The purpose of these FAQs is to provide guidance to ensure common, uniform and consistent application of the concepts that comprise the definition of “private fund” in the Private Funds Law, 2020 (“the PFL”), by clarifying each of these concepts as well as the Cayman Islands Monetary Authority’s (“CIMA”) expectations in respect of the application of the various provisions of the PFL.
Appropriate consideration should be given to the interaction between the individual concepts of the definition of a private fund, and an entity should not be considered a private fund unless all the elements included in the definition of a private fund under the PFL are present. Fund operators should consider a “collective investment scheme” to be a private fund if all the elements included in the definition of a private fund under the PFL are present or otherwise established.
By way of example, private funds which do offer and issue investment interests, the purpose or effect of which is the pooling of investor funds, but do not do so with the aim of spreading investment risk, should not be considered a private fund for the purposes of the PFL.
Nevertheless, fund operators should not consider that the absence of all or any one of the characteristics under each of the concepts in the definition of private fund in the PFL (i.e. offering and issuing of investment interest, pooling of investor funds, and spreading of investment risks), as set out in these FAQs, conclusively demonstrates that a collective investment scheme does not fall under the relevant concept. For the avoidance of doubt, these FAQs illustrate and explain in more detail the characteristics likely to lead to a collective investment scheme or other such undertaking being considered a private fund, but they in no way alter the provisions of the PFL.
(1) The PFL defines a “private fund” as a company, unit trust or partnership whose principal business is the offering and issuance of its investment interests, the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and enabling investors to receive profits or gains from such entity’s acquisition, holding, management or disposal of investments, where-
(2) It does not include:
(1) Taking as an example, a Segregated Portfolio Company (“SPC”), where there is a single investor in each underlying Segregated Portfolio (“SP”), fund operators should not consider that the absence of all, or any one of the characteristics under each of the concepts in the definition of a private fund under the PFL (for example the ‘offering and issuing of investment interest’, ‘pooling of investor funds”, or ‘spreading of investment risks’), as set out in these FAQs, conclusively demonstrates that a SPC or an underlying SP does not fall under the relevant concept.
(2) It should also be noted that where an investment compartment, that is itself a separate legal entity and which in its own right meets the definition of a private fund pursuant to the PFL, then it would be expected that such investment compartment is separately registered under the PFL.
Applications are submitted electronically though CIMA’s secure Regulatory Enhanced Electronic Forms Submission (REEFS) web portal.
(1) CIMA requires the following:
If the appointment of the CIMA approved local auditor has not been finalized at the time of the fund’s registration, the application can proceed without the auditor’s letter of consent but such consent letter must be submitted to CIMA prior to the filing of the fund’s first set of audited accounts.
There will be no annual registration fee assessed for funds registering during the transition period, which ends on 7 August 2020; however, an application fee of $300 is due. Funds registering subsequent to the end of the transition period will pay the annual registration fee of $3,500 and the $300 application fee.
In these situations, the fund should attach the offering document, summary of terms or marketing materials in lieu of the constitutive documents when requested in the application form.
(1) Private Funds submitting complete applications, where there are no adverse findings in respect of the information submitted, will be processed and approved within the stated timeline.
(2) Factors that might impact registration turnaround time include:
(1) The registration date of a Private Fund will be the date that a complete application has been received by CIMA - i.e. the submission date when the Private Fund has submitted all documents, fees and information as required pursuant to the PFL.
(1) Yes. A minimum of two (2) directors are required for applicants that are companies.
(1) Yes. CIMA will require a minimum of two (2) natural persons to be named in respect of a general partner or corporate director of a Private Fund.
(1) Yes. A copy of the marketing materials, summary of terms or offering document will be required upon registration.
(2) The Authority understands that a number of the private funds currently in existence do not have a separate offering document, summary of terms or marketing materials and that the terms of the offer are outlined in the constitutive documents of the private fund. In these circumstances, a private fund must provide at the time of registration its constitutive documents and any subsequent changes made thereto.
(1) No. AIV entities will not require a separate registration. However, information in respect of each such entity will be collected at the time of registration, with any changes to such information to be reported to the Authority as a part of the ongoing obligations of the Private Fund.
(1) A Cayman AIV meeting the definition of a Private Fund will be required to register under the PFL. A group registration option, as outlined in question #18 will be available for any AIVs in the fund structure.
(1) A Private Fund that completes its liquidation/winding-up prior to the end of the transition period will not be required to apply for registration pursuant to the PFL. The completion of the liquidation/winding-up process means that the private fund has disposed of all its investments and has made final investor distributions.
(1) A Private Fund, pursuant to section 13(1) of the PFL, is required to have its accounts audited annually by an auditor approved by CIMA. The Private Fund is also required to submit its audited accounts, along with the Fund Annual Return (“FAR”), to CIMA within six months of the end of each financial year.
(1) Yes. A Private Fund is required to submit an audit for its 2020 financial year within six months of the financial year end or within such extension of that period as the Authority may allow.
(1) The valuation of the assets of a Private Fund should be conducted in accordance with the Private Fund’s valuation policy. Valuations of a Private Fund should be carried out on at least on an annual basis.
(2) CIMA will issue rules establishing the policies and procedures of CIMA with respect to the valuation of the assets of a Private Fund.
(1) Yes. Good market practice is for a fund to ensure that their investors are kept abreast of the performance of the fund. CIMA is of the view that while investors are aware that any capital contributions made into a Private Fund will not be distributed until the timeframe indicated in the relevant fund documents has been completed, investors should still be made aware of the fund’s performance on an ongoing basis. The PFL provides for various ways in which this obligation can be met.
(1) A Private Fund has a choice of whether to conduct this function internally (by the investment manager) or to hire a third-party service provider (such as an administrator or custodian) to ensure that this function is carried out.
(2) Should this function be conducted internally, the Private Fund’s Operator should engage an independent third party, for example the Private Fund’s auditor, to provide independent verification that the cash monitoring was done throughout the year
(1) CIMA’s assessment of the process undertaken by the Private Fund, in respect of cash monitoring, will seek to confirm that such process, based on the investment strategy of the fund, is sufficient having regard to the type of assets held by the Private Fund.
(2) CIMA will issue rules establishing the policies and procedures with respect to the cash monitoring requirements of a Private Fund.
(1) All regulated funds are subject to ongoing monitoring by CIMA and, in keeping with CIMA’s current approach, matters will be addressed as they arise in the manner commensurate with the level of seriousness of the breach.