Prior to December 2011, clients with master funds could avoid registration of their master funds with the Cayman Islands Monetary Authority (the “Authority”). This was mainly because such master funds qualified for a registration exemption requirement. The loophole meant no regulation by the Authority and no annual fees payable to the Authority. This is has now changed.
Unless new regulations are introduced in the first quarter of 2012 to extend the deadline by which master funds must register with the Authority, clients have ninety days to register their master funds. As the clock started on 22 December 2011 (the date that the Mutual Funds (Amendment) Law, 2011 appeared in the Cayman Islands Gazette), clients with master funds existing on that date recognize that they will soon be out of time.
Long Lines and Questions
With the tight deadline, clients returning from New Year’s Eve celebrations are now cueing up to discuss the master fund registration requirements with their Cayman Islands legal counsel. Cayman directors, registered offices and other service providers are also receiving queries.
The questions that clients are asking and the answers they are receiving are set out below.
Q1: How is a “master fund” defined under the new Mutual Funds (Amendment) Law, 2011)?
A: “Master fund” means 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. Regarding this, the law explains that a “feeder fund” is a mutual fund that conducts more than 51% of its investing through another mutual fund and a “regulated feeder fund” is a regulated mutual fund that conducts more than 51% of its investing through another mutual fund.
Q2: Can my master fund qualify for a registration exemption if the equity interests are held by not more than fifteen investors, a majority of whom are capable of appointing or removing the operator of the master fund?
A: No. This is because the Mutual Funds (Amendment) Law, 2011 did away with this exemption as it relates to master funds.
Q3: What documents must I file with the Authority to register a master fund?
A: The required documents are:
(i) An offering document (if any). It is possible here that the existing Cayman feeder fund offering document may be amended to include prescribed details of the master fund. Alternatively, if there is no offering document for the master fund, then the prescribed details with respect to such master fund must be filed with the Authority.
(iii) Auditor’s consent letter (in the case of a new structure, one letter may be filed for the master fund and the Cayman feeder fund)
(iv) Administrator’s consent letter (in the case of a new structure, one letter may be filed for the master fund and the Cayman feeder fund)
Q4: What are the fees for registration of my master fund?
A: The current prescribed fee is CI$ 2,500, approximately USD 3,049. This is payable at the time of the master fund’s registration and annually thereafter.
Clients should contact their Cayman Islands legal counsel in the first instance for guidance on the registration of master funds existing as of 22 December 2011 and for new master funds being registered in 2012.
About the Author:
Alric Lindsay is an independent fund director and provides independent directorship services to Cayman Islands based investment funds. His bio can be found on www.lindsay.ky. He can be contacted at alric@lindsay.