CAYMAN 2012 - HFMWeek

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www.pwc.com/ky Face time, on demand. For all of your assurance and tax needs What does value mean to you Ian Bridges, Tax Director Let’s talk... Graeme Sunley, Asset Management Leader graeme.sunley@ky.pwc.com +1 345 914 8642 Colin Hanson, Assurance Partner colin.hanson@ky.pwc.com +1 345 914 8652 Ian Bridges, Tax Director ian.l.bridges@ky.pwc.com +1 345 914 8778 FATCA, tax compliance, tax planning and consulting. This year, PwC Cayman welcomes tax specialist, Ian Bridges, for all of your taxation needs. At PwC, we understand that value is unique to each individual and business. With that in mind, we make an extra effort to fully understand your specific needs. As our client, you benefit from the strength of the world’s largest professional services firm that is accessible through a strong local presence. Let PwC’s team of audit, tax and advisory professionals help you. Together we can help create the value that you are looking for. © 2012 PricewaterhouseCoopers, a Cayman Islands partnership. All rights reserved. PwC refers to the Cayman Islands member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
CAYMAN 2012 LEGAL THE REGULATION OF MASTER FUNDS IN THE CAYMAN ISLANDS GENE DACOSTA OF CONYERS DILL & PEARMAN GIVES AN OVERVIEW OF THE REGULATION OF MASTER FUNDS Gene DaCosta is a director in the corporate department in the Cayman Islands office of Conyers Dill & Pearman. Gene’s practice area covers all aspects of corporate and commercial law, structured financing, aircraft and shipping registration/financing with a particular focus on investment funds and private equity funds. The master-feeder fund structure is popular for drawing in investments from different jurisdictions and consolidating them in one central platform. Particularly useful at adapting to country-specific regulations, masterfeeders are flexible and efficient vehicles for raising financing from a cross-border investor base. Mutual funds in Cayman are governed by the Mutual Funds Law (2009 Revision) (the Law). Most master funds in the past benefited from an exemption from regulation by the Cayman Islands Monetary Authority (the Authority) by virtue of having fewer than 15 investors and thus fitting into what is known as the “private fund” exemption under the Law. As a result of the Mutual Funds (Amendment) Law 2011 (the Amendment Law), that exemption is no longer available to those funds that fall within the definition of “master fund”. As of 22 December 2011, all master funds in Cayman are required to be registered with, and will be regulated by, the Authority. WHICH FUNDS ARE CAUGHT It is important to note that only those entities that meet the statutory definition of master fund are caught by the new provisions. There are three key components to the definition. First, the fund must be a ‘mutual fund’ as defined under the Law, meaning that it must be an entity that pools investor funds and issues equity interests redeemable or repurchasable at the option of the investor. Second, it must have at least one regulated feeder fund, being a fund registered with the Authority that conducts more than 51% of its investing through another mutual fund. Third, the fund must both hold investments and conduct trading activities. If any of the key components of the definition are not met, the entity in question will not fall within the scope of the new regulatory regime. Most notably, closed-ended master funds (being those whose equity interests are not redeemable at the option of the investor) will not be caught. In addition, those master funds that do not have a Cayman feeder fund registered with the Authority will be out of scope. Master funds that issue bonds, rather than equity interests, will also not be caught. OBLIGATIONS OF A CAYMAN MASTER FUND A Cayman master fund is required to appoint a local approved auditor and to file audited financial statements with the Authority. Audited financial statements must be filed within six months of the financial year end of the master fund. For most master-feeder structures, we expect compliance with these obligations to be relatively straightforward on the basis that they will replicate the existing audit structure of the feeder fund. MECHANICS OF REGISTRATION A master fund that is within the scope of the new regulatory regime is required to file the fund’s certificate of incorporation (or equivalent document) and a form MF4. If the master fund has a different auditor from that of the regulated feeder fund, the form MF4 must be accompanied by a letter of consent from a local approved auditor. Similarly, if the master fund has a different administrator from that of the regulated feeder fund, the administrator must provide a letter confirming its acceptance of the appointment. While it would be extremely rare for a master fund to issue a separate offering document, if it does, that too must be filed with the Authority. The fee for registration is CI$2,500 (approximately US$3,050). REGULATORY POWERS OF THE AUTHORITY Once registered, a master fund is treated as a regulated mutual fund under the Law. The Law confers regulatory powers on the Authority, the Governor in Cabinet and the courts of the Cayman Islands. These powers are designed to protect investors by enabling the investigation of funds and enforcement of remedies where necessary including, if need be, deregistration, reorganisation or winding-up of the relevant fund. The Authority also has access to the Grand Court of the Cayman Islands for orders to protect the interests of investors and creditors of the fund. Certain principal regulatory powers conferred on the Authority by the Law in relation to mutual funds are as follows: • Name of fund: The Authority may direct any mutual fund (whether regulated, private or unregulated) to change its name if the existing name is regarded as confusing or misleading. • Special audit: The Authority may at any time direct a regulated mutual fund to have a special audit and to submit the audited accounts to the Authority within a specified period. • Provision of information and documents: The Au- HFMWEEK.COM 49
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