Over the last 40 years, the Cayman Islands have developed into a major global finance centre with a developed infrastructure tailored to the efficient conduct of international financial business.
The 21st century has seen the Cayman Islands welcome an increasingly globally mobilised workforce of lawyers, chartered accountants and other professional corporate managers. Technological developments have enabled these specialists to base themselves in the Cayman Islands whilst still efficiently performing work for clients located all around the globe.
Accordingly, the Cayman Islands provides a full range of services including those relating to banking, trusts, mutual funds, company management, insurance business, captives, securities business, structured financing, vessel registration, and listing on the Cayman Islands stock exchange (“CSX”).
mutual funds in the Cayman Islands
Financial business in the Cayman Islands
An introduction to the Cayman Islands Monetary Authority
The Cayman Islands Monetary Authority (CIMA) was originally established as a body corporate under The Monetary Authority Law (1997). Although now updated in the 2013 Revisio, CIMA was created to enhance the Cayman Islands’ ability to maintain a well-regulated financial services regime and ensure monetary stability. The law aims to ensure that only those with sound reputation and appropriate expertise are permitted to establish and administer investment funds in the Cayman Islands.
In the Cayman Islands there is a close working relationship between CIMA and the private sector. This has created a business environment that is efficient and comparatively free of time consuming bureaucracy.
The Authority requires registration of a mutual fund which is defined in the Mutual Funds Law (2015 Revision) as:
“any company, trust or partnership either incorporated or established in the Cayman Islands, or outside the Cayman Islands, which issues equity interest redeemable or repurchasable at the option of the investor, the purpose of which is the pooling of investors funds with the aim of spreading investment risk and enabling investors to receive profits or gains from from the acquisition, holding, management or disposal of investments"
Hedge Fund: a term of art used to describe those types of higher risk investment funds where the investment parameters will be more widely drafted and a higher risk investment strategy is adopted than is typical in the more traditional investment or mutual fund.
The Cayman Islands is the lead domicile for the establishment of hedge funds and recent figures indicate that some 75% of all such funds are established here:
1. No applicable taxes or exchange controls;
2. Availability of world-class funds related expertise;
3. Modern, flexible, sympathetic and constantly reviewed legal framework designed to accommodate all suitable types of investment fund vehicles, such as corporations, limited partnerships, unit trusts and segregated portfolio companies;
4. Geographic location and time zone is in line with the North American market;
5. Minimal regulation for funds marketed only to sophisticated or high net worth investors;
6. Minimal restrictions on the investment activities of the fund;
7. No restrictions on the location of directors or service-providers to the fund; and,
8. An excellent and trusted global reputation.
Closed-ended funds (those with no redemption or repurchase rights for the investors) and those funds with no more than 15 investors, the majority of whom are able to appoint or remove the operators of the fund (i.e. directors, trustees and general partners), are not regulated. We advise on both the establishment of such funds and, in the case of private equity and similar vehicles, structuring of the manner in which their portfolio investments are held.
There are 3 main types of structure available:
1. Company (including segregated portfolio companies);
2. Partnership; and,
The three particular types of structure generally used for operating mutual funds are:
the exempted company;
the exempted limited partnership; and,
the unit trust.
Investment Fund Structures
an introduction to mutual funds in the Cayman Islands
Regulation of Investment Funds
Cayman Islands investment fund regulation is designed to foster the creation of investment funds by avoiding a prohibitive licensing and regulatory regime. There are no measures stipulating the requirement of local custodians, managers or directors (but such services are available if required).
CIMA in combination with the relevant legislation, acknowledges that the financial services industry is subject to sufficient internal regulation. Furthermore, there is strict regulation by authorities in overseas jurisdictions in which these funds will be marketed. Consequently, reliance to a large extent on self regulation within the industry is seen as reasonable and appropriate.
The law requires that the offering memorandum for a mutual fund sufficiently describes the nature of the investment interest and contains sufficient information to enable the investor to make a fully informed decision as to whether to invest or not.
A regulated investment fund must qualify under the law before starting business. To do so it may either:
(1) obtain its own licence from CIMA;
(2) appoint a licensed mutual fund administrator to provide its principal office; or,
(3) be automatically registered if investment is only open to sophisticated investors (minimum investment requirement of US$100,000).
There are therefore three categories of funds regulated under the law:
1. the registered investment fund;
2. the administered fund; and,
3. the licensed fund.