Cayman Islands Introduces Registration For Master Funds
Wednesday, December 14, 2011

International law firm, Conyers, Dill and Pearman has noted new legislation passed by the Cayman Islands' legislative assembly, which will require new and existing master funds with open-ended master/feeder fund arrangements to register with the islands' monetary authority.

According to the firm, The Mutual Funds (Amendment) Bill, 2011, which is expected to come into force by the end of the year, will - when in force - immediately affect all new master funds launched. Existing master funds will be granted a 90-day transitional period to achieve compliance.

Master funds are utilised to pool investment received via feeder funds. The registration requirements impact 'open-ended' master funds, where investors can buy into the scheme directly from the fund on an ongoing basis, rather than purchasing equity off existing investors, as would be the case after the initial offering of shares in closed-ended funds.

“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,” Conyers, Dill and Pearman explained. The firm continued that:

“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.”

“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 KYD2,500 (approximately USD2,900) 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.”

“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.”

“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.”