Amendment to the Cayman Islands Private Funds Law

On 7 February the Cayman Islands Government published the Private Funds Law, 2020 and the Mutual Funds (Amendment) Law, 2020 in order to enhance the oversight of both open-ended and closed-ended funds in the jurisdiction and to respond to EU requirements with respect to transparency, best market practice, enhanced anti-money laundering procedures and other key regulatory standards (please refer to our previous update here). Further fast tracked amendments, to provide greater certainty and clarity, have been introduced in the Private Funds (Amendment) Law, 2020.

Application

In summary, the Private Funds Law applies to companies, unit trusts or partnerships that offer or issue or have issued 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. Private funds do not include, however, single investor funds; regulated mutual funds under the Mutual Funds Law (as amended); persons licensed under the Banks and Trust Companies Law or the Insurance Law; persons registered under the Building Societies Law or the Friendly Societies Law; or, importantly, any non-fund arrangements – the list of which is extensive and includes:

pension funds; securitisation special purpose vehicles; contracts of insurance; joint ventures; proprietary vehicles; officer, manager or employee incentive, participation or compensation schemes, and programmes or schemes to similar effect; holding vehicles; individual investment management arrangements; debt issues and debt issuing vehicles; structured finance vehicles; preferred equity financing vehicles; a fund of whose investment interests are listed on a specified stock exchange; sovereign wealth funds; or single family offices.

Changes

The main changes introduced by the Private Funds (Amendment) Law, amend the definition of a private fund by removing the reference to spreading investment risk meaning closed ended funds making only a single investment may constitute a private fund, provided they satisfy all of the remaining requirements of the definition. Further, the inclusion of funds that have issued investment interests at some point during their life, removes the uncertainty around funds that have issued interests in the past but are no longer actively offering or issuing. All are required to register.

Registrations

Existing private funds and private funds formed after 7 February must register with CIMA no later than 7 August 2020. Registrations are being conducted apace as the industry successfully absorbs these new requirements.

As previously observed, the new regime seeks to strike a balance in achieving the dual purpose of strengthening investor confidence in Cayman Islands investment funds and ensuring that the Cayman Islands remains the preeminent jurisdiction for investment fund formation. The new regime also addresses EU suggestions for investment fund oversight and the Cayman Islands Government worked closely with industry stakeholders and fund professionals, including accounting, audit, administration, governance and legal firms in drafting the laws.