The Cayman Islands Monetary Authority (CIMA) has recently issued a number of Rules relating to registered private funds (other than “alternative investment vehicles1” or AIVs) including in respect of the segregation of assets, calculation of net asset value, and contents of marketing materials.
The Rule provides that all financial assets and liabilities of a fund must be segregated and accounted for separately from any assets of the manager, operator2 or custodian in order that such service providers do not use the fund assets to finance their own or any other operations. The use or transfer of assets can be consented to by the fund so long as this is disclosed in the fund offering documents or otherwise disclosed to investors.
It is necessary for the operator of the fund to establish, implement and maintain strategies, policies, controls and procedures (or oversee the same) to ensure compliance with this Rule, consistent with the fund’s marketing materials and appropriate for the size, complexity and nature of the fund’s activities and investors.
CIMA provided clarification in its FAQs update of 21 July 2020 that the Rule does not prohibit prime brokerage/ custody arrangements that allow, in accordance with established and accepted industry practice, a custodian/ sub-custodian to hold all client assets in a commingled client omnibus account along with the assets of other clients.
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Recent Regulatory Changes Issued in Respect of Cayman Islands Funds Regulated Under the Private Funds Law
1 “alternative investment vehicle” means a company, unit trust, partnership or other similar vehicle that – (a) is formed in accordance with the constitutional documents of a private fund for the purposes of making, holding and disposing of one or more investments wholly or mainly related to the business of that private fund; and (b) only has its members, partners or trust beneficiaries, persons that are members, partners or trust beneficiaries of the private fund.
2 “Operator” means, in the case of a unit trust, the trustee of that unit trust; in the case of a partnership, a general partner in that partnership; in the case of a company, a director of that company, or in the case of a limited liability company, a manager of the limited liability company.