This guide provides all the information you need to understand for setting up a hedge fund in Cayman, covering the key issues such as why Cayman, regulatory authoristaions, regulatory categorisation, operational issues, available legal structures and types of fund structures,(Master Feeder Structures, Umbrella Structures, Sub-Funds and Classes) as well as liquidity options, service providers and taxations issues.
Introduction to Cayman Funds
Cayman is one of the leading international domiciles for hedge and private funds offering a variety of fund structures. Cayman regulatory requirements vary depending on the particular fund structure and the targeted investor profile for a particular project. There are no restrictions imposed in terms of strategy with Cayman funds being suitable for all types of hedge and private funds.
In addition to being a leading international domicile for funds, Cayman is also one of the main service locations for funds offering leading service providers for legal, administration, audit, corporate and secretarial services.
The Cayman Islands Monetary Authority ("CIMA") is the competent authority responsible for the initial authorisation and on-going supervision of all registered and licenced Cayman hedge fund structures and registered private fund structures. Subject to very limited exceptions, all open-ended funds and all closed-ended funds must register with CIMA.
The legislative basis for funds in the Cayman Islands is found in the Mutual Funds Act (Revised), the Private Funds Act (Revised), the Securities Investment Business Act (Revised), the Companies Act (Revised), the Limited Liability Companies Act (Revised), the Partnership Act (Revised), the Exempted Limited Partnership Act (Revised), the Trusts Act (Revised) and the Directors Registration and Licencing Act (Revised).
The categories of regulation applicable to funds in Cayman are based on certain factors including:
- the liquidity of the fund's interests;
- the type of interests issued by the fund;
- the extent of control devolved to the fund's investors;
- the minimum subscription amount applicable to an investment in the fund;
- whether and where the fund's interests are listed;
- the location of the principal office of the fund; and
- the number of investors in the fund.
Timeframe for Launch
No regulatory review is required of the constitutional or offering documents of a registered hedge fund or a registered private fund. This allows for funds to commence trading as soon a as:
- the terms of their constitutional and, if applicable, offering documents are settled;
- the form of their service providers' agreements are settled; and
- the offering document or summary of terms and certain
prescribed particulars are filed with CIMA.
Registered private funds are able to accept commitments up to 21 days' prior to applying to be registered with CIMA but need to be registered with CIMA before drawing down commitments for investment purposes. Generally CIMA will confirm registration of a registered hedge fund or a registered private fund on the same day that the completed registration application is submitted.
Principal Legal Structures
The legal structures within which Cayman regulated funds can be housed are:
- limited partnerships; and
- unit trusts.
Cayman funds can be structured as open-ended or closed-ended schemes and in either case can make redemptions in kind by transferring underlying assets to investors on voluntary or compulsory redemption. Where a Cayman fund is open ended, the following liquidity control mechanisms can be facilitated:
- redemption gates;
- deferred redemption payments;
- redemption holdbacks; and
- side pockets.
The use of managers, administrators, custodians and/or prime brokers for Cayman funds is well established and many leading names in these fields are available to provide the necessary services whether from within or from outside Cayman. The following service providers to a registered hedge or private fund will need to be located in Cayman:
- auditors approved CIMA;
- a Cayman regulated trustee (where the fund is a Cayman law governed unit trust);
- a registered office (where the fund is a company, LLC or limited partnership).
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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.