Associate Bicrom Das takes a look at a 'paradigm
expansion' of open-ended fund managers sharpening their focus
onto lock-up funds.
The Cayman Islands have traditionally been most closely
associated with open-ended hedge fund products, wherein managers
permit their investors regular liquidity. Such funds employ a
variety of different strategies but crucially all issue interests,
typically shares in exempted companies, which are redeemable at the
option of the investors. This liquidity causes such funds to fall
within the ambit of the Mutual Funds Law of the Cayman Islands and
consequently be regulated by the Cayman Islands Monetary
Closed-ended private equity funds have also always had a
significant presence in the Cayman Islands. The major private
equity houses, a large number of which are advised by Walkers, have
historically structured funds, be it standalone funds or feeders
into onshore entities, in the Cayman Islands, and that trend is
showing no sign of abating. The number of Cayman Islands exempted
limited partnerships, the primary Cayman Islands vehicle through
which private equity funds and investments are structured, has been
rising steadily with the main players raising multi-billion dollar
mega funds in 2015 and mid-market funds and even start-up managers
having some fundraising success. The key distinction from hedge
funds is the highly limited liquidity profiles of these products.
Investors are typically locked in for seven to ten years and,
whilst the secondaries market has grown over the last few years,
interests are generally not regularly traded.
One trend which became particularly noticeable during 2015 to
our team here at Walkers is a sharpening focus by managers, who
have historically been active in the open-ended space, into lock-up
funds. The attraction for managers is obvious: the lack of
liquidity gives them the certainty to execute long-term investment
plans and successfully access and manage a range of more illiquid
asset classes, from real estate to heavy assets such as ships or
planes and infrastructure projects, without fear of a run on the
fund following a string of redemption requests and the associated
fire sale of such illiquid assets. For investors the loss of
liquidity is acceptable due to their existing relationships with
these managers: they have worked with them on their open-ended
products, have bought into their investment philosophy and are
consequently willing to commit their money for a set period.
Investors will in all likelihood already have closed-ended
allocations to fill, which enables these managers to expand their
product offerings to leverage existing relationships and gain
access to new sectors of their investor's portfolios.
The new closed-ended offerings are typically complementary to,
as opposed to in place of, the open–ended funds being offered
by managers. What we are seeing therefore is more a paradigm
expansion than a paradigm shift. The investment community is very
conscious that hedge funds are well served by the Cayman Islands
but more and more managers and their investors are becoming alive
to the fact that the jurisdiction has a historically active, stable
and growing market for closed-ended funds.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Investment funds with high net worth individuals as investors will need to have a client agreement with their high net worth investors.
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”
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).