It’s a new dawn, it’s a new day


It’s a new dawn, it’s a new day


The Cayman Islands has adopted new rules to enhance the oversight of open-ended and closed-ended funds. The move is the latest demonstration of Cayman’s commitment to meeting and exceeding international standards, says Christian Victory of Appleby.

The Private Funds Law and Mutual Funds (Amendment) Law both emerged in the Cayman Islands as a response to EU requirements on transparency, best market practice, enhanced anti-money laundering and other key regulatory standards. The laws set a threshold that is not even required within the EU itself.

The definition of “private fund” is quite specific. It means a company, unit trust or partnership, whose principal business is the offering and issuing of its investment interests, the purpose or effect of which is the pooling of investor funds. The aim is to spread investment risks, enabling investors to receive profits or gains from such entity’s acquisition, holding, management or disposal of investments, where:

  • The holders of investment interests do not have day-to-day control over the acquisition, holding, management or disposal of the investments; and
  • The investments are managed as a whole by or on behalf of the operator of the private fund, directly or indirectly, for reward based on the assets, profits or gains of the company, unit trust or partnership.

This does not include:

  • A person licensed under the Banks and Trust Companies Law (2020 Revision) or the Insurance Law 2010;
  • A person registered under the Building Societies Law (2020 Revision) or the Friendly Societies Law (1998 Revision); or
  • Any non-fund arrangements—the list of which is extensive and includes pension funds; securitisation special purpose vehicles; contracts of insurance; joint ventures; proprietary vehicles; officer, manager or employee incentive, participation or compensation schemes, and programmes or schemes to similar effect; holding vehicles; individual investment management arrangements; debt issues and debt-issuing vehicles; structured finance vehicles; preferred equity financing vehicles; funds whose investment interests are listed on a specified stock exchange; sovereign wealth funds; and single family offices.

Offering and issuing of interests effectively means that the fund must have external/third party investors, in order to come within the definition. A master fund, an employee fund or an alternative investment vehicle might not necessarily be within scope.

The pooling requirement logically excludes single investor funds. It may even exclude some funds structured as segregated portfolio companies, depending on the circumstances.

The spreading investment risk requirement logically excludes single investment funds.

The new law doesn’t mention common control or relation to the operator or affiliates. The “managed … for reward” requirement is to be strictly interpreted, and one must essentially follow the money, ie, diverting management fees or a carry (or similar) through a special limited partner, eg, meaning it would most probably still be caught.

Certain types of “access funds”, which aggregate smaller investors in a fund so that they may then collectively reach the minimum commitment for the “main fund”, but might be out of scope, depending on the circumstances.

If the holders of investment interests do have day-to-day control over the acquisition, holding, management or disposal of the investments, this will probably be a joint venture (non-fund arrangement) as opposed to a fund.

Registration and audit

A private fund will need to register, pay an annual fee, and file prescribed details with the Cayman Islands Monetary Authority (CIMA) within 21 days, following the fund’s acceptance of capital commitments from investors for the purposes of investments. However, the private fund may not accept capital contributions from investors in respect of investments until it is registered.

The fund’s registration date is expected to be the date that a complete application is filed with CIMA, assuming that the application is fully compliant with the law. A private fund must also have its accounts audited annually by an approved auditor. These must be signed off on and filed with CIMA by a local auditor, within six months of its financial year end, along with an annual return (in the same manner as for mutual funds). An offering document need not be prepared or filed.


A private fund must have appropriate and consistent procedures for the purposes of proper valuations of its assets, to be carried out at a frequency that is appropriate to the assets held and, in any event, at least annually (eg, as part of the audit process).

Valuations of the assets of a private fund may be performed by independent third parties appropriately professionally qualified to conduct valuations; by the manager or operator of the private fund, or a person who has a control relationship with the manager of the private fund (provided that the valuation function is independent from the portfolio management function or potential conflicts of interest are properly identified and disclosed to the investors of the fund); or by an administrator appointed by the fund.

CIMA may exempt a private fund from the valuation requirements either absolutely or subject to such conditions as it may deem appropriate.


A private fund must also appoint a custodian to hold in custody, in segregated accounts opened in the name, or for the account, of the fund, the custodial fund assets; and verify, based on information provided by the fund and available external information, that the private fund holds title to any other fund assets and maintain a record of those assets.

A private fund shall not be required to appoint a custodian if it has notified CIMA and it is neither practical nor proportionate to do so, having regard to the nature of the fund and the type of assets it holds. Where a private fund so notifies CIMA, the fund must appoint one of the following to carry out the title verification: an administrator or another independent third party; or the manager or operator, or a person with a control relationship with the manager of the fund (provided that the title verification function is independent from the portfolio management function or potential conflicts of interest are properly identified and disclosed to the investors of the fund).

Cash monitoring

A private fund must appoint an administrator, custodian or an independent third party or the manager or operator to monitor the cash flows of the fund; ensure that all cash of the private fund has been booked in cash accounts opened in the name, or for the account, of the private fund; and ensure that all payments made by investors to the private fund in respect of investment interests have been received.

Identification of securities

A private fund that regularly trades securities or holds them on a consistent basis must maintain a record of the identification codes of the securities it trades and holds, eg, ISIN codes.

Alternative investment vehicles and restricted scope private funds

Under the Private Funds Regulations, an “alternative investment vehicle” means a company, unit trust, partnership or other similar vehicle that (a) is formed in accordance with the constitutional documents of a private fund for the purposes of making, holding and disposing of one or more investments wholly or mainly related to the business of that private fund; and (b) has as its members, partners or trust beneficiaries, only persons who are members, partners or trust beneficiaries of the private fund.

Where IFRS or GAAP of a non-high risk jurisdiction permit consolidated or combined financial account reporting and a private fund chooses to report consolidated or combined financial statements with an alternative investment vehicle, the requirements described above pertaining to audit, valuation, safekeeping, cash monitoring and identification of securities do not apply to such alternative investment vehicle.

Under the Private Funds Regulations, a “restricted scope private fund” is a private fund that (a) is an exempted limited partnership; (b) is managed or advised by a person who is licensed or registered by CIMA or authorised or registered by a recognised overseas regulatory authority; and (c) in which all the investors are non-retail in nature, being either high net worth persons or sophisticated persons.

Aside from these provisions, there are no further references to either alternative investment vehicles or restricted scope private funds and we expect that further guidance will be issued in due course with respect to these new categories.

Supervision and enforcement

CIMA has been given broad supervision and enforcement powers in respect of private funds, analogous to those already in place in the context of mutual funds.


Existing private funds and private funds formed after February 7, 2020, must register with CIMA no later than August 7, 2020, (or such later date as may be specified by CIMA).

Mutual Funds (Amendment) Law

This law primarily introduces a registration requirement for what was previously referred to as an “exempt” fund, having 15 or fewer investors, the majority of whom have the power to remove/appoint the operator. This will now be a regulated fund required to register, pay a fee, and file with CIMA prescribed details, as well as audited accounts (annually, via an approved auditor). Such funds must register with CIMA no later than August 7, 2020, (or such later date as may be specified by CIMA).

CIMA has released notices and FAQs confirming procedures. Funds that register before the August 7, 2020, deadline will not incur registration fees for 2020 (only an application fee of $366). The annual fee going forward will be $4,268.

CIMA has also indicated that an audit for the 2020 financial year will be required (to be filed by no later than June 30, 2021).


Notwithstanding these new compliance requirements, it remains the case that Cayman, as a tax-neutral, internationally recognised and economically stable jurisdiction, will maintain its position as an attractive option for international financial planning.

With its continued focus on quality, innovation and expertise, it seems reasonable to expect that the “new dawn” brought about by the Private Funds Law will be absorbed by the market and in no way hinder the Cayman Islands’ continued success.

New rules at a glance

  • Similar to the existing regime for mutual funds, but with important differences
  • Single investor funds are out of scope
  • Employee funds and alternative investment vehicles—within a larger investment fund structure—are probably out of scope
  • Most closed-ended funds will need to register, pay a fee, and file prescribed details with the CIMA by August 7, 2020
  • Following registration, CIMA will need to be notified of material changes
  • Annual local audit sign-off will be required in most cases
  • New requirements to formally value and safekeep assets, monitor cash and identify securities
  • New supervision and enforcement powers for CIMA  

Christian Victory is a partner and a member of the corporate department at Appleby. He can be contacted


Christian Victory, Appleby

Cayman Funds