The Cayman Islands Government has approved an important amendment to the Private Funds Law 2020 (PF Law) that will increase the number and categories of closed-ended Cayman investment vehicles required to register with the Cayman Islands Monetary Authority (CIMA). As the deadline for registration remains 7 August 2020, all Cayman investment vehicles must promptly be re-assessed to achieve compliance. Open-ended mutual funds and hedge funds are unaffected.
New definition of "private fund"
The amendment changes the definition of "private fund" so that it now includes any company, unit trust or partnership that offers or issues or has issued its non-redeemable investment interests, the purpose or effect of which is the pooling of investor funds with the aim of enabling investors to receive profits or gains from such entity's acquisition, holding, management or disposal of investments, where (a) the holders of investment interests do not have day-to-day control over the acquisition, holding, management or disposal of the investments; and (b) the investments are managed as a whole by or on behalf of the operator of the private fund directly or indirectly.
The following entities remain outside the scope of this definition:
- Certain single investor vehicles
- "Mutual funds" such as open-ended hedge funds
- Entities whose interests are held only by promoters, operators (eg. directors) or by the founders, principals, owners or stakeholders of the entity or the entity's manager or adviser
- Securitisation special purpose vehicles, structured finance vehicles, debt issues and debt issuing vehicles, preferred equity financing vehicles
- Sovereign wealth funds and single family offices
- Joint ventures, proprietary vehicles, holding vehicles
- Officer, manager or employee incentive, participation or compensation schemes, and programmes or schemes to similar effect
- Individual investment management arrangements
- Arrangements not operated by way of business
As there is limited guidance on the scope of these categories and material sanctions for failure to register a private fund, a case-by-case analysis will be necessary.
We do not expect that any vehicles that have previously been determined to be in scope of the PF Law registration requirements will now fall out of scope.
Entities now brought within scope
Certain vehicles may previously have been classified as being out of scope under elements of the definition that have now been amended. These may now be required to register with CIMA as private funds. Such entities may include:
- Vehicles set up to hold only a single investment
- Co-investment vehicles
- AIVs
- Master funds
Compliance requirements
For background on the registration process and ongoing compliance requirements under the PF Law click here. The registration process is not itself overly burdensome but to achieve compliance by 7 August 2020 it will be important to commence this exercise as soon as possible.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.