CAYMAN ISLANDS Law and Practice Contributed by: Sailaja Alla, Matt Mulry, Maree Martin and James Mossetto, Appleby
Side-by-side or parallel Side-by-side fund structures usually involve the establishment of a standalone onshore fund and a standalone Cayman Islands fund. Under this struc - ture, the onshore and the Cayman Islands fund will each individually make identical investments in assets managed by the same investment manager. Master/feeder Master/feeder structures typically involve three invest - ment fund vehicles: • an onshore feeder fund; • an offshore (Cayman Islands) feeder fund; and • an offshore (Cayman Islands) master fund. Under this structure, the onshore and offshore feeder funds invest in the master fund, which utilises the proceeds of such investments to acquire a pool of assets. Usually, such structures are established to allow US investors to invest in the offshore master fund through the onshore feeder fund, and for US tax-exempt investors and non-US investors to invest through the offshore feeder fund. In some cases, only two investment fund vehicles are used, with US investors investing in the onshore feeder and US tax- exempt and non-US investors investing directly in the offshore master fund. Fund-of-funds This term is more descriptive of investment objectives rather than structures. A fund-of-funds has the invest - ment objective of investing its investment capital in other investment funds. 2.2 Regulatory Regime for Funds Open-ended funds are regulated pursuant to the Mutual Funds Act (MFA) and closed-ended funds are regulated pursuant to the Private Funds Act (PFA). The regulatory authority in the Cayman Islands is the Cayman Islands Monetary Authority (CIMA). The MFA A “mutual fund” is defined as an investment vehicle that issues “equity interests” allowing participation by a pool of investors in the profits or gains from such vehicle’s investments.
• private equity; • private debt; • hedge funds; • crypto and digital assets; • real estate; • commodities; • collectibles; and • structured products.
Investment funds are classified as either open-ended (ie, voluntary redemptions/withdrawals permitted) or closed-ended (ie, voluntary redemptions/withdrawals not permitted). Fund Structures The Cayman Islands offer a wide range of investment vehicles for the establishment of investment fund
structures. These include: • exempted companies; • exempted limited partnerships; • limited liability companies; • segregated portfolio companies; and • unit trusts.
The type of investment vehicle utilised for a fund structure depends on the needs of fund promoters and proposed investors. When deciding on what type of vehicle and structure to use, tax considerations typically factor into the analysis. Cultural factors are also often taken into account, as it is usually desirable to choose a vehicle or structure with which potential investors are already familiar and therefore comfort - able investing in. Typical structures include the following. Standalone The simplest structure is a standalone investment fund. Under this structure, investors simply purchase equity interests in a single vehicle. Multi-class or umbrella Multi-class funds have shares or units split into a num - ber of different classes, each with different investment objectives and pools of underlying investments. Such funds are often established as segregated portfolio companies.
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