The Cayman Islands is a major offshore jurisdiction for hedge funds. It is attractive as a domicile for funds because of the fully developed business law, the English-based legal system and a regulatory and professional infrastructure capable of implementing large and complex international business transactions.
Setting up a hedge fund in the Cayman Islands offers:
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There are three main hedge fund structures:
Companies. Companies are incorporated with limited liability, with open-ended investment companies issuing redeemable shares. The limited liability company is widely used for hedge funds.
Unit Trusts. The unit trust is a popular vehicle and Cayman Islands trust law essentially follows English trust law whereby unit trusts are established under a trust deed giving unit holders undivided beneficial interests in the trust property. Unit trusts are often used, in place of companies, for investors in jurisdictions where participation in a unit trust is more acceptable or attractive than shares in a company.
Exempted Limited Partnerships. The exempted limited partnership concept follows its Delaware counterpart and is very popular with U.S. managers. Closed-ended/private equity funds are most commonly established in the Cayman Islands as exempted limited partnerships.
Hedge funds are formed in the Cayman Islands and are registered mutual funds under Section 4 (3) of the Cayman Islands Mutual Funds Law. The minimum initial investment into a registered mutual fund by all investors, other than persons connected to the investment manager, is at least US$100,000.
Setting up a hedge fund in the Cayman Islands offers:
- Speed and simplicity of establishing Cayman Islands entities
- Relatively low cost
- Flexible and practical business statutes
- Cayman Islands insolvency law is simple and effective
- Strong compliance culture
- English-based legal system, established judiciary and absence of political or sovereign concerns
- Professional infrastructure and reputation. Well-known for its established and experienced financial services sector
- Compliance with international anti-money laundering, anti-terrorist financing and other financial regulatory standards
- Significant number of international tax information exchange agreements and OECD ?white list? status
- Tax and exchange control neutrality
- Requirement for a regulated open-ended Cayman Islands fund to have its audit signed off by an accounting firm located in the Cayman Islands.
- The other service-providers to the fund (investment managers, advisers, brokers, administrator, etc.) may be located anywhere in the world
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Companies. Companies are incorporated with limited liability, with open-ended investment companies issuing redeemable shares. The limited liability company is widely used for hedge funds.
Unit Trusts. The unit trust is a popular vehicle and Cayman Islands trust law essentially follows English trust law whereby unit trusts are established under a trust deed giving unit holders undivided beneficial interests in the trust property. Unit trusts are often used, in place of companies, for investors in jurisdictions where participation in a unit trust is more acceptable or attractive than shares in a company.
Exempted Limited Partnerships. The exempted limited partnership concept follows its Delaware counterpart and is very popular with U.S. managers. Closed-ended/private equity funds are most commonly established in the Cayman Islands as exempted limited partnerships.
Hedge funds are formed in the Cayman Islands and are registered mutual funds under Section 4 (3) of the Cayman Islands Mutual Funds Law. The minimum initial investment into a registered mutual fund by all investors, other than persons connected to the investment manager, is at least US$100,000.
