Mutual fund

The definition of a mutual fund

The Mutual Funds Law (as Revised) (the "Mutual Funds Law") defines a mutual fund (or a hedge fund and between such definitions there is no distinction under Cayman Islands law) as a company, unit trust or partnership that issues equity interests, the purpose or effect of which is the pooling of investor funds with the aim of spreading investor risk and enabling investors to receive profits or gains from the acquisition, holding, management or disposal of investments.

Equity interests are defined as a share, trust unit or partnership interest that carries an entitlement to participate in the profits or gains of the company, unit trust or partnership, as the case may be, and which may be redeemed or repurchased at the option of the investor.

The Mutual Funds Law applies to all open ended funds (funds in which the investors have the right to redeem their interests at their option), except those specifically excluded from regulation.

Types of regulated mutual funds

There are essentially four types of mutual funds that are subject to regulation and supervision under the Mutual Funds Law by the Cayman Islands Monetary Authority (“CIMA”) :-

1. Registered Mutual Funds - Streamlined registration procedures are available for mutual funds where:

(i) the initial minimum equity interest purchasable by an investor is US$100,000; or

(ii) whose equity interests are listed on an approved stock exchange such as the CSX. Registration requires filing the appropriate forms with the Cayman Islands Monetary Authority (“CIMA”) together with a copy of the current offering document, consent letters from the auditors and the administrators and payment of the registration fee

Where the fund is not a registered mutual fund and is not excluded from regulation, it must either apply for a mutual fund licence or apply to be regulated as an administered mutual fund

2. Licensed Mutual Funds – A mutual funds licence is suitable for retail funds with a large and reputable promoter who does not intend to appoint a Cayman Islands administrator. In order to obtain a mutual fund licence, the fund is required to:

(i) file and keep on file with CIMA a current copy of the fund’s offering document

(ii) maintain a registered office in the Cayman Islands (or if a trust, a licensed trust company acting as trustee)

(iii) appoint a reputable administrator which need not be a Cayman Islands administrator

(iv) submit evidence to CIMA showing the soundness of the promoter, the expertise of the administrator and that the directors are fit and proper persons

CIMA provides maintains principal supervisory oversight of the fund.

3. Administered Mutual Funds - To be regulated as an administered mutual fund, the fund must appoint a Cayman Islands licensed Mutual Fund Administrator to provide its principal office in the Cayman Islands. Although a majority of the supervisory functions which are performed by CIMA for licensed mutual funds such as verifying the reputation and suitability of the promoter and the administrator and ensuring compliance with the Mutual Funds Law is carried out by the Cayman Islands administrator, CIMA maintains a general supervisory and enforcement role with respect to administered mutual funds.

4. Non-Cayman Islands Funds – Funds that are established or incorporated outside of the Cayman Islands but whose management or administration is provided in the Cayman Islands may be required to be registered in the Cayman Islands. If a corporate mutual fund is subject to regulation under the Mutual Funds Law it must first register as a foreign company under the Companies Law (as Revised) to be licensed or registered as a mutual fund.