Hedge Funds in the Cayman Islands

The Cayman Islands is a renowned offshore jurisdiction. Cayman is at the forefront of cross-border banking, financing, captives insurance and investment funds because of the structural and operational advantages it offers international corporations and individuals.

The most common structure for emerging managers is the Cayman Islands fund, regulated by CIMA and managed by a CIMA regulated Investment Management Company. In order to access Hong Kong financial services such as prime brokers and custodians, offshore managers and their funds require the engagement of an onshore licensed entity. Cayman fund structures, favored by most traditional emerging managers, are affordable and flexible, while retaining control over both the fund and the management company. This is also Capstone's most popular format for emerging funds. We guide new managers through the establishment process and provide world-class middle and back office support. 


DISPLAY REAL TESTIMONIALS


The most common structure for emerging managers is the Cayman Islands fund, regulated by CIMA and managed by a CIMA regulated Investment Management Company. In order to access Hong Kong financial services such as prime brokers and custodians, offshore managers and their funds require the engagement of an onshore licensed entity. Cayman fund structures, favored by most traditional emerging managers, are affordable and flexible, while retaining control over both the fund and the management company. This is also Capstone's most popular format for emerging funds. We guide new managers through the establishment process and provide world-class middle and back office support.

WHY THE CAYMAN ISLANDS?

Political and economic stability

Legal system based on English common law

Flexible domestic legislation with appeal to the Privy Council of the United Kingdom

Tax-neutral platform

Well-established and experienced financial and legal services sector

Compliant with FATCA and an OECD “white listed” jurisdiction

6th largest banking centre in the world and home to 40 of the 50 largest banks

More than 85% of the world’s hedge funds are domiciled in Cayman, representing US$1.8 trillion in net assets

The Cayman insurance sector continues to thrive by way of the Insurance Law, 2010, which improved regulation of the insurance business. Globally, the Cayman Islands is the second largest domicile for captives and the pre-eminent jurisdiction for businesses in the healthcare space.

Guide to Establishing Hedge Funds in the Cayman Islands

The Cayman Islands is a world leader in the establishment of offshore hedge funds. Its tax-neutral platform, stable economy, sophisticated banking sector, confidentiality and professional financial service industry are just some of the reasons the location is attractive to hedge fund managers the world over.

To help fund managers decide whether the Cayman Islands is the right home for their fund, we have outlined some important factors to consider when setting up a hedge fund, as well as provided an overview of relevant documentation and regulations.

Structural Considerations

A hedge fund is typically open-ended, that is investors can make periodic redemptions. Accordingly there must always be enough cash or liquid assets in the fund to meet such redemption demands.


Fund managers should also consider whether to impose a lock-in period on their open-ended funds, during which investors cannot sell shares. A lock-in period allows the fund manager to invest all of the subscriptions during the early life of the fund without having to meet redemption requests. It is important, however, to ensure the lock-in period is not so long that the fund effectively becomes a closed-ended fund.


While Asian hedge funds are typically structured as Cayman Islands exempted companies, the particular needs or preferences of different types of investor, whether due to market convention, taxation or other considerations, may determine the actual fund vehicle or vehicles used.


Segregated Portfolio Companies (“SPC”) may be considered a suitable option for Asian fund managers. Under Cayman legislation for SPCs, assets and liabilities can be separated into distinct pools amongst its segregated portfolios. This avoids the expense of incorporating individual companies to obtain the same effect. With SPCs, it is possible to create single-investor held portfolios that discreetly meet specific needs of each relevant investor.


Another option is to set up the fund as a limited liability company (“LLC”). An LLC combines many of the features of a company with the flexibility of a partnership. An LLC may be formed by a single member. Each member will receive one LLC interest, representing, for example, its right to capital voting rights and its right to receive dividends. For hedge funds that attract US investors, an LLC may be a good choice as a feeder vehicle within a master-feeder structure.


The fund will usually issue two kinds of shares: voting and non-voting. Voting shares (management shares) are non-redeemable, do not have economic rights but carry significant shareholder voting rights. Non-voting shares (participating shares) are held by the investors and give them the right to participate in the fund’s profits.


 

Fund Structure

Cayman Exempted Fund Structures

Who can set up an Exempted Fund?

Exempted funds may be utilised by private equity funds, HNWI funds, family office funds, emerging managers, friends and family funds, managers seeking to establish a track record and/or for any purpose that falls within the legal guidelines.

How can it help with Track Record Verification?

Raising capital is fundamental to the success of a fund. Start up funds may find it difficult to attract capital without a historical track record of performance. If the fund opts out of a standard audit then it should have an alternative way of independently verifying the performance – Capstone partners with auditors who provide track record verification services, these services can be engage at any time after the fund launches.

What are the advantages?

COST EFFICIENT: Save money with a package that includes a Cayman resident director, registered office and fund administration services


SPEED: Fast launches can be the key to a successful fund because investors are keen to move quickly – with Apex you can start right away


ENTITY: Utilise an Exempted Company or a Segregated Portfolio Company

NO APPROVAL: Exempted funds are unregulated funds and thereby red tape is eliminated


EXPERTISE: Capstone can provide best in class service and information


ADMINISTRATION: Your fund will be established in the Cayman Islands – contact Capstone to administer your fund


GROWTH: Exempted funds have a maximum of 15 investors. When this threshold is surpassed, conversion into a regulated fund (or master feeder) takes as little as 1 day