Executive summary

Timeline

Summary of the Law

Identification of master funds

• be formed in the Cayman Islands;
• offer equity interests redeemable at the option of the holder;
• hold investments and conduct trading for the principal purpose of implementing the overall investment strategy of a regulated feeder fund; and
• have one or more regulated feeder funds directly or through an intermediary entity established to invest in the master fund.

Application to typical structures

• where a regulated mutual fund conducts its investment business through a single open ended subsidiary trading 51% or more of its assets then that subsidiary should register as a master fund.
• where a feeder fund is not registered with CIMA, for example on the basis there is no pooling or in reliance upon the 15 Investors Exemption, then the master fund registration requirements will not apply to its subsidiaries.
• where one or more feeder funds have less than 51% of their assets invested in a subsidiary that subsidiary is not a master fund and is not required to be registered. We would note:
• for a regulated mutual fund with two or more wholly owned trading subsidiaries, the subsidiaries will normally fall outside the regime (as no one subsidiary will implement the "overall investment strategy" of the parent fund).
• the definition focuses upon the ultimate master fund where the trading of investments occurs, as opposed to any intermediate vehicles.
• the requirements for a "principal purpose" and an arrangement "established to invest", mean that inadvertent or short term structures are not caught. ï," there is no clarification as to when or how the 51% test is applied, for example in the cases of a fund with fluctuating allocations or an umbrella fund.

Registration requirements for master funds

• payment of the initial and annual fees of US$3,049;
• filing of letters of consent from the administrator and the Cayman Islands auditor;
• initial filing of a copy of the certificate of incorporation or registration for the fund;
• annual filing of locally audited accounts (and annual review information); and
• initial filing and ongoing maintenance with CIMA of limited registered particulars concerning the master fund and, if one has been prepared, any offering document for the master fund.

No impact on closed ended funds, many sole investor structures or wholly unregistered "master-feeder" fund structures

• closed ended funds, i.e. funds which do not offer investors a right to redeem;
• funds for a single investor (unless they are the sole trading subsidiary of a regulated feeder fund); and
• master feeder fund structures where both the master fund and the feeder fund rely on the 15 Investors Exemption.

New fees under the Law

Next steps