A Guide To Funds In Cayman

Author:Mr Matt Mulry, Andrew Bates, Brian Kelliher, Donnacha O'Conner, Brian Dillon, Brian Higgins, Derbhil O'Riordan, Benedicte O'Connor, Etain De Valera and Aisling O'Malley
Profession:Dillon Eustace
 
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INTRODUCTION

Cayman is one of the leading international domiciles for funds offering a variety of fund structures with differing levels of subscription requirements, service provider requirements and authorisation timeframes depending on the 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 directional equity / long short equity products, equity arbitrage, equity statistical arbitrage, event driven, fixed income and fixed income arbitrage, global macro, managed futures, distressed securities and convertible arbitrage strategies, amongst others. Furthermore, there are no restrictions on investment in underlying funds. In addition to being a leading international domicile for funds, Cayman is also one of the main service locations (fund administration, audit, legal and consulting services) for funds.

Regulatory Regime

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 fund structures. The legislative basis for funds in the Cayman Islands is found in the Mutual Funds Law (Revised), the Securities Investment Business Law (Revised), the Companies Law (Revised), the Trusts Law (Revised), the Partnership Law (Revised) and the Exempted Limited Partnership Law (Revised).

Due to the types of investors which are generally targeted by promoters of Cayman funds, these funds are most frequently established as registered or exempted schemes or schemes which fall outside the Mutual Funds Law (Revised).

The categories of regulation applicable to funds in Cayman are based on certain factors including 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, the number of investors in the fund and their control over the fund's operators, the liquidity of the fund's interests and the type of interests issued by the fund.

Authorisation

No regulatory review is required of the constitutional or offering documents of a registered fund or a fund which is exempted from registration or which falls outside the ambit of the Mutual Funds Law (Revised). This allows for the launch of such a fund, the acceptance of subscriptions and the commencement of trading as soon as the terms of its constitutional and offering documents are settled, its service providers are appointed and, where applicable, the offering document and certain prescribed particulars are filed with CIMA.

Principal Legal Structures

The legal structures within which regulated funds can be housed are companies, unit trusts and limited partnerships. Segregated portfolio companies can be established with statutory based segregation of assets and liabilities between the segregated portfolios established by the company.

Liquidity Options

Cayman funds can be structured as open-ended or closed-ended schemes. Gates, deferred redemptions, holdbacks, in-kind redemptions and side pockets can all be facilitated within these types of funds.

Service Providers

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. A Cayman regulated or licensed fund will need to appoint Cayman based and CIMA approved auditors. A Cayman fund structured as a unit trust will generally need a Cayman based and regulated trustee. A Cayman corporate fund, a Cayman incorporated general partner of a limited partnership fund and the limited partnership itself will need to appoint registered office service providers based in Cayman.

Stock Exchange Listing

Cayman fund shares, interests or units can easily be listed on the Irish Stock Exchange within the same timeframe as the fund's establishment, if a listing is required or considered beneficial.

A listing on the Irish Stock Exchange (the "ISE") meets the "exchange listed" criteria of many European counterparts/investors.

Other Dillon Eustace Guides

Other investment fund related guides available from Dillon Eustace are available at www.dilloneustace.ie

CAYMAN

Set out below are some of the reasons why Cayman is one of the leading international jurisdictions for the establishment and domicile of funds.

Tax Neutrality

The primary reason for Cayman's popularity is its tax neutral platform for investment structures. A Cayman fund will generally not be liable for any direct taxes in Cayman and therefore not add a tax layer to any taxation imposed in the jurisdictions where it holds its investments or where its investors are domiciled.

Legal Framework

Cayman has a common law legal system which is based on the internationally recognised standard of English law. Cayman makes use of specialised commercial court judges and has the Privy Council, which shares some common members with the English House of Lords, as its final appellate court.

Regulatory Framework

Cayman has a regulatory framework, including anti-money laundering, counter terrorism and information exchange regimes which meet or exceed international standards.

Proven Track Record

Cayman has a proven track record of a successful funds industry which has operated for more than 20 years and Cayman currently stands as the 5th largest financial centre in the world.

Service Providers

Cayman has many well established and respected household names in its service providers many of whom who have been operating in Cayman for the last 20 years.

Familiarity

Investors and managers are confident in and familiar with and in many cases prefer dealing with Cayman Islands fund structures.

Political and Economic Environment

Cayman has a stable political and economic environment with its legal framework being based on the English system, with defence matters being in the hands of the English government and with the oversight of a Governor in the Islands who is a representative of the British Crown.

REGULATORY CATEGORISATIONS

As described in the introduction, the categories of regulation of Cayman funds are based on certain factors including 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, the number of investors in the fund and their control over the fund's operators, the liquidity of the fund's interests and the type of interests issued by the fund.

Registered Funds

A registered fund under the Mutual Fund Law (Revised) is a fund which is open-ended in respect of redemptions and which either has (i) a minimum applied to the aggregate equity interests purchasable in the fund set at US$100,000 or its equivalent in any other currency or (ii) its equity interests listed on a specified stock exchange1. A registered fund is required to file its offering document and certain prescribed particulars with CIMA and to pay a fee on registration and an annual fee. A registered fund is subject to the supervision of CIMA and will be required to appoint CIMA approved and Cayman based auditors. The appointed auditors will be required to monitor the fund, perform an annual audit on the fund and file an annual report with CIMA.

Master Funds

Master funds which issue equity interests that are redeemable at the option of those investors to more than one investor at least one of which is a registered or licensed fund will need to file its offering document, if any, and certain prescribed particulars with CIMA and pay an annual fee. This category of master fund will be subject to the supervision of CIMA and will be required to appoint CIMA approved and Cayman based auditors. The appointed auditors will be required to monitor the fund, perform an annual audit on the fund and file an annual report with CIMA.

Exempted Funds

An exempted fund under the Mutual Fund Law (Revised) is a fund whose equity interests are held by not more than fifteen investors and a majority of those investors are capable of appointing or removing the directors, general partner or trustee of the fund. An exempted fund will not be subject to supervision by or make any filings with CIMA under the Mutual Funds Law (Revised) and will not need to appoint auditors.

Closed Ended Funds

Funds whose equity interests are not redeemable or repurchasable at the option of its investors before the commencement of the winding-up or the dissolution of the company, unit trust or partnership will not be subject to supervision by or make any filings with CIMA under the Mutual Funds Law (Revised) and will not need to appoint auditors.

Debt Issuers

Funds which do not issue equity interests to investors will not be subject to supervision by or make any filings with CIMA under the Mutual Funds Law (Revised) and will not need to appoint auditors

Licensed Funds

A fund which is open ended in respect of redemptions, issues equity interests to its investors, has more than fifteen investors or has investors who do not control the appointment or removal of its operators, has no minimum subscription amount or a minimum subscription amount of less than US$100,000 or its currently equivalent and whose securities are not listed on a specified stock exchange will need to be licenced by CIMA. The licencing process requires the fund to satisfy CIMA as to the reputation of its promoter and the expertise of its administrator, to file its offering document and certain prescribed particulars with CIMA and to pay an annual fee. An alternative to satisfying CIMA as to the reputation of the funds promoter and expertise of its administrator is to appoint an administrator which is licenced under the Mutual Funds Law (Revised) to provide the principal office of the fund in Cayman and in these circumstances the fund will need to satisfy the licensed administrator as to...

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