% of registered offshore funds, nearly as many as those domiciled in Bermuda, Bahamas, British Virgin Islands and Ireland combined. The Authority now regulates 4,220 mutual funds.

This success is both a contributing factor to, and in part the result of, the increasing worldwide recognition of Cayman as a jurisdiction of the highest quality. In August 2002, Moody’s Investor Service released its annual report on Cayman. The highly respected rating organisation maintained the country’s Aa3 foreign currency country ceiling and described the outlook for Cayman as stable, despite the disturbances to the economy caused by September 11 and the U.S. recession, and thanks, it said, to a large and diverse offshore financial services industry. Mutual funds are a cornerstone of that industry.

There are many reasons why Cayman, as a jurisdiction for the establishment of both open-ended and closed-ended offshore funds, is enjoying remarkable success.


The Mutual Funds Law, originally enacted in 1993, applies to "mutual funds", defined as a common investment vehicle (which could be a company, unit trust or partnership) that issues shares, trust units or partnership interests that carry an entitlement to participate in profits or gains and are redeemable or repurchaseable at the option of the investor.

The Law does not regulate Cayman closed-ended funds (which explains the lack of statistics on this industry). "Exempted" mutual funds are open-ended but unregulated because they have no more than 15 investors a majority of whom may change the operator (i.e. directors, trustee or general partner, as the case may be).

Most mutual funds domiciled in Cayman are "Registered" mutual funds, being mutual funds having a minimum investment of US$50,000 (or equivalent) per investor or being listed on a recognised stock exchange. Other types of mutual funds are "Administered" mutual funds, where a licensed mutual fund administrator provides the principal office of the mutual fund in Cayman, and "Licensed", applicable to a retail mutual fund with a non-Cayman administrator. Unless a mutual fund fits within one of these categories, it is prohibited from carrying on (or attempting to carry on) business in or from Cayman.


Leading financial institutions from across the globe, particularly from the Americas, Europe and Asia, have chosen Cayman as the home for their fund products for many reasons, including the following:

  • Flexibility in fund structure – Cayman mutual funds can be companies, partnerships or unit trusts according to investor requirements, which are often tax related in their home jurisdiction. There are many structures utilized in the Cayman mutual fund industry, including stand-alone, side-by-side, master/feeder, multi-class (umbrella) funds and fund-of-funds. A regulated mutual fund must have an offering document which describe its equity interests in all material respects and contains such other information as is necessary to enable a prospective investor to make an informed decision as to whether or not to invest but form and content is not prescribed by the Law.

  • Speed of establishment – A regulated mutual fund may be launched within a week of establishment, depending on circumstances. Before the offering commences, the fund must file with the Authority evidence of establishment, its current offering document and a summary thereof in the prescribed form and pay the Authority’s fee of US$2,439.02, which fee is due each January thereafter. The fund must notify the Authority within 21 days of making any material changes to such information.
  • No direct taxes – Cayman has no capital gains, income, profits, corporation or withholding taxes. If the fund vehicle is an exempted company it can obtain an undertaking from the Cayman Islands Government that it will remain tax-free for a 20-year period and in the case of exempted trust or an exempted limited partnership the period is up to 50-years. Investors must always obtain advice on the impact of taxation by the jurisdiction in which they are tax resident on investment in a Cayman mutual fund. The UK currently proposes to extend the European Union Directive on Taxation of Savings to Cayman but the Cayman Government objects to this in the absence of a ‘level playing field’ for all jurisdictions competing for cross-border financial services work from EU individuals. Where enacted, any economic operator (such as a fund) with beneficial owners (individuals) tax resident in the EU would be required to report to the relevant taxing authority any interest payments received with respect to "debt claims" or income derived from or from the redemption of shares or units in funds that have more than 40% of their assets in debt-claims.

  • Hedge funds – Cayman’s simple but effective regulations are well suited for the establishment of hedge funds, which typically charge an incentive fee and either have multiple asset classes, employ leverage or use hedging techniques in their investment strategy. This industry should expand as investors seek extra diversification by including hedge funds alongside more traditional investments.
  • Multi-class (umbrella) funds - A multi-class fund may be established as an "exempted segregated portfolio company", which secures statutory protection from the risk of cross-class liability for each segregated portfolio of the SPC. Previously, such protection was only available by each portfolio investing through its own dedicated subsidiary company. The Companies Law now permits an existing exempted company to re-register as an exempted SPC if 95% in value of its creditors have consented, the members have passed a special resolution and the Authority has consented (if the company is regulated).

  • Directors – The Authority requires a Cayman mutual fund to have at least two individual directors (and sometimes a sole corporate director) but they need not be independent of the Investment Manager or other sponsor.
  • Investment Managers and Advisors – There are no restrictions on a fund’s investment managers and advisors except that any manager or advisor established and/or with a place of business in Cayman should register with the Authority as an "excluded person" under the Securities Investment Business Law if it carries on "securities investment business" exclusively for one or more "sophisticated person" (which includes any mutual fund regulated by the Authority) or for a "high net worth person" or for an entity owned by one or more such persons.
  • Prime Brokers and Custodians – There are no restrictions on the arrangements a fund may wish to make with respect to prime brokers and custodians.

  • Availability of world-class professional services – Cayman has many lawyers, accountants, and fund administrators with considerable expertise in the mutual funds area.
  • Auditors – Since 1 July 2002 the Authority has required local auditor sign off on all entities it regulates, including mutual funds, which must file audited financial statements within six months of each financial year end. This policy improves the Authority’s ability to effectively communicate with auditors. Most audit firms with an offshore funds reputation are now present in Cayman.
  • Administrators – There is no general requirement for a fund to have a local Cayman administrator, unless it is a fund that accepts subscriptions of less than US$50,000 per investor and does not have a Mutual Funds Licence.
  • Stock Exchange Listing - The Cayman Islands Stock Exchange ( hosts 79 mutual funds (which have a market capitalisation of over US$30 billion) and has been recognised by the London Stock Exchange as an "approved organisation". Cayman mutual funds are also often listed in Ireland (currently with 473 Cayman funds representing nearly one-third of all ISE listed investment funds) and Hong Kong, in particular.

  • Trustworthy and reliable legal system – Cayman law, derived from English common law and supplemented by local legislation, ensures that Cayman Islands funds can be structured as well recognized and internationally accepted vehicles. Cayman’s courts system is well developed with appeals ultimately going to the Privy Council in London.
  • Anti-money laundering culture - The Cayman Islands has long committed to implementing best international practice and is fully compliant with the requirements of the Organisation of Economic Cooperation and Development (OECD) and Financial Action Task Force (FATF), locally manifested in the Proceeds of Criminal Conduct Law, Money Laundering Regulations, Guidance Notes and Financial Reporting Unit.
  • Stable and business oriented government – The Cayman Islands are a British Overseas Territory and have a history of stable government, committed to promoting the financial services industry.
  • The Cayman Islands Monetary Authority ( – The Authority’s mission is to regulate and supervise the financial services industry in order to maintain a first class financial system that includes safeguarding the interests of mutual fund investors from undue loss. The Authority has regard to international standards and the need for operational freedom by financial services providers and for the maintenance of a dynamic and competitive industry. Undoubtedly, the Cayman mutual funds industry owes much of its success to the high quality of its regulator.


These advantages make Cayman the premier jurisdiction for establishment of offshore funds.

Peter Stafford, Partner, leads the Investment Funds Team in the Commercial Department of Hunter & Hunter, one of the largest Cayman Islands law firms.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.