CAYMAN ISLANDS Trends and Developments Contributed by: Simon Thomas, Richard Spencer, Alexandra Clynes and Sayak Bhattacharya, Campbells
Fund Formation and Structural Innovations Dominance of exempted limited partnerships (ELPs) ELPs continue to be a favoured investment vehicle, due to their pass-through tax treatment ensuring profits, losses, and capital gains flow directly to investors without Cayman Islands tax - ation. This aligns with onshore tax frameworks (eg, US partnerships), making them attractive for cross-border investments. ELPs are governed by the Exempted Limited Partnership Act (as revised) which allows part - ners to customise terms (eg, capital commit - ments, profit distribution, governance) via the Limited Partnership Agreement. No separate legal personality simplifies contractual arrange - ments, with the general partner holding assets on trust for the partnership. From a liability protection perspective, the gen - eral partners assume liability for debts and man - agement and limited partners liability is capped at their investment unless they participate in management. Structural advantages in the venture capital space include no withholding taxes, capital gains taxes, or corporate taxes in the Cayman Islands and the securing of a 50-year tax under - taking from the Cayman government, ensuring future tax immunity. ELPs therefore balance investor protections, operational agility, and tax efficiency. Their domi - nance reflects decades of refinement in catering to global private capital markets. Rise of niche fund strategies Investor demand for specialised mandates drove growth in:
• A number of new Cayman funds incorporated environmental, social, and governance crite - ria, focusing on climate tech start-ups devel - oping carbon capture solutions, and social impact ventures targeting financial inclusion in emerging markets. • Continuation Funds: Secondary transactions grew year-on-year, enabling general partners to extend fund lifecycles amid stagnant IPO markets. • Venture Debt Vehicles: NAV-based lending facilities continued to grow, providing liquidity to late-stage start-ups like Al-driven fintech platforms. Cross-border structuring trends Jurisdictional synergies emerged as a key theme: • North American Investors: A number of US- sponsored ELPs utilised Cayman-Delaware “mirror” partnerships to allow funds to cater to both domestic and international inves - tors and to bypass state-level regulatory redundancies. Such structures allow funds to streamline operations, avoid duplicative regulatory burdens, and potentially optimize tax efficiency. • Japanese Institutional Allocations: Japanese institutional investors continue to show a growing interest in alternative investments, and Yen-denominated ELPs secured USD2.8 billion in commitments despite currency vola - tility, focusing on robotics and semiconduc - tor ventures. Investments in these areas also reflect broader global trends, such as the rise of AI and high-performance computing, which drive demand for cutting-edge semiconductor solutions. • Middle Eastern Sovereign Partnerships: Shorooq Partners, a MENA-focused VC firm backed by sovereign wealth funds, utilised a Cayman structure to invest in early-stage tech
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