CAYMAN ISLANDS Trends and Developments Contributed by: Dan Beckett, Iain Anderson, Joni Ebanks, Christina Gordon and Alex Howard, Maples Group
ments in AI and digital infrastructure technologies and work practices, a mature funds industry and the multi- jurisdictional dimension of offshore practice. Fund Structuring A key reason for the jurisdiction’s success is the range of Cayman Islands vehicles that are available to sponsors/managers, enabling them to structure closed-end fund products in a manner that satisfies the diverse profile of investors domiciled in geographi - cally disparate regions. The most popular Cayman Islands-domiciled vehicles The Cayman Islands LLC, similar to the Delaware vari - ant, introduced in mid-2016, has continued to be pop - ular as a flexible structuring vehicle, with more than 5,650 Cayman Islands LLCs now being registered. The Cayman Islands limited liability partnership (LLP), available for registration since November 2020, pos - sesses the flexible features of a general partnership but has the additional benefit of separate legal per - sonality and affords limited liability status to all its partners. This vehicle provides an additional structur - ing option and may be suitable for general partner, fund-of-funds or holding partnerships. The popularity of exempted companies and ELPs generally continues to be unaffected by the introduc - tion of LLCs and LLPs. By way of illustration, there has been consistent year-on-year growth in the number of ELPs in existence. for structuring investment vehicles are: • exempted limited partnerships (ELPs); • exempted companies; and • limited liability companies (LLCs). There are, however, nuanced regional differences in the types of vehicles being used for private equity mandates. By way of example, the preferred invest - ment vehicle for many Japanese investors continues to be the Cayman Islands unit trust. North American and European Markets In the North American and European markets, most primary, feeder, parallel, alternative investment and
co-investment vehicles are formed as an ELP unless a tax blocker is required. In onshore-offshore fund structures, the ability to pro - vide symmetry between the offshore fund vehicles and their equivalent onshore counterparts (notably Dela - ware and Luxembourg limited partnerships) can lead to greater ease and cost efficiency of fund administra - tion, as well as pass-through tax treatment, and has helped to better align the rights of investors between the different vehicles in a fund structure. The exempted company is less regularly employed as a fund vehicle, other than with respect to certain types of target investors and with reference to certain assets. The key feature of being a corporate vehicle with a separate legal personality has led to this type of vehicle being most commonly used as a general partner, manager, blocker or holding vehicle (although one of the exempted company variants, the segre - gated portfolio company, can be an attractive option for managers targeting certain Middle Eastern-based or family office investors). The LLC has been an appealing alternative for general partner, upper-tier, manager and co-investment vehi - cles. The absence of share capital (and the absence of the need to maintain a share register), combined with the ability to intuitively track and record the capi - talisation of an LLC and its distributions, has also led to LLCs being attractive for blocker, aggregator and holding vehicle applications. Because a member is not required to make a contribution but may benefit from profit allocations, the LLC has been adopted for certain employee award and grant schemes. Japan Private equity investment into Japan continues to accelerate, with Cayman Islands fund structures play - ing a central role in facilitating inbound and outbound flows. A Cayman Islands unit trust structure can often offer tax and other benefits to many Japanese inves - tors when compared with a limited partnership vehi - cle. It is possible to structure the unit trust to incorpo - rate the characteristics of a traditional private equity fund, including commitment and capital call features, claw-backs and defaulting investor provisions.
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