Cayman Investment Fund Structures
Timothy Stevens & Thomas Granger
13 December 2022

Outline• About Walkers• Why Structure an Alternative Investment Fund in Cayman?
• Overview of Structure Types and Key Differences• The ‘Tried and Tested’ Structure – the Unit Trust• The ‘Classic’ Structure – the Exempted Limited Partnership• Cayman Regulatory Regimes

Walkers•

Founded in 1964•

Head office in the Cayman Islands•

Over 1000 staff worldwide•

10 offices globally•

Bermuda, BVI, Cayman Islands, Guernsey, Jersey and Irish
law capability•

Operating in Hong Kong since 2003, Singapore since2009•

64 lawyers in Asia (Hong Kong: 48 lawyers; Singapore: 16lawyers)•

26 finance specialist fee earners in Asia (8 partners, 12associates/counsels and 6 paralegals)

Walkers Offices

Why Structure an Alternative Investment Fund in Cayman?

Cayman is Popular with the Japanese Funds Industry
Three main reasons:• Familiarity to Japanese investors• Favourable tax treatment• Regulatory regime

Cayman is an Established International Financial Centre• Offers a politically stable and neutral venue to conduct internationalbusiness• Provides a tax neutral platform• Trusted and reliable legal system• Compliance culture• Business-friendly legislation• SpeedOverview of Structure Types and Key Differences

Open Ended vs Closed Ended• Open: right to redeem / withdraw• Closed: No right to redeem withdraw• "Hedge" / "mutual" = open• "PE" / "VC" / "private debt" / "RE" = closed

9Structuring Choices• Large variety of vehicle choices in Cayman– Unit Trust– Exempted Limited Partnership (“ELP”)– Exempted Company– Limited Liability Company (“LLC”)• Not “one size fits all”
• Various factors influence choiceThe ‘Tried and Tested’ Structure – the Unit TrustWhat is a Unit Trust?
A type of trust• Established by a deed of trust• Operated by a trustee• Legal title to trust assets vests in trustee• Unitholders issued units in the trust

What is a Unit Trust?
A type of fund• Unit trust is the fund vehicle• Unitholders are the investors• Trustee delegates management of fund to the investment manager• Used for open-ended and closed-ended fund structures

Typical Structure - Unit TrustManagementAgreement

Trustee

Trust
DeedLegalTitle toAssets

ManagerManages
FundAssets

UNIT TRUST
Offering
Document

Unitholders

Pros and Cons for Japanese Market – Unit TrustProsCons• Familiarity• Less flexible regime• Favourable tax treatment• No capital commitment / callmechanism• Regulation• Comfort of trustee• Not common for closed-endedfunds

The ‘Classic’ Structure – the Exempted Limited Partnership

What is an Exempted Limited Partnership (an ELP)?
A type of partnership• Consists of:– General partner(s)– Limited partner(s)• Regulated by:– Exempted Limited Partnership Law– Exempted Limited Partnership Agreement (the LPA)

• No legal personality• Assets held on trust for the partnership by the GP

What is an Exempted Limited Partnership?
A type of fund
• The most favoured structure for PE funds• General partner conducts business of the fund
• Limited partners are the investors and have limited liability• Limited partners make capital commitments• General partner makes capital calls• Limited partners are issued an interest in the partnership

Typical Structure – Partnership

A&R
LPA

PPM

LimitedPartners
IMA

LimitedPartnership
Interests

ExemptedLimitedPartnership

AssetsGeneralPartner

Investment
ManagerPros and Cons for Japanese Market – ELPProsCons• ‘Classic’ structure• Article 63 Exemption• Capital commitments / calls• No legal personality• Flexible law / defaults• GP and fiduciary duties• Interests vs Units• Article 63 Exemption

Cayman Regulatory Regimes

Regulation – Registration with CIMA
Open ended (Mutual Funds Act)

Closed Ended (Private Funds Act)•••

Registration form•

Cayman auditor

•
•
•
•
•

Prepare and file PPM
Administrator
Annual fee

Accounts filed

PPM changes filed•

Registration form•

Cayman auditor•••

Minimum investment?
•No PPM requirementAnnual fee

Accounts filed"Ongoing obligations"––––Valuation
Safe keeping
Cash monitoring
Securities ID

No minimum investment

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Regulation – Ancillary
Open ended

Closed Ended•

••

AML•

AML•

FATCA / CRS•

FATCA / CRS

Directors registration andlicensing law– Registration– Filings

No directors registration andlicensing law– Registration– Filings

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Regulation – AML – Legislation and guidance
Proceeds of Crime
Act (as amended)("POCA")

Terrorism Act (asamended)

Anti-Money
Laundering
Regulations (asamended)("AMLRs")

ProliferationFinancing
Prohibition Act(as amended)

Guidance Notes on the Prevention andDetection of Money Laundering Terrorist
Financing and Proliferation Financing in
the Cayman Islands("Guidance Notes")Key Cayman Islands AML / CFT/PF/Sanctions requirements
Procedures

Identificationand verification
investors and, if applicable,
beneficial owners and any
controlling persons

CDD: information anddocuments, source ofwealth, SDD, EDD, PEPs,
ongoing monitoringrisk-management
procedures concerning
conditions under which acustomer may use thebusiness relationship priorto verification

Record keeping

mandatory to keep records
for a minimum of five years
following either thetermination of the business
relationshipapplies to completion of aone-off transaction (or thelast in a series of one-offtransactions)Internal Controls

Risk-based
approachrisk-based approach toidentify, assess, determine
and monitor risk

risk based assessment of
the entity as a wholechecks against all applicablelists of sanctions and of
non-compliant jurisdictions

ReportingfunctionControlfunctionsinternal and externalreporting of suspicious
activity

controls to ensure internal
compliance with Cayman
AML regimedesignate both a Money
Laundering Reporting
Officer ("MLRO") and a
Deputy Money Laundering
Reporting Officer ("DeputyMLRO")

designate an Anti-Money
Laundering Compliance
Officer ("AMLCO")

internal audit, employee
screening, training andawarenessRegulation – AEOI (FACTA and CRS)

• Cayman Islands fund entities – "financial Institutions"–Registration and reporting obligations–Appointment of PPOC/AP–Policies and Procedures–CRS Compliance Form

Thank you.

Timothy Stevens,
Partner+65 6595 4676
timothy.stevens@walkersglobal.com

Thomas Granger
Partner+852 2596 3348
thomas.granger@walkersglobal.com