The definition of a mutual fund, as established in the Mutual Funds Act, can be summarised as follows:
A mutual fund is any company, trust or partnership either incorporated or established in the Cayman Islands, or if outside the Cayman Islands, managed from the Cayman Islands, which issues equity interest redeemable or repurchaseable at the option of the investor, the purpose of which is the pooling of investors' funds with the aim of spreading investment risk and enabling investors to receive profits or gains from investments.
Note that funds commonly referred to as hedge funds fall within the definition of a mutual fund and are thus covered by the Mutual Funds Act.
The Mutual Funds Act (MFL) gives the Cayman Islands Monetary Authority responsibility for regulating certain categories of funds operating in and from the Cayman Islands (see Categories of Regulated Mutual Funds below). The act also provides for the regulation of mutual fund administrators by CIMA.
Not all mutual funds are regulated. The MFL specifies the categories of mutual fund that are exempt from regulation. Funds that meet the criteria set out in section 4(4) of the MFL are exempt. All other mutual funds are regulated.
The ongoing supervision of funds and fund administrators falls under the remit of CIMA's Investments Supervision Division.
The categories of funds regulated under the MFL are set out below.
The MFL (Section 4(1)) specifies that a mutual fund operating in and from the Cayman Islands must have a licence unless: a licensed mutual fund administrator is providing its principal office; it meets the criteria set out in Section 4(3), which allows for funds to be registered, or it is exempt from regulation under Section 4(4).
The provisions relating to licensed mutual funds benefit large, well known and reputable institutions, which do not propose to appoint Cayman Islands service providers.
To be approved as an administered mutual fund, the fund must have a CIMA-licensed mutual fund administrator providing its principal office. The regulatory responsibility for the administered fund, which has more than 15 investors and which is not a licensed or registered mutual fund, is placed largely in the hands of a licensed Mutual Fund Administrator.
A Registered Fund must have either a minimum aggregate equity interest of CI$80,000 (US$100,000) purchasable by a prospective investor or the equity interests must be listed on a stock exchange approved by CIMA.
A Master Fund must have either a minimum aggregate equity interest of CI$80,000 (US$100,000) purchasable by a prospective investor in the master fund or the equity interests of the master fund must be listed on a stock exchange approved by CIMA.
To determine whether a stock exchange is approved by CIMA, please see Regulatory Measures to view the related policy and updated list.
CIMA regulates funds and fund administrators in accordance with:
The Cayman Islands has company, trust, partnership and related acts that allow a high degree of flexibility for establishing mutual funds. The four vehicles commonly used for operating mutual funds are the exempted company, the segregated portfolio company, the unit trust and the exempted limited partnership.
Exempted Company - The exempted company may redeem or purchase its own shares and may therefore operate as an open-ended corporate fund. Closed-ended corporate funds can also be established using the exempted company and it is a relatively straightforward procedure to convert from one to the other.
Segregated Portfolio Company - An exempted company can also be established as a "Segregated Portfolio Company" ("SPC") with protected cells or portfolios. The SPC makes it possible to provide a means for different groups to protect their assets when carrying on business through a single legal entity.
Unit Trust - The unit trust is usually established under a trust deed with the investors' interest held as trust units.
Exempted Limited Partnership - The exempted and limited partnership provides a second unincorporated vehicle and it can be formed as easily as the exempted company or the unit trust. Please contact the Registrar of Companies or your professional advisors for more information on structuring a fund in the Cayman Islands.
Mutual fund administration is defined as the management, including control of all or substantially all the assets of a mutual fund, or the administration of a mutual fund, or the provision of the principal office of the mutual fund in the Cayman Islands, or the provision of the operator (which is, as mentioned before, either the director, trustee or general partner) to a fund.
Currently, the Authority considers applications for the following types of Mutual Funds Administrators: