The Cayman Islands Monetary Authority (“CIMA”) has published a more detailed, updated FAQ in relation to the Private Funds Law, 2020 (the “Law”) on 7 May 2020 (originally published in April and updated by CIMA on 1 May) to provide further guidance on several concepts that comprise the definition of a “private fund”, by clarifying each of these concepts as well as CIMA’s expectations in respect of the application of the various provisions of the Law.
Points to note:
- A closed-ended single investor fund will not meet the definition of a private fund under the Law;
- Fund operators should consider a collective investment scheme a private fund if all the elements included in the definition of a private fund under the Law are present or otherwise established (i.e. offering and issuance of investment interest, pooling of investor funds and spreading of investment risk). Note: the absence of one or more of these elements should not be taken to conclusively demonstrate that the entity is not a collective investment scheme. Legal advice should be taken to conduct the analysis;
- An entity should not be considered a private fund unless all the elements included in the definition of a private fund under the Law are present;
- A copy of the marketing materials (summary of terms or offering document) will be required upon registration (and any subsequent changes made thereto);
- Documents required to register include: REEFS Application Form, Certificate of Incorporation/Registration, Constitutive Documents (MAAs/Trust Deed/LPA (as applicable), Marketing Materials, Auditors Letter of Consent, Administrators Letter of Consent (if applicable), Structure Chart and Application Fee;
- A minimum of two (2) directors are required for applicants that are companies;
- The minimum two (2) director test will also apply to the general partner or corporate director, requiring that a minimum of two (2) natural persons be named in respect of a general partner or corporate director of a private fund;
- Alternative Investment Vehicles (AIVs) under a private fund will not require separate registration, however information in regard to such entity will be collected at the time of registration, with any changes to such information to be reported to CIMA as part of the ongoing obligations of the private fund;
- AIVs under a Non-Cayman main private fund that meets the definition of a private fund will be required to register under the Law (with a group registration regime available for AIVs within the same fund structure);
- Private funds will be required to have their accounts audited annually by an auditor approved by CIMA;
- The valuation of assets of a private fund should be conducted in accordance with the private funds valuation policy. Valuations must be carried out at least on an annual basis. CIMA will issue rules establishing the policies and procedures required with respect to the valuation of the assets of a private fund;
- CIMA will require the annual valuation of assets even if the investors do not require annual valuations. The Law provides various ways in which the obligation to value assets annually can be met; and
- A private fund must have a cash monitoring process (monitoring cash flows, checking cash accounts and receipt of investor payments). This function can either be done internally (by the investment manager) or by a third-party service provider to ensure that this function is carried out. If performed internally, the private funds auditor will have to confirm that the process was done throughout the year when signing off the audited financial statements. CIMA will issue rules establishing the policies and procedures with respect to the cash monitoring requirements of a private fund.