All Cayman entities that fall within the definition of “private fund” in the Private Funds Act (2021 Revision) are required to register with the Cayman Islands Monetary Authority (CIMA).

The characteristics of a “private fund” are the pooling of investor funds with the aim of spreading investment risk, where the investors do not have day-to-day control over investment decisions but instead the investments are managed by or on behalf of the operator of the fund (e.g. directors or general partner), and where the “investment interests” subscribed for by investors carry an entitlement to participate in the profits and gains arising from the investments but, crucially, are not redeemable or repurchasable at the option of investors.

The Private Funds Act therefore encompasses all Cayman Islands closed-ended fund structures, unless excluded as a “non-fund arrangement” (for example: joint ventures, proprietary vehicles, debt issues and debt issuing vehicles, structured finance vehicles, occupational and personal pension schemes, sovereign wealth funds, single family offices and funds whose investment interests are listed on stock exchanges specified by CIMA) or a single investor fund, which would fall outside the definition of a private fund.

A Cayman entity structured as a private fund must submit an application for registration to CIMA within 21 days after accepting capital commitments and must be registered as a private fund prior to receiving capital contributions from investors.

Registration is made electronically on CIMA’s Regulatory Enhanced Electronic Forms Submission (REEFS) platform and requires a private fund to file:

  • an application form;
  • a certificate of incorporation or registration;
  • constitutional documents, such as the memorandum and articles of association or partnership agreement;
  • an offering document, summary of terms or marketing materials which describe the terms of the offering;
  • an auditor’s and, where applicable, an administrator’s letter of consent; and
  • a structure chart showing the ownership of the private fund (excluding the investors), any subsidiaries and affiliates;
  • an application fee of US$366; and
  • a registration fee of US$4,270.

The date that all required documentation and payment have been received by CIMA will be the date reflected on the private fund’s registration certificate.

CIMA requires a minimum of two directors for private funds structured as companies and a minimum of two natural persons in respect of a general partner of a limited partnership or corporate director.

Directors of general partners appointed to “private funds” structured as limited partnerships are not required to be registered under the Director Registration and Licensing Law of the Cayman Islands.

A private fund must have its accounts audited annually by a Cayman Islands based auditor approved by CIMA. The accounts, together with a Fund Annual Return, must be filed with CIMA within six months of the relevant financial year end and must be prepared in accordance with IFRS or GAAP of the U.S., Japan, Switzerland or a non-high risk jurisdiction. CIMA has issued policies and procedures regarding waivers and extensions applicable to audits. A maximum of three one month extensions may be requested from CIMA with a fee of US$610 for each request. In addition, CIMA has the discretion to either absolutely or conditionally exempt a private fund from filing audited accounts, but this discretion will only be exercised where the private fund has a valid reason not to file audited accounts, which will be assessed on a case by case basis.

Private funds are subject to valuation, safekeeping and cash management requirements which will likely see appropriately qualified independent third parties undertaking such functions; although there is scope for them to be carried out in-house, by a private fund’s manager or operator or a control entity of such manager or operator, subject to certain criteria.

The valuation of the assets of a private fund must be conducted in accordance with its valuation policy at a frequency that is appropriate to the assets held by the private fund and at least on an annual basis.

Private funds are required to establish, implement and maintain a NAV calculation policy that ensures the fund’s NAV is fair, reliable, complete, neutral and free from material error, and is verifiable. Such policy must be calculated in accordance with the IFRS or GAAP of the U.S., Japan or Switzerland or a non-high risk jurisdiction. The policy must be written and disclosed in the fund’s constitutional documents or marketing materials or other form of investor communication typically used by the private fund.

Unless not practical or proportionate to do so, a private fund is required to appoint a custodian to hold the custodial fund assets and verify that the private fund holds title to fund assets and maintain a copy of the same.

All financial assets and liabilities (i.e. the portfolio) of a private fund must be segregated and accounted for separately from any assets of the manager, operator or person appointed by the fund to hold custody of the fund assets.

A private fund must appoint either an administrator, custodian or another independent party or the manager, operator or control entity to monitor cash flows, ensure that all cash has been booked in the cash accounts and ensure that all payments made by investors have been received.

Private funds that regularly trade securities or hold them on a consistent basis must maintain a record of the identification codes (International Securities Identification Number) and make such information available to CIMA upon request.

The operators of the fund must establish, implement and maintain (or oversee the same) strategies, policies, controls and procedures to ensure compliance with CIMA’s rules, consistent with the fund’s marketing materials and appropriate for the size, complexity, and nature of the fund’s activities and investors.

We are Here to Help

Tailored professional advice should be sought in respect of individual circumstances. Please feel free to reach out to your usual Conyers contact or one of the individuals listed below with any questions regarding registering private funds with CIMA.

This article is not intended to be a substitute for legal advice or a legal opinion. It deals in broad terms only and is intended to merely provide a brief overview and give general information.

Stay current with our latest legal insights and subscribe today