Cayman Islands: Maintaining An Island Of Excellence In A Sea Of Change

The Cayman Islands remains the offshore jurisdiction of choice for the formation of international investment funds. A cornerstone of the success of the Cayman Islands' financial services sector is its strong legal and regulatory system, which has proved beneficial to both managers and investors.

Despite a dramatically changing regulatory landscape, Cayman structures have retained their popularity. This has largely been due to efforts by the Cayman Islands government to implement and refine the rules regulating Cayman funds and managers to ensure funds are structured and operate in a manner that meets international standards.

Furthermore, the strong partnership between the Cayman Islands government and the private sector has fostered a thriving service provider industry with many of the large banks, auditors, administrators and other financial and fiduciary service providers recognising the opportunities regulatory developments present.

Trends in fund structuring and formations

The number of hedge funds regulated in the Cayman Islands remains healthy, with 10,940 funds as of December 31, 2015 according to the Cayman Islands Monetary Authority. Anecdotal evidence suggests both managed account and closed-ended fund activity has increased in recent years although this is more difficult to quantify as the structures generally fall outside the regulatory regime in the Cayman Islands. The most useful indicator of closed-ended fund (typically private equity funds) activity is the level of registrations of new Cayman Islands exempted limited partnerships (ELPs) which were at an all-time high of 3,370 in 2015 compared with 2,893 in 2014, resulting in a total of almost 18,000 ELPs. With Maples and Calder advising on a significant proportion of Cayman Islands hedge fund and private equity funds, the firm has unrivalled insight into developments in the alternative investment community.

Exempted companies remain the most commonly used vehicle for open-ended feeders into Cayman hedge funds largely due to investors' comfort with the share as a form of security and the welldeveloped reporting of fluctuating investment values on a net asset value per share basis. However, recent figures indicate that ELPs now constitute a majority of new master funds. This is due, in large part, to the ease with which an incentive allocation or carried interest can be built into the limited partnership agreement.

The vast majority of closed-ended private equity funds established in the Cayman Islands are structured as ELPs, which replicate to a significant degree the Delaware equivalent. While exempted companies are extremely flexible in the extent to which voting and economic rights can be mixed among different classes of shares, companies, by their very nature, have certain limitations that do not apply to ELPs.

Additionally, in response to requests from the investment funds industry for an alternate structuring solution, the Cayman Islands is expected to introduce legislation which will allow for the formation a Cayman Islands limited liability company (LLC). The LLC takes its inspiration, in part, from the Delaware limited liability company and the flexible nature of the vehicle will allow for a broad range of applications.

The evolution of corporate governance

In the wake of the financial crisis, a number of solutions and possible ways to help mitigate the risks surrounding its causal factors have been proposed. While regulation of the financial markets appears to have been the overarching result, one of the areas that was identified and sharply focused upon following the crisis has been the role of the board of directors.

Whereas previously, independent directors were not regarded as significant to the overall structuring of a fund, today a robust board can be critical to the fund's success and significant decisions in crisis situations (such as gating and suspending redemptions) can rest with the board. In recent years there has been a notable increase in the use of independent directors who are charged with exercising care, skill and diligence in the performance of their duties and applying independent judgement to consider the collective interests of shareholders in the decisions they make.

As of July 31, 2015, 76 percent of Cayman funds used two or more independent directors, an all-time high and an increase from 70 percent as of December 31, 2014.

Beyond an uptick in the use of independent directors, there has been a significant shift in the manner in which directors engage with the fund, its service providers and investors. The institutionalisation of the industry and the impact of new regulatory initiatives aimed at protecting investors has led to a much greater degree of scrutiny on corporate governance, resulting in more proactive and engaged directors than ever before.

Investors have also begun to take a more active role in shaping governance structures with input on considerations such as board composition and the use of other mechanisms for independent oversight.

The increase in ELPs serving as master funds in hedge fund structures has been accompanied by an increasing number of launches with independent advisory boards to ELPs, as well as independent directors to the general partner. There has also been growing discussion around the perceived governance gap in a typical master/feeder structure where there is independent oversight at the feeder level but not at the master level which is controlled by the investment manager and where the investment and the majority of other crucial decisions will be made.

As a result, investors have specifically stated that they want an advisory board in place. While not yet commonplace, it does indicate recognition by investors and managers of the existence of asymmetry between onshore and offshore fund structures and a desire to rebalance it. It will be of great interest to see whether the advent of the forthcoming Cayman LLC structure will result in an increase in the establishment of advisory committees.

In an effort to further mitigate conflicts and increase the independence of boards, there has been a strong preference from some investors for split boards comprised of individual directors from different fiduciary service providers. While the risk of groupthink is present, each of the directors on a fund board is well aware of his or her fiduciary duty and the requirement on each of them individually to apply themselves to the issues at hand. Thus it is more important to seek to establish a well-balanced board of directors with varying and complementary skillsets who can provide appropriate guidance and oversight into the operational functions of the fund's business and affairs.

The institutionalisation of the industry post-financial crisis has driven demand for enhanced due diligence on boards. This has led to the prevalence of more detailed due diligence questionnaires and on-site visits to understand who is responsible for governance of the fund. It also ensures that all stakeholders have a clear understanding of what investors expect from the board and how they can work with the fund manager and service providers to best meet their needs.

Similarly, directors are seeking to gain a better understanding of a fund's infrastructure and processes to enhance their level of oversight. In response, Maples Fiduciary established a dedicated operational due diligence function to provide the board with an objective evaluation of a fund manager, key service providers and the fund's overall operations to assist the firm's individual directors in fulfilling their duties. Not only does this help mitigate risk at the director level but also provides a value-added, no-fee service to promote and distil best practices and sets a new standard for the industry.

Adapting to regulatory change

The spate of new regulations in recent years has, unsurprisingly, had a significant impact on the way investment funds operate. As a result, managers and institutions have demonstrated a strong preference for outsourced solutions. In turn, service providers have morphed from solely offering specific services to seeking to understand and assess their clients' needs and to provide bespoke solutions for them.

The Maples group now offers comprehensive regulatory and compliance solutions to the European Alternative Investment Fund Managers Directive, the US Foreign Account Tax Compliance Act, Volker Rule, commodity pool operator and anti-money laundering requirements, among others. Maples and Calder has been at the forefront of advising on regulatory developments and is one of the only offshore law firms to have a dedicated regulatory financial services group. In addition to providing general governance solutions, Maples Fiduciary has taken an active role in establishing best practice policies and procedures around structuring and entity setup and working with managers and institutions on implementation to ensure they are meeting their obligations and complying with all relevant regulatory requirements. For example, many boards of funds now require much more secretarial support in organising board meetings with proper materials to demonstrate good governance practices and oversight.

While regulation has certainly prompted action in the industry, it is yet to be determined what the overall impact will be and the Maples group remains well placed to assist its clients in meeting the ongoing challenges the evolving regulatory environment presents. Providing a one-stop shop solution ensures that managers and financial institutions have the resources and expertise necessary to adhere to the necessary standards of corporate governance and address ongoing compliance requirements.


Following the global trend of institutionalisation and adapting its regulatory and legal system to meet the demands of the financial sector, the Cayman Islands continues to be the pre-eminent jurisdiction for the offshore alternative investment funds industry. The jurisdiction is recognised for its established reputation for attentiveness and responsiveness to developing international trends and commitment to high standards of professionalism and client service and continues to evolve to ensure it meets the requirements of governmental and regulatory authorities, as well as financial sector participants.

As the demand for an inexpensive, tax-neutral and secure method of pooling capital from multiple jurisdictions, and of transmitting that capital to where it can best be employed, continues to grow, the Cayman Islands will be well placed to maintain its position as the premier jurisdiction for offshore investment funds and will undoubtedly solidify its role as a pre-eminent international financial centre in 2016 and beyond.

This article first appeared in the Cayman Funds 2016, published by Newton Media Limited, in 2016.

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

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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions