The Cayman Edge How To Set Up A Cayman Fund

United Kingdom

Financial services and markets regulation
Financial services and markets regulation - Hedge funds
Financial services

15-xi-2019

"Where should I establish my hedge fund?"

"The Cayman Islands" will (by and large) feature prominently in the respond. Only why is this three island chain in the western Caribbean so pop? Leaving bated the white sandy beaches, managers and investors are drawn to this jurisdiction by an efficient tax and regulatory authorities, a ready supply of service providers, a trusted regulator and the islands' common law system. With this heady combination of traits it is no wonder that the Cayman Islands keep to be a favoured destination of the commencement-time fund manager.

However, mangers may face difficulties when trying to adapt different kinds of investors in a Cayman fund. Fortunately, this problem has its ain ready answer: the Cayman master/feeder.

Here is how you get to get to grips with information technology.

Master/feeders

Under a master/feeder framework, feeder vehicles ("Feeders") channel investments into a single overarching fund (the "Master"). Separate feeders are created for investors from jurisdictions with specific tax or regulatory requirements. This fragmented structure allows each Feeder to satisfy the regulatory or tax needs of a single group of investors before their investments are then channelled into a common puddle – the Master fund. The upshot of this arrangement is that a Chief fund tin can take investments from tightly regulated groups of investors – the 'US taxable' existence ane case – without imposing those same restrictions on others.

Ultimately, chief/feeder structures increment the number of eligible investors a fund tin accommodate.

A Cayman master/feeder

Master/feeder funds can take many different legal forms. Cayman Masters are usually established equally open-ended corporations, though a number of unlike corporate and partnership structures are bachelor. Each Feeder is structured according to the need or preference of its investors. US taxable investors are commonly channelled into The states domiciled express partnerships. Various forms of Feeder are used to conform the specific requirements of global investors (and the 'US revenue enhancement exempt'), but Cayman corporations remain the well-nigh pop.

Thus established, main/feeders offer tax benefits to all investors. Cayman corporations – like other offshore vehicles – are taxation transparent, which ways that its members will merely incur tax once on distributed turn a profit. Meanwhile, assuming the Master is structured as a corporation (every bit outlined above), fund managers can opt for it to be treated every bit a partnership for Us tax reporting purposes. US taxable investors tin so benefit from the revenue enhancement transparency enjoyed by members of an offshore feeder.

Other options: stand up-alone funds and the segregated portfolio company

Of course, there are reasons why yous might not want to utilise a chief/feeder. If your fund is just getting going or the complexity of a master/feeder is not required, fund managers tin opt for a stand up-solitary fund model. Stand-solitary funds are refreshingly simple: a unmarried pool of investors, investing in a unmarried investment vehicle, with a unmarried investment strategy.

Another model commonly seen is the segregated portfolio company ("SPC"). An SPC has a unmarried pool of investors just creates a range of portfolios following different investment strategies. Each portfolio is segregated from others within the fund and from the wider visitor. These subdivisions brand SPCs strategically flexible and allow fund managers to offer investors greater choice within a broad umbrella construction (so-called 'plug and play'), while still benefiting from potential economies of scale.

Why Cayman?

Whichever investment vehicle best suits your fund, the Cayman Islands boast features which gear up them apart from other jurisdictions:

• there are no direct taxes in Cayman and funds are immune from changes in taxation constabulary that might affect them in other jurisdictions

• the regulator – the Cayman Islands Budgetary Authority ("CIMA") – is widely lauded for its regulatory efficiency

• The requirements for a fund to file for registration are kept to a minimum:

o Offer documentation

o The ambassador'due south written consent

o A few additional particulars

o Signed off by a Cayman approved auditor

• This means funds can exist launched on the islands within ten to twelve weeks

This light impact separates the Cayman Islands from other jurisdictions and will continue to work to the manager'southward advantage during the fund'due south lifetime.

How Eversheds Sutherland can help

Our team has been at the forefront of regulatory estimation and product development for the fund direction industry since the 1980s. We advise on all types of fund structures and prepare all documentation necessary to achieve a successful fund launch.