On 5 December 2011, the Government of the Cayman Islands passed the Mutual Funds (Amendment) Bill, 2011 which is expected to come into force in or around the first week of January 2012 (Effective Date), whereupon master funds domiciled in the Cayman Islands will be required to register with the Cayman Islands Monetary Authority (CIMA).
Many master funds in a “master-feeder” structure currently rely on an exemption from registration with CIMA under the Mutual Funds Law where they have not more than 15 investors, the majority of whom are capable of appointing or removing the operator of the master fund.
Who will be affected?
Any master fund (new or existing) will be caught by the new law. A “master fund” means a mutual fund incorporated or established in the Cayman Islands that holds the investments of and conducts trading activities on behalf of one or more regulated feeder funds. A “regulated feeder fund” means a CIMA regulated mutual fund that conducts more than 51% of its investing through another mutual fund.
When and how to register the master fund?
From the Effective Date, all new master funds will need to be registered from the outset. Existing master funds will need to be registered within 90 days of the Effective Date of this law. It is unclear whether any extension will be granted at this stage.
If the only investors of a master fund are feeder funds, the master fund will be exempted from filing a separate offering document, though a registration form (to be known as Form MF4) and certain additional details relating to the master fund offering will need to be filed with CIMA. Also, an annual fee of CI$2,500 (US$3,048) will be payable upon registration.
What are the obligations involved?
A registered master fund will need to comply with many of the same obligations as other CIMA registered funds, including payment of the annual fee and filing of audited financial accounts signed off by a Cayman-approved auditor.
Considering the tight time frame, we do encourage all parties who may be affected by this new law to contact their local or Cayman Islands counsel to ensure compliance.