Investment Funds in the Cayman Islands

This section describes the benefits of establishing a Cayman Islands investment fund, its key features and the exempted limited partnerships (“ELP”) fund structure.

• Introduction - ELP as a Fund Vehicle
  Entity options available for structuring a Cayman investment funds include (1) exempted or limited liability companies; (2) trusts; or (3) ELP. Each of them would be able to offer or issue investment interests for the purpose or effect of pooling investor funds with the aim of enabling investors to receive profits or gains from acquisition, holding, management or disposal of investments.
  
  
• Key Features of ELPs
  •   No separate legal personality and no inheritance;
  •   Neither the ELP nor the partners are subject to taxation in the Cayman Islands;
  •   A minimum of one general partner (“GP”) and a minimum of one limited partner (“LP”) are required;
  •   All management responsibility is vested in the GP(s);
  •   Limited liability for the LP, except in narrow circumstances;
  •   Unlimited liability for the GP in the event that the assets of the ELP are inadequate; and
  •   Inviolable duty of the GP to act in good faith.
  
  
• Structure of ELP Funds
  A diagram showing a simple fund structure using an ELP as the fund vehicle.
  

While setting up an investment fund in the Cayman Islands can deliver a myriad of benefits, foreign investors ought to be aware of the registration requirements for establishing an Exempted Limited Partnership.

This section describes how to form an Exempted Limited Partnership in the Cayman Islands, including the registration requirements and processes.

• Name
  The proposed name of an ELP must include 'Limited Partnership' or 'L.P.' or 'LP'.  There are some restricted words which should not be included in the name of an ELP.
   
• Registered Office
  Every ELP must have a registered office situated in Cayman for service of process and to which all notices and correspondence may be addressed.
  
  
• Composition of an ELP
  Every ELP must have at least one general partner (who has responsibility for the business affairs of the partnership) and at least one limited partner.
  
  
• Registration Process
  An ELP is established by the following steps: 
  1. Ensuring that the GP of an ELP must: (a) if an individual, be resident in the Cayman Islands; (b) if a company, be incorporated under the Cayman Islands Companies Act; (c) if a foreign company, be registered as a foreign company under the Companies Act; (d) if a partnership, be registered as an ELP; or (e) if a foreign limited partnership, be registered as such under the ELP Act;
  2. Filing with the Registrar a Section 9(1) Statement; and 
  3. Paying the registration fee.
  

Formation of investment funds in the Cayman Islands is on the rise, thanks to its extensive network of support for legal, financial, and professional services. Launching a private fund formed as an Exempted Limited Partnership in the Cayman Islands is anticipated to take 6 to 10 weeks. 
 
What are the steps of registering with Cayman Islands Monetary Authority (“CIMA”)? This section described required documents and registration timeline.

Fund Registration with CIMA

• Required Documents
  A private fund is required to register with CIMA within 21 days of its acceptance of capital commitments, and in any event before accepting any capital contributions from investors in respect of investments. 
  
  
• Timeline
  A high-level summary illustrating the anticipated processing times for launching a Cayman Islands fund formed as an Exempted Limited Partnership.
  

For foreign investors looking to expand their business into the Cayman Islands, the key to successful entity formation is a thorough understanding of the relevant laws, regulations, and fund secretarial compliance requirements.
 
The Private Funds Act (2021 revision) (the “PF Act”) is the main legislation which applies to private funds in the Cayman Islands. Under the PF Act, registered private funds will have to comply with certain operational requirements. 

To comply with these governing laws, private funds must appoint specialized third-party providers to assist with Foreign Account Tax Compliance Act (“FATCA”), Common Reporting Standard (“CRS”) and Anti-Money Laundering (“AML”). What are the compliance requirements and their implications? 

• Laws & Rules Governing an ELP Fund
  The PF Act applies to private funds. It is the main legislation regulating closed-ended investment funds in the Cayman Islands, being those funds, which do not offer voluntary redemption or repurchase rights. It requires private fund vehicles to register with the CIMA.  
  
  
• Fund Secretarial Compliance
  The continuing obligations of Cayman Islands private funds that are established as ELPs are primarily set out in Exempted Limited Partnership Act (2021 Revision) and the PF Act of the Cayman Islands.
  
  
• AML
  Cayman Islands investment funds are required to comply with rules and regulations in relation to anti-money laundering, countering the financing of terrorism and countering proliferation financing regime.
  
  
• FATCA & CRS
  Cayman Islands investment funds are investment entities and therefore generally required to register and report as financial institutions under the Cayman Islands legislation implementing the FATCA and the Organization for Economic Co-operation and Development (“OECD”)’s equivalent scheme, the CRS. These regimes are intended to facilitate onshore tax compliance by requiring the automatic exchange of information for tax purposes (“AEOI”).

Regulated by the Cayman Islands Monetary Authority, ELP funds in the Cayman Islands are required to comply with certain operational obligations. including areas of accounting, financial reporting, audit, and valuation. We outline the top tips for accounting, financial reporting, audit, valuation, fund asset safekeeping, cash monitoring, register of limited partnership interests and fund liquidation.

• Fund Accounting (Books of Accounts)
  A GP shall keep or cause to be kept proper books of account including, where applicable, material underlying documentation including contracts and invoices, with respect to Exempted Limited Partnership Act (2021 Revision)
  
  
• Audit & Fund Annual Return (FAR)
  A private fund shall have its accounts audited annually by an auditor approved by CIMA. 
  
  
• Valuation
  The valuation of the assets of a private fund must be conducted in accordance with appropriate and consistent procedures at a frequency that is appropriate to the assets held by the private fund and at least on an annual basis.
  
  
• Safekeeping of Fund Assets 
  Usually, a private fund shall appoint a custodian to perform the duties to (a) hold in custody, in segregated accounts opened in the name, or for the account, of the private fund, the custodial fund assets; and (b) verify, based on information provided by the private fund and available external information, that the private fund holds title to any other fund assets and maintain a record of those other fund assets.
  
  
• Cash Monitoring
  A private fund shall appoint one of the following persons (a) an administrator, custodian or another independent third-party; or (b) the manager or operator, or a person who has a control relationship with the manager of the private fund to perform the cash monitoring.
  
  
• Register of Limited Partnership Interests
  The register of limited partners shall contain the name and address of each person who is a limited partner of the exempted limited partnership, the date on which a person became a limited partner and the date on which a person ceased to be a limited partner. 
  
  
• Fund Liquidation
  If you are thinking of winding down your fund during 2023, you can plan ahead to avoid annual fees due to the Registrar of the Cayman Islands (Registrar) and the CIMA for 2024. Before winding down your private fund, all assets have been liquidated and distributions have been made to investors. On the distribution date, all LP shall be removed.

For many asset managers in Asia, the most popular vehicle for private equity funds is a limited partnership in the Cayman Islands. On January 14, 2020, Singapore launched a new corporate structure, namely the Variable Capital Company, for investments funds constituted under the Variable Capital Companies Act. On August 31, 2020, Hong Kong’s new Limited Partnership Fund Ordinance came into effect, which enables funds to be set up in Hong Kong in the form of a limited partnership. Consequently, the private equity industry in Singapore and Hong Kong have seen tremendous growth in recent years. Nowadays, Cayman Islands, Singapore and Hong Kong are typical private equity fund locations adopted by asset managers in Asia Pacific.

Especially with new policies in effect, fund managers must carefully analyze and compare the unique advantages and potential challenges of each fund vehicle, in order to decide the most suitable location for their private close-ended funds. Read the following to understand the respective requirements and advantages of establishing private closed-end funds in the Cayman Islands, Hong Kong, and Singapore.

To help you stay on track with your company’s regulatory reporting obligations, our experts at Tricor offer you the calendar for ELP funds with key deadlines for the regulatory filings at a glance.