On the 22nd of December 2011 following the gazetting of a change to the Mutual Fund Law (2009 Revision) called The Mutual Funds (Amendment) Law 2011 (Law 32 of 2011), certain Master Funds are now required to register with the Cayman Islands Monetary Authority.
This legislation appears to be intended to allay fears over the formation of unregulated entities in the Cayman. Prior to this enactment most Master Funds were able to avoid registration under the Mutual Funds Law because the investors in these funds were feeder funds (rarely more than three) and funds with less than 15 investors were exempt from registration. This meant that the Master Funds operated beneath the Cayman regulatory radar with no requirement for these funds to register or file returns. The legislation attempts to address this and of course creates another income stream in the bargain for the island.
Whilst new funds will need to comply with the registration requirements, existing Master Funds will also need to revisit their structure to establish whether or not they need to register. They have 90 days from the commencement of the law to do so unless the Cayman Government decide to extend the deadline by a further 60 days.
A Master Fund is defined as a mutual fund that is incorporated or established in the Cayman Islands that holds investments and conducts trading activities and has one or more regulated feeder funds. This means that if there is a feeder fund that is regulated by the Cayman Island Monetary Authority in the fund structure then this will create a registration requirement for that fund. A feeder fund is defined as a mutual fund that conducts more than 51% of its investing through another mutual fund. The 15 investor rule will not apply to a Master Fund.
So what does it mean for a fund that meets the new definition of a Master Fund?
- A registration fee is payable
- A copy of the certificate of Incorporation will need to be filed
- If the Master Fund has an offering document – this will need to be filed on registration and updates will need to be filed too. Most Cayman funds incorporate the details of the Master Fund in their Cayman Feeder documents so there should normally be no additional filing requirement.
- Where the auditor and administrator of the Master Fund are different to the regulated feeder fund then consent letters from them need to be filed.
- A completed Form MF4 will need to be submitted – signed by an Operator – defined in the Mutual Fund Law as being a trustee, general partner or director depending on the legal structure of the fund.
One potentially useful future aspect of the Form MF4, from a due diligence perspective is that the form requires a declaration if the fund has any investors other than the regulated feeder funds to a Master structure – although the way the form is currently drafted the answer will almost always be affirmative because of the US Onshore Limited Partnership Feeder if one exists, but if the form develops over time this declaration may become a useful double check in relation to other investors able to invest directly.
Time to do some form filling and to get that cheque book out again.
©Jaitly LLP