The Cayman Islands is the leading jurisdiction for the offshore investment funds industry due to its combination of flexible and appropriate regulation, an  approachable and effective regulator, professional service provider expertise, high reputation among investors and a tax neutral regime.

According to the latest available statistics, there were just under 11,000 investment funds registered with the Cayman  Islands  Monetary  Authority  (CIMA)  as  at  the  end  of  2015,  making  it  the  leading  jurisdiction  for regulated alternative funds of all kinds.

There are also significant numbers of unregulated investment funds that are established in the Cayman Islands which qualify to be exempt from regulation by CIMA.


Investment  funds  established  in  the  Cayman  Islands  fall  into  two  broad  categories:  open-ended  funds  and closed-ended funds.

Open-ended funds, also known as hedge funds, are funds that provide investors with voluntary redemption or repurchase rights and closed-ended funds, are funds that do not provide investors with voluntary redemption or  repurchase  rights.  Typically  the  former  will  invest  in  liquid  assets  which  can  be  readily  realised  to  fund redemptions  (for  example,  listed  liquid  tradable  securities)  and  the  latter  will  invest  in  non-liquid  assets requiring time to liquidate/realise value (for example, real estate, unlisted growth companies).

Fund Vehicle Options


Exempted  companies  limited  by  shares  are  the  most  common  form  of  entity  used  for  the  establishment  of open-ended investment funds with an investor's liability being limited to the amount paid or agreed to be paid in respect of their shares.

Segregated portfolio companies

An exempted company may register as a segregated portfolio company (SPC). An SPC is akin to a segregated cell company in many other jurisdictions.

An  SPC  may  establish  any  number  of  segregated  portfolios.  Assets  and  liabilities  attributed  to  a  particular segregated  portfolio  are  legally  separated  from  the  assets  and  liabilities  attributed  to  any  other  segregated portfolio. A creditor who is party  to a  contract  involving a particular segregated portfolio will have restricted recourse  and  will  be  entitled  to  make  its  recovery  only  against  assets  attributed  and  credited  to  the  specific segregated portfolio to which the contract is also attributed.

SPCs can be useful as multi-strategy vehicles and platform vehicles but savings by using multi-strategy SPCs are often not as great as anticipated and SPCs with multiple segregated portfolios do require a greater degree of care to ensure assets are properly segregated, contracts are entered into on behalf of the correct segregated portfolio and inadvertent cross-collateralisation does not occur.

Unit trusts

Cayman Islands unit  trusts  are established under  and  governed by  the Cayman Islands statue  the  Trusts  Law and, save  as  modified  under  that  law, generally  applicable  principles  of  English  trust  law.  Under  a  unit  trust investors contribute funds to a trustee which holds those funds on trust for the investors and each investor is directly entitled to a pro rata share in the trust's assets, its unit. Unit trusts are constituted under a trust deed that  provides  the  terms  on  which  the  trustee  holds  the  trust's  assets  for  unit  holders.  The  use  of  Cayman Islands unit trusts is particularly popular in Japan.

Exempted limited partnerships

While  an  exempted  limited  partnership  (ELP)  is  the  most  common  vehicle  for  closed-ended  funds  including private equity, venture capital and real estate funds, they are also used for open-ended funds. An ELP has many similarities to its Delaware equivalent vehicle but an ELP is not a separate legal person and for this reason, it is popular with managers and investors in a number of jurisdictions. An ELP is managed by its general partner.



All of the above entities can be established on an expedited basis and no governmental or regulatory approvals are required.

Taxation of vehicles

All of the above vehicles are exempted from any Cayman Islands income or gains taxes and can  obtain a  tax undertaking certificate from the Cayman Islands government guaranteeing no change in their tax status for 20 years or more.

Liability of investors

All of the vehicles issue equity interests which typically limit investor liability to the amount paid or agreed to be paid in respect of their investment.

Management of entities

An exempted company or SPC's management rests with its board of directors, a unit trust's with its trustee and an ELP's  with its general partner (typically a Cayman exempted company and so  ultimately with that entity's board).  Typically  management  authority  is  delegated  to  an  investment  manager  or  adviser  but  a  board  of directors will always retain a requirement under generally applicable law to maintain oversight and CIMA has also  provided  guidance  as  to  the  best  practice  for  fund  directors,  please  refer  to  our  note  on  Cayman  fund directors' duties for further details.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.