New requirements for Cayman Islands Master Funds

Piers Alexander, Gene A. DaCosta, Alan Dickson, Fawaz Elmalki, Kieran P.J. Loughran, Caroline O'Hare, Janice Oh, Tania Dons, Maree K. Martin • Posted 07/12/2011 • Under Articles

The Mutual Funds (Amendment) Bill, 2011 (the “Bill”) has been passed by the Legislative Assembly of the Cayman Islands and is expected to come into force in mid-December, 2011. The Bill seeks to amend the Mutual Funds Law (the “Law”) to provide for the registration with the Monetary Authority of the Cayman Islands (the “Authority”) of certain Cayman Islands master funds in open ended master/feeder fund arrangements. This Bill will immediately affect all new master funds launched after the Bill becomes law as well as all existing master funds, which will have a period of ninety days following enactment of the changes in which to comply.

How the Bill changes the present situation

At present, master funds with fewer than 15 feeders/investors, the majority of whom have the right to appoint or remove the operator of that master fund, are exempted from the requirements for registration. Pursuant to the Bill, master funds that fall within the scope of the new provisions will no longer enjoy that exemption. The new requirements will apply to all mutual funds that are incorporated or established in the Cayman Islands that hold investments and conduct trading activities and have one or more regulated feeder funds.

Mechanics of registration as a master fund

Registration as a master fund will involve the filing of the fund’s certificate of incorporation (or equivalent) and a new form MF4 as well as payment of a fee of CI$2,500 (approximately US$3,050) on initial registration and payable annually thereafter. It should be noted that earlier drafts of the Bill included a provision requiring all master funds to prepare and file an offering document (unless the offering document of the master fund is identical in all material respects to that of its regulated feeder fund). The Bill as passed does not include this requirement.

Ongoing requirements for a Cayman Islands master fund

In addition to the obligation to pay an annual fee, a master fund will be required to file with the Authority audited financial statements, signed-off by a local auditor, within 6 months of its financial year end.

How will this impact Conyers’ clients?

It is important to note that the new fee and registration requirements apply only to master funds as defined in the Bill. If a master fund is not a mutual fund, as defined, it will not be within the scope of the new requirements. As such, many funds, for example closed ended master funds, will not be impacted.

Existing master-feeder clients should contact their Conyers’ attorney immediately to discuss their options.