Register an Open-Ended Investment Fund (open-ended) in the Cayman Islands

To register an open-ended investment fund (open-ended) in the Cayman Islands is a solution that remains in demand among international asset managers, hedge funds, family offices and institutional investors. The Cayman Islands are considered one of the leading world jurisdictions for the structuring of an investment business thanks to the combination of tax flexibility and adaptive mechanisms of corporate regulation. That is precisely why the registration of an open-ended investment fund in the Cayman Islands is used both for classic investment strategies and for working with digital assets, venture projects and the international management of capital.

From a legal point of view, an Open-Ended Investment Fund is an investment structure allowing investors to acquire and redeem investment interests or shares at the net asset value of the fund (NAV). Unlike closed funds, open-ended investment funds provide for a constant possibility of the entry and exit of investors. The registration of an open-ended investment fund (open-ended) in the Cayman Islands contributes to high corporate flexibility and ensures the customisation of the structure to diverse investment goals.

Why the Cayman Islands Are a Popular Jurisdiction for Open-Ended Funds

The popularity of the islands is conditioned by the absence of direct taxation, a developed legal system and the recognition of the global investment community. A substantial advantage of the jurisdiction is the legal system based on the principles of Common Law. For investors and fund structures, this means a high level of legal predictability, the stability of judicial practice and effective mechanisms of the protection of property interests.

The demand for the registration of open-ended investment funds in the Cayman Islands is directly connected with the flexibility of the local corporate legislation, which allows the establishment of funds with various investment strategies, classes of shares, levels of liquidity and mechanisms of the distribution of profit. This is significant in relation to international cryptocurrency and hedge funds, multi-strategy investment platforms that require an adaptive structure of capital management.

For those who plan to create an open-ended investment fund (open-ended) in the Cayman Islands, the key factor remains the liberal tax system. In the territory of the islands, there is no corporate tax, taxes on capital gains, on dividends or at the source of payment. In addition, the legislation provides for the possibility of obtaining a Tax Exemption Undertaking — a special state confirmation of the tax neutrality of the fund for an established period of time. Thanks to this, open-ended funds of the Cayman Islands are widely used in the international structuring of assets, cross-border investing and the organisation of collective investment platforms with the participation of investors from various states.

An additional advantage is considered to be the comparatively prompt procedure of the registration of an investment fund in the Cayman Islands. Unlike a number of European jurisdictions, where the creation of an investment structure may take months and be accompanied by complex licensing procedures, the registration of an Open-Ended Fund in the Cayman Islands is usually carried out in shorter timeframes, provided the correct preparation of the documentation and the observance of compliance requirements. The speed of incorporation is important for investment managers working in dynamic segments of the financial market, including digital assets and alternative investments.

No less important a factor remains the reputation of the local financial regulator — the Cayman Islands Monetary Authority, known as CIMA. Despite the comparatively flexible regime of regulation, the legislation of the islands provides for the full-fledged observance of the international standards of AML, KYC, FATCA, CRS and the requirements of financial monitoring. Funds are obliged to implement procedures of the compliance check of investors, internal control of risks and the countering of the laundering of monetary funds. Thanks to this, the registration of an open-ended investment fund in the Cayman Islands is perceived by international banks, administrators and institutional investors as a legitimate and regulated instrument of capital management.

Due attention is deserved by the developed infrastructure of financial services. In the jurisdiction, a significant number of international legal consultants, fund administrators, auditors, depositaries and corporate service providers specialising in the support of investment funds are concentrated. 

In Which Forms an Open-Ended Investment Fund (open-ended) Can Be Registered in the Cayman Islands

An open-ended investment fund in the Cayman Islands can be established in several organisational and legal forms. The most widespread is the exempted company (Exempted Company). It possesses separate legal personality, allows the limiting of the liability of the shareholders to the size of their contribution and ensures flexibility in the issuance of various classes of shares, including the possibility of creating multi-class and multi-currency investment strategies. It is precisely this legal form that is most often used for the registration of hedge funds in the Cayman Islands. In addition to it, the legislation allows the use of an exempted limited partnership (ELP) and a segregated portfolio company (SPC).

The choice of the specific form usually depends on the investment strategy, the composition of the investors, the tax goals and the requirements of potential counterparties. For the professional structuring of a fund in the Cayman Islands, the legal analysis of the organisational model is a mandatory stage of the preparation of the project.

The Regulation of Open-Ended Investment Funds in the Cayman Islands

The main regulatory act regulating the activity of open-ended investment funds is the Mutual Funds Act. According to the provisions of this law, a fund is subject to registration with the Cayman Islands Monetary Authority in the event that the structure carries out the collective investing of capital, provides investors with the possibility of the redemption of interests and presupposes the prohibition of investing in one object.

The regulation of funds in the Cayman Islands is considered more flexible in comparison with other European jurisdictions. At the same time, CIMA possesses broad powers as regards the control of compliance procedures, the disclosure of information and the observance of the rules of financial monitoring. The breach of the regulatory prescriptions entails the application of administrative sanctions, fines and restrictions in relation to the activity of the fund.

How the Registration of an Open-Ended Investment Fund in the Cayman Islands Proceeds

The procedure of the registration of an Open-Ended Fund in the Cayman Islands begins with the building of the legal structure and the preparation of the corporate documentation. At this stage, the following are determined:

• the investment strategy of the fund;

• the structure of the investors;

• the jurisdiction of the management company;

• the procedure of the subscription and redemption of interests;

• the internal mechanisms of corporate governance.

After this, a package of documents is prepared, including the articles of association and the memorandum of association, the documents on subscription and the internal compliance policies. Special control on the part of the regulator is required by the disclosure of risks, the investment strategy and the AML/KYC procedures, since these aspects are thoroughly analysed by the regulator.

The next stage is the appointment of service providers. Depending on the structure of the fund, the following may be engaged:

• an administrator;

• an auditor;

• an AML manager;

• an MLRO and a DMLRO;

• a legal consultant;

• an investment manager. 

At the same time, the management company does not necessarily have to be located directly in the Cayman Islands. After the preparation of the documentation, the submission of the registration package to CIMA is carried out. Usually, the creation of an open-ended investment fund in the Cayman Islands takes several weeks depending on the complexity of the structure, the quality of the legal documentation and the specifics of the investment strategy.

It is impossible to open an investment fund in the Cayman Islands without the observance of the international requirements of financial monitoring and transparency. The legislation provides for the mandatory implementation of AML/KYC procedures, the identification of investors, internal risk management and the control of the origin of capital. In addition, open-ended funds are obliged to take into account the provisions of FATCA, CRS and international sanctions regimes. This means the necessity of constant compliance support of the activity of the fund in the Cayman Islands and regular interaction with auditors, administrators and legal consultants.

The Cost of the Registration of an Open-Ended Fund (open-ended) in the Cayman Islands

The cost of the registration of an open-ended investment fund in the Cayman Islands depends on the structure of the project, the number of investors, the chosen organisational and legal form and the volume of support. Additionally, the expenses are influenced by the necessity of international tax structuring and the complexity of the investment strategy.

As a rule, the main costs include:

• state duties;

• the services of a registration agent;

• the preparation of documentation;

• the annual audit;

• the services of the fund administrator;

• the maintenance of compliance. 

For professional participants of the market, the creation of an open-ended investment fund in the Cayman Islands is regarded as part of an international investment infrastructure ensuring the effective management of cross-border capital.

Conclusion

The registration of an open-ended investment fund in the Cayman Islands is an effective mechanism of the international structuring of capital, combining tax neutrality, corporate flexibility and the recognition of the world financial community. With competent support, the registration of an open-ended fund in the Cayman Islands becomes a full-fledged structural instrument of international capital formation, ensuring the stable attraction of foreign investors, the professional management of assets in accordance with global standards of compliance, as well as the implementation of long-term investment strategies with a flexible structure of the distribution of risks and yield.