Setting up a fund in the Cayman Islands in 2022 remains popular despite Covid-19 challenges. Foreign investors still choose this British overseas territory for business operations.
Regulating investment funds in the Cayman Islands falls primarily under the Mutual Funds Law (2013 Revision) (the “MFL”).
The MFL aims to regulate each mutual fund appropriately, depending on its circumstances and investor market. Moreover, the MFL does not impose any restrictions on investment objectives, risks, target rates of return, leveraging, or other commercial matters, given the institutional and sophisticated nature of the investors in Cayman funds. However, the MFL requires that a fund’s offering memorandum describes comprehensively the equity interests and contains sufficient information on objectives, risks, fee structure, service providers, conflicts of interest, etc. to enable an investor to make an informed decision.
What are the categories of regulated investment funds in the Cayman Islands?
The MFL requires three categories of mutual funds to regulate under the Cayman Islands Monetary Authority (CIMA). These mutual funds are: (a) the licensed mutual fund, (b) the administered mutual fund, and (c) the registered mutual fund. This article refers to them collectively.
A. Licensed mutual funds
This is the least common type of regulated mutual fund. The approval process ensures that the mutual fund itself receives a license.
In granting a license, CIMA will consider whether:
- each promoter is of sound reputation;
- the administration of the mutual fund will be undertaken by persons who have sufficient expertise and who are fit and proper to be directors, managers, or officers (as the case may be); and
- the business of the fund and the offer of equity interests will be carried out in a proper manner
B. Administered mutual funds
Instead of applying for its own license, a mutual fund may seek to rely on the existing license of a licensed mutual fund administrator based in the Cayman Islands. This type of mutual fund is favored by investment managers who wish to have a minimum initial subscription per investor lower than US$100,000 but prefer not to go through the approval process outlined above.
C. Registered mutual funds
This is the most common type of investment fund registered with CIMA. Registered mutual funds are exempt from the requirement to be licensed or administered locally on the basis that either (i) each investor must subscribe for equity interests in an amount not less than US$100,000 or (ii) the equity interests of the fund are listed on a stock exchange recognized by CIMA.
What are the benefits to open an investment fund in The Cayman Islands?
- Optimization of taxation.
- Concealment of beneficiaries: the system does not list participant investors of funds in public registries and does not subject them to the exchange of information.
- Ability to raise capital
- Protection of business from raiding in any country.
- Easy distribution of shares in fund assets.
To learn more about investment funds, click here.
