Regulated mutual funds and regulated EU connected funds are not within scope of the PFL. Also excluded are “non-fund arrangements”, as defined in the PFL.
The definition of “private fund” was amended by the Private Funds (Amendment) Law, 2020, which came into force on 7 July 2020.
New Content Requirements for Offering Documents and Marketing Material
In May 2020, CIMA released the Rule – Contents of Marketing Material – Registered Private Funds (Marketing Material Rule). This Rule applies to a private fund within scope of the PFL which intends to prepare any offering documents, summary of terms or marketing materials for marketing purposes. Such offering documents or materials shall comply with the content requirements prescribed in the Marketing Material Rule. Apart from the standard information which would usually be disclosed in typical offering documents, the key content requirements under the Marketing Material Rule include the following:
a) Mandatory statements
CIMA requires all offering documents/marketing materials to include the following statements:
“THE REGISTRATION OF A FUND BY THE CAYMAN ISLANDS MONETARY AUTHORITY DOES NOT CONSTITUTE ANY GUARANTEE OR ASSURANCE BY THE AUTHORITY TO ANY INVESTOR AS TO THE PERFORMANCE OR CREDITWORTHINESS OF THE FUND.
FURTHERMORE, IN REGISTERING A FUND, THE AUTHORITY SHALL NOT BE LIABLE FOR ANY LOSSES OR DEFAULT OF THE FUND OR FOR THE CORRECTNESS OF ANY OPINIONS OR STATEMENTS EXPRESSED IN ANY MATERIAL USED TO SOLICIT THE PURCHASE OF INVESTMENT INTERESTS IN A FUND.”
b) Disclosure of investment interests
CIMA requires all offering documents/marketing materials to disclose the following matters in relation to a private fund’s “investment interests” (as defined in the PFL):
(i) any existing initial, founder or management investment interests – for example, if the private fund is formed in the form of partnership, the offering documents/marketing materials shall disclose the investment interests of the general partner in the partnership;
(ii) details of the principal rights and restrictions attaching to those investment interests – e.g. rights and restrictions with respect to currency, voting rights, circumstances of winding up or dissolution, certificates and entry in registers;
(iii) the procedures and conditions for the sale of investment interests – e.g. the minimum initial investment or capital commitment; mandatory redemption, or withdrawal or repurchase of such investment interests.
c) Potential limitations and conflicts
In addition to statutory disclosure requirements under the PFL, the Marketing Material Rule requires an explicit description of the potential limitations and conflicts of the private fund’s NAV calculation policy, and any material involvement by the investment manager of the private fund (including any person who has a control relationship with such investment manager), the investment advisor or operator in the pricing of such private fund’s portfolio, or otherwise in the calculation, determination or production of the NAV.
CIMA FAQs Updates: Filing of Documents for CIMA registration, Segregation of Assets and 2020 Audit Requirements
CIMA released a Notice (Re: Private Funds Law FAQs Update) on 7 May 2020, providing additional guidance and setting out the documents and fees that CIMA expects to receive with a private fund’s application for registration under the PFL. Further guidance on the segregation of assets of a registered private fund was provided in CIMA’s Notice (Re: Private Funds & Mutual Funds – Regulatory Rule Segregation of Assets – FAQs Update) released on 21 July 2020. On 22 July 2020, CIMA released a Notice (Re: Private Funds Law – FAQs Update – 2020 Audit Requirements) clarifying that all private funds within scope of the PFL are required to submit audited accounts and a fund annual return for the 2020 financial year within six months of their financial year end. However, private funds with a financial year end that falls between 7 February 2020 and 31 July 2020 will be granted an additional three months in which to file their audited accounts and fund annual return.
For further information or discussion, please reach out to your usual Appleby contact to seek assistance and advice.
