Cayman Islands | Private Funds Law 2020

While the Cayman Islands have long had a regulatory regime requiring open-ended funds such as hedge funds to register with the Cayman Islands Monetary Authority (CIMA), closed-ended funds have traditionally been exempt.

In February 2020, the Cayman Islands Government enacted into law the Private Funds Law 2020 which provides for the registration of closed-ended funds with the CIMA.

The Law, reflecting the Cayman Islands’ commitment as a co-operative jurisdiction, is responsive to EU and other international recommendations. The enactment of the Private Funds Law is resulting in major changes to the supervision, regulation and registration requirements of such funds in the Cayman Islands. All new and existing private funds will need to comply with the Private Funds Law by 7^th August 2020.

Which funds are affected

Most closed-ended funds with more than one investor come within its scope. Specifically, the Private Funds Law applies to ‘Private Funds‘. A fund is defined as being a Private Fund if:

It has been structured as a Cayman Islands company, unit trust or partnership
Its principal business is issuing investment interests, the purpose of which is the pooling of investor funds to spread investment risk and enable investors to receive profits or gains from the fund’s acquisition, holding, management or disposal of investments
Its investment interests are not redeemable at the investor’s option
Its investors do not have day-to-day control over the acquisition, holding, management or disposal of the fund’s investments
Its investments are managed as a whole by or on behalf of its operator, directly or indirectly, for reward based on the assets, profits or gains of the fund
Non-Cayman Islands Private Funds are also captured by the Private Funds Law if they invite the public in Cayman to subscribe for investment interests

Additionally:

There are requirements associated with Restricted Scope Private Funds, which are expected to be less onerous than those of a Private Fund (subject to future clarification by the CIMA)
Exemptions from CIMA registration exist for certain non-fund arrangements

Key requirements

Upon registration (which is due within 21 days of accepting capital commitments and before receipt of capital contributions), Private Funds must file certain details with the CIMA and pay an annual registration fee
Registered Private Funds need to comply with annual audit and return requirements and retain accessible records
Annual audits must be carried out by a CIMA-approved local auditor
A registered Private Fund must comply with certain requirements in relation to the valuation and safekeeping of fund assets, cash monitoring and identification of securities
Flexibility as to appointing service providers, including the manager/administrator to perform the valuation, safekeeping and cash monitoring functions is allowed, provided that conflicts of interest are managed properly