Hedge funds why cayman

Both Cayman and the BVI are British Overseas Territories, and as such offer all the security and stability traditionally associated with the British flag. Each jurisdiction is responsible for its own internal self-government, while the United Kingdom remains responsible for external affairs, defence and the courts. Both jurisdictions have an independent legal and judicial system based on English common law, with a right of final appeal to the Privy Council in London.

Each jurisdiction benefits from advanced telecommunications, infrastructure and support services, and an educated and well-trained workforce. In both Cayman and the BVI, policies and legislation have been developed in close partnership with the private sector to ensure that they meet the needs of the financial community. Through this partnership, the respective governments have established sophisticated and efficient supervision and regulation to safeguard their jurisdiction's integrity while creating an operating environment that is highly attractive to private enterprise.

Mutual funds may be formed in either jurisdiction as companies, partnerships or unit trusts, and each such vehicle will be exempt from taxation in the relevant jurisdiction.

Companies remain the most common vehicle used and both Cayman exempted companies and BVI international business companies are very flexible entities with no minimum capital restrictions. There are no legal restrictions on the percentage of interests in a mutual fund that may be held by one person or a related group of persons.

Umbrella funds and fund of funds are permitted in both jurisdictions. In both Cayman and the BVI, corporate mutual funds may issue shares in multiple classes or series. Such shares may be issued with or without voting rights.

In the latter case, a small number of voting management shares are typically held by the investment manager allowing minor changes to be made to the operating structure of the mutual fund without the need to call a meeting of the investors. Non-voting shareholders would, however, have the right to vote in respect of matters which vary the rights of their shares.

There are no residency requirements for directors, and no requirements for local administrators or local custodians. Neither Cayman exempted companies nor BVI international business companies are required to hold annual board or shareholder meetings. There are no restrictions on the investment policies and strategies of a mutual fund in Cayman or the BVI, and no legal restrictions on its power to borrow, other than those specifically contained in the fund's prospectus or its constitutional documents.

There are no restrictions on the arrangements which a Cayman or BVI fund may wish to make with respect to prime brokers. Indeed, fund numbers have continued to rise on a monthly basis in , with some predicting they will be back up over 10, by the end of this year.

There are also thousands of private equity funds established in the Cayman Islands. While a few European-based managers and investors are taking steps to move their funds closer to home, we are not seeing the threatened drift away from the Cayman Islands to destinations like Luxembourg and Dublin. Accordingly, despite attacks on offshore centres, the attraction of the Cayman Islands is still strong, in large part because setting up in the Cayman Islands is so simple, with minimum red tape, service providers with a wealth of knowledge and experience, and zero tax.

The key regulatory objective under this Law is to compel proper disclosure by fund operators so that investors are fully aware of what they are investing in. Cayman maintains a strong advantage over many other jurisdictions because of this sensible and workable approach to fund regulation and its well established legal system, based on English common law.

The problem of when a jurisdiction appears on the blacklist is it would affect lots of investors and also managers. In the investment world, many investors have their own bylaws. Some of them such as pension funds would prohibit them from investing in a jurisdiction which is listed in the EU blacklist.

So this is quite problematic if a jurisdiction is on the blacklist. The common practice for Cayman funds As outlined above, having legal capabilities on the ground in North America, Europe and Asia has meant that the Cayman Islands has been able to readily promote itself as an attractive jurisdiction for hedge funds.

It is a common law jurisdiction that people are familiar with. By practice, hedge funds established in the Cayman Islands will take the form of a company, a limited partnership, or a unit trust, and they can be managed by a management entity operating from anywhere in the world.

It is reported that the fund managers for a majority of Cayman funds do not have a presence in the Cayman Islands because there is no requirement per se for them to be domiciled there. Now, we all do know that in the Cayman Islands they do have their own residents, but very few fund managers operate from there.

Of course there are a few, but many international fund managers actually work and live in cities of their choice, like New York, London, Hong Kong or Singapore. Yip further explained that there was a significant trend among fund managers, particularly those from Asia, in setting up a Cayman fund manager entity and entering into a fund management agreement with a Cayman fund.

Then the Cayman fund manager entity would sub contract some or all of its services to a local investment advisor, for example, in Hong Kong. The Cayman fund would pay two percent management fee to the Cayman fund manager, which in turn would pay a portion to the local investment advisor. In turn, that allows the Cayman fund manager to keep a good profit margin, while in the past such profit margins kept in the Cayman Islands were not commonly subject to tax anywhere in the world.

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Learn More Accept. Finance and Banking. Your LinkedIn Connections with the authors. To print this article, all you need is to be registered or login on Mondaq. Introduction to Cayman Funds Cayman is one of the leading international domiciles for hedge and private funds offering a variety of fund structures.

Regulatory Regime The Cayman Islands Monetary Authority "CIMA" is the competent authority responsible for the initial authorisation and on-going supervision of all registered and licenced Cayman hedge fund structures and registered private fund structures. The categories of regulation applicable to funds in Cayman are based on certain factors including: the liquidity of the fund's interests; the type of interests issued by the fund; the extent of control devolved to the fund's investors; the minimum subscription amount applicable to an investment in the fund; whether and where the fund's interests are listed; the location of the principal office of the fund; and the number of investors in the fund.

Timeframe for Launch No regulatory review is required of the constitutional or offering documents of a registered hedge fund or a registered private fund. This allows for funds to commence trading as soon a as: the terms of their constitutional and, if applicable, offering documents are settled; the form of their service providers' agreements are settled; and the offering document or summary of terms and certain prescribed particulars are filed with CIMA. Principal Legal Structures The legal structures within which Cayman regulated funds can be housed are: companies; LLCs; limited partnerships; and unit trusts.