By Ben Tonner and James Kennedy from Samson & McGrath

Basic guide to Investment Funds in the Cayman Islands

Mutual Funds

Under the laws of the Cayman Islands, a mutual fund is defined as any company, trust or partnership incorporated or established in the Cayman Islands (or if outside the Cayman Islands, managed from the Cayman Islands), which issues equity interest redeemable or re-purchasable 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 investments (The Mutual Funds Law (2013 Revision) (‘MFL’)).

It is for this reason that ‘hedge funds’ fall within the definition of a mutual fund and are thus covered by the Mutual Funds Law.

Cayman Islands Monetary Authority

The Cayman Islands Monetary Authority (‘CIMA’) is vested with responsibility for regulating certain categories of funds (and fund administrators) operating in and from the Cayman Islands pursuant to the MFL. Not all mutual funds are regulated. Funds that meet the criteria set out in section 4(4) of the MFL are exempt. The ongoing supervision of funds and fund administrators falls under the remit of

CIMA’s Investments and Securities Division.

Regulated Mutual Funds – Categories

There are 3 main categories to be considered, namely licenced, administered and registered.

1. Licenced Mutual Fund

Pursuant to MFL section 4(1), a mutual fund operating in and from the Cayman Islands must have a licence unless:

. A licensed mutual fund administrator is providing its principal office;

.It meets the criteria set out in section 4(3) MFL, which allows for funds to be registered, or

. It is exempt from regulation under section 4(4) MFL.

The MFL is drafted in such a way that it benefits larger institutions which have already established a solid reputation and which do not propose to appoint Cayman Islands service providers.

2. Administered Mutual Fund

An administered mutual fund is one which has a CIMA-licensed mutual fund administrator providing its principal office. This means that the licensed Mutual Fund Administrator bears responsibility for regulatory matters for the fund which will have more than 15 investors and which is not a licensed or registered mutual fund.

3. Registered Mutual Fund

A Registered Fund must have either:

. a minimum aggregate equity interest of CI$80,000 (US$100,000) purchasable by a prospective investor or

. the equity interests must be listed on a stock exchange approved by CIMA. A Master Fund must have either:

a minimum aggregate equity interest of CI$80,000 (US$100,000) purchasable by a prospective investor in the master fund or

. the equity interests of the master fund must be listed on a stock exchange approved by CIMA. A list of approved stock exchanges can be found on the CIMA website.

Samson & McGrath Attorneys

Samson & McGrath’s Investment Funds department advises fund promoters, asset managers and institutional investors on the establishment and continued operation of regulated and non-regulated funds.

We are proud to offer sound, commercially astute and practical legal guidance on all aspects of launching new products, including regulatory and licensing matters and fund governance. Our advice includes the structuring of the fund itself in addition to the organization of portfolio holding structures through separate corporate vehicles.

Contact us

For further information, please contact Ben Tonner or James Kennedy at the address below.

Address:

5th Floor Genesis Building, P.O. Box 446, Grand Cayman KY1-1106, Cayman Islands

Telephone: +1 (345) 949 2740

Email: [email protected]

Disclaimer: This memorandum is intended to provide basic information for our clients and it does not constitute legal or taxation advice. This note is current at its date of drafting (June 2014).