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This article is the first in a series to be written and produced between Kilinç, Law & Consulting and Loeb Smith Attorneys. This series of articles will provide a detailed overview of the various investment fund structures which are available in the Cayman Islands and in the British Virgin Islands ("BVI") as well as the regulatory considerations to assist fund managers, investors, and advisors in Türkiye in making informed decisions.
The articles in the series will be as follows:
- Cayman Islands Private Funds;
- Cayman Islands Mutual Funds;
- BVI Incubator Funds, Approved Funds and Private Funds; and
- BVI Professional Funds and Private Investment Funds.
In this article, we will provide a brief overview of the Cayman Islands and the BVI and the types of investment funds that are available in each jurisdiction and the typical considerations that go into determining which of these jurisdictions is the most appropriate for a particular project. In subsequent articles we will go into more detail on the requirements and characteristics of each type of investment fund.
Offshore investment funds in the Cayman Islands and the BVI are widely recognized for their sophisticated legal frameworks, investor protections, and operational flexibility. While both jurisdictions provide robust regimes which are both politically and legally stable for fund establishment and management, differences in fund types, regulatory obligations, and operational considerations (such as running costs) influence the choice of jurisdiction.
Jurisdictions
Both the Cayman Islands and the BVI are British Overseas Territories. Each has its own government and the authority to enact local legislation, but both ultimately recognise the Supreme Court of the United Kingdom as the final court of appeal. As such, both jurisdictions operate as highly stable common law jurisdictions, with a legal framework strongly influenced by UK case law and common law principles. Beyond legal stability, both jurisdictions are market leaders in the offshore investment fund sector, widely recognised as the preferred domiciles for private and institutional funds worldwide.
Both jurisdictions combine sophisticated regulatory regimes with robust corporate governance and anti-money laundering ("AML"), counter-terrorism financing ("CTF") and counter-proliferation financing ("CPF") obligations and rigorous investor protection standards. Their respective regulatory authorities; the Cayman Islands Monetary Authority ("CIMA") and the BVI Financial Services Commission ("FSC") enforce clear, transparent, and internationally accepted rules and reporting obligations. These features ensure that the Cayman Islands and BVI offer legal certainty, operational reliability, and a globally respected platform for investment funds, reinforcing their status as the premier offshore fund domiciles.
Fund Structures and Investor Profiles
In the Cayman Islands, investment funds generally fall into two broad categories: (1) private funds which typically pursue a closed-ended investment strategy and (2) mutual funds which typically pursue an open-ended investment strategy, albeit there are sub-categories of mutual funds which are available (and which we will cover in this series of articles).
Private funds typically serve a limited group of sophisticated investors, providing professional management of pooled capital in illiquid investments (such as private companies, real estate projects, and venture capital projects), where withdrawal of an investor's capital is generally restricted during the investment term.
Mutual funds, by contrast, are primarily utilised by institutional managers and investors or those requiring periodic redemption rights and are therefore involve the management of pooled capital in liquid investments (e.g. publicly listed stocks, bonds, futures, options, swaps, etc.). Depending on the investor base, mutual funds may be registered or licensed under the supervisory oversight of CIMA.
Whereas the Cayman Islands is the pre-eminent jurisdiction in the world for institutional investment managers and investors, the BVI has a significant role to play in offering a jurisdiction which enables and supports new or emerging managers to establish track records before expanding. There are a number of fund structures (such as the "Incubator Fund" and "Approved Fund") which offer reduced regulatory burden (such as there being no obligation to file audited accounts, resulting in material cost saving) in exchange for limitations being placed on the number of investors in the fund and the value of the assets under management of the fund (being capped at US$20m for Incubator Funds and US$100m for Approved Funds).
The BVI is particularly attractive for emerging managers seeking operational flexibility and cost efficiencies, which are often key considerations when establishing an investment fund for the first time. The BVI is therefore able to offer, as an alternative to the Cayman Islands, a renowned investment funds jurisdiction which provides operational efficiency and flexibility while retaining credibility and appropriate regulatory oversight. The FSC applies a pragmatic regulatory approach: smaller funds face reduced obligations, whereas larger or more complex funds are subject to a very similar level of oversight to that applied in the Cayman Islands.
Taxes
Neither the Cayman Islands nor the BVI impose any corporate, capital gains, income, withholding or other taxes on investment funds or the investors in them. Both are tax neutral jurisdictions.
Regulatory Obligations and Governance
Governance expectations are rigorous in both jurisdictions in order to ensure the highest standards of international corporate governance and effective oversight. In the Cayman Islands and in the BVI, investment funds (or general partners of investment funds that are structured as limited partnerships) are expected to follow a "four eyes" principle, ensuring that at least two individuals who meet the relevant 'fit and proper person test' oversee key investment and operational decisions.
As noted above, both the Cayman Islands and the BVI have robust AML, CTF and CPF regimes and each investment fund established in either jurisdiction must demonstrate that it has appointed the required AML officers and that it has in place compliant AML, CTF and CPF policies.
Both jurisdictions also require investment funds to monitor cash flows, safeguard assets and keep accurate records of investments and valuations. CRS obligations will also apply.
Choosing between the Cayman Islands and the BVI
The choice of jurisdiction generally depends on the scale, investor expectations, and the desired regulatory profile of the proposed investment fund. Funds seeking an institutional-grade environment with robust governance, comprehensive regulatory oversight, and the highest international credibility are most often established in the Cayman Islands. Conversely, managers prioritising flexibility, speed of formation, and operational efficiency, especially for smaller or emerging managers, may find the BVI more attractive.
Both jurisdictions provide experienced service provider networks, legal certainty, and strong investor protections in an environment that is compliant with global regulatory standards such as those recommended by the Financial Action Task Force. The involvement of local lawyers familiar with jurisdiction-specific obligations is critical to ensuring compliance. When properly structured, either jurisdiction offers a secure and effective environment for offshore investment funds.
Conclusion
Both the Cayman Islands and the BVI provide well-established, credible frameworks for investment funds, each with distinct advantages. Understanding the nuances of each jurisdiction is essential for selecting the most appropriate investment fund structure and ensuring compliance with ongoing obligations.
In the next article, we will provide a detailed examination of Cayman Islands Private Funds, including legal structures, governance, ongoing obligations, and practical considerations for fund managers and investors.
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.
