Investors who have an eye on the Cayman Islands generally consider establishing an offshore fund.

In fact, some estimates indicate that this jurisdiction is home to about 70% of the world's funds.

Today, the Cayman Islands is one of the world’s leading offshore jurisdictions and is particularly renowned for establishing investment funds.

Additionally, Cayman Islands entities are customarily used for transactions of all types, including equity, debt, insurance, capital markets transactions, mergers and acquisitions, and joint ventures. 

The Cayman Islands have no direct taxes of any kind.

There is no corporation tax, capital gains tax, profits tax or income tax.

The above advantages work like a magnet to attract hedge funds, which are tax free and can pay profits to their investors without making the deductions that other jurisdictions require.

Without further ado, here is a summary of the main reasons why you should consider opening a fund in the Cayman Islands.

1. Variety: in the Cayman Islands, there are several types of funds that are very flexible to the needs of each investor, whether it be a registered, managed, and licensed, or private fund.
2. A foolproof financial infrastructure: The Cayman Islands are one of the world's premier international financial centres. Therefore, the jurisdiction has a financial infrastructure that minimises risks and promotes ease of doing business.
3. Good political-economic climate: The islands are not called a paradise just because of their natural wonders. The Cayman government enjoys well-established political stability, which translates into a favorable and relatively predictable economic climate.
4. A favorable tax scheme: In this advantageous jurisdiction, there are no capital gains, income, profits, or withholding taxes.
5. A secure jurisdiction: The Cayman Islands have consolidated regulations and a reputation that positions this jurisdiction as one of the safest place to do business in the world.
6. Simple requirements: The requirements to establish and manage a fund in the Cayman Islands are so simple that it is challenging to find a jurisdiction that can compete when it is comes convenience.

Caymanian Funds

Establishing investment funds in the Cayman Islands can be very beneficial. There are a lot of institutional investors but private fund placement has also found a niche here, but all types of investors can establish funds. 

There are currently over 20,000 regulated funds in the Cayman Islands. The high degree of flexibility allows mutual funds to be structured as companies, trusts, or limited partnerships.

Types of Cayman Funds

Registered mutual funds: This kind of fund requires registration with the Cayman Islands Monetary Authority (“CIMA”), in addition to a minimum initial investment of $100,000 per investor.

The main characteristic of a mutual fund is that the investors can issue equity interest that can be redeemable or purchased at the option of the investor. These types of financial instruments will allow the reduction of the investment risk associated with any investment strategy.

Administered mutual funds: you may choose administered mutual funds, which require the appointment of a named licensed administrator who has a principal office in the Cayman Islands and thus bears primary responsibility for the regulation of these funds.

This type of mutual fund is favored by investment managers who wish to have a minimum initial subscription per investor that is lower than $100,000.

Licensed mutual funds: These kinds of funds are products established more by large institutions, in particular by their directors or general partners.

Their daily operations are delegated to other specialised professionals.

• Choosing the type of fund: Investors have several options for opening a fund in the Cayman Islands. Among all the options, the most popular are hedge funds. It is also noteworthy that investors can choose between an open or closed-ended fund.

• Select the legal entity: A fund can be registered through a company, a trust or a partnership. This will always depend on the specific needs of each investor.

• Appoint the directors: they need to be under the Directors’ regulatory framework, which is governed by the

Director Registration and Licensing Act and the Directors Registration and Licensing Regulations.

Following that legal framework, directors of any Cayman fund must be registered or licensedwith CIMA, depending on the circumstances.

• Reach the required number of investors: A fund in the Cayman Islands requires a minimum number 2 investors, even though CIMA will register a fund with 1 investor if the client wishes to.

All Cayman funds will require a registration form with CIMA, open-ended funds are required to register under the Mutual Funds Law and closed-ended funds are required to register under the Private Funds Law.

Hedge Funds

Investors with a more determined profile may be inclined to open a hedge fund, which is usually the way to obtain the highest investment returns even when markets are hit by a crisis such as the coronavirus pandemic.

Generally speaking, a hedge fund provides a triple advantage to the investor:

• They are expected to offer higher returns;

• Returns are less correlated with the general market trend and they can be useful, as their name suggests, to offer investment coverage in times of decline;and

• They allow better use of the opportunities; through the wide range of strategies they can carry out and they are extremely flexible investment funds.

In the specific case of hedge funds in the Cayman Islands, they can be registered using the following legal entities: company, trust, or partnership. 

In general, most hedge funds registered in the Cayman Islands are established as open-ended alternative investment funds. This is the figure that allows investors the possibility of redeeming their investment without much work.

If a hedge fund in the Cayman Islands sounds like a good idea, you'll be glad to know that we have a team of Caymanian experts who can help you with the whole process. Contact us to meet our team! 

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Investment areas

There are several investment areas you can focus your funds on in the Cayman Islands, among which you will find options such as:

• Hedge funds;

• Private Equity Funds;

• Real Estate Funds;

• Distressed Funds;

• Other Asset Classes; and

• Cryptocurrency Funds (which also has to licensed under a separate law)

This last area we mentioned is gaining special importance in the Cayman Islands lately due to the impressive development of the Cayman Islands’ telecommunications infrastructure during the last years.

The process for establishing a Cayman fund

The establishment of each fund in the Cayman Islands may have particularities that make each case unique. Nevertheless, in general, an investor or a family office can establish a fund in the Cayman Islands by following this process:

Establishment

• Drafting an offering document setting out the terms of the offering and the fund's shares.
• Prepare the Memorandum and Articles of Association, which will be used to set up the company to conform to the offering document.
• Next, incorporate your preferred type of Cayman company with the Registrar of Companies.
• Appointments of various officers and service providers (such as directors, investment manager, administrator, auditor, valuation services, bankers, etc).

Registration

The fund’s registered agent in conjunction with the manager must duly fill out and submit to CIMA in addition to the following documents:

• Certificate of incorporation;

• Constitutional documents;

• Fund’s Offering Memorandum;

• Fund’s Administrators' Consent Letter; and

• Fund’s Auditors' Consent Letter.

Who are we, and what can we do for you?

Mundo has managed to consolidate a network of experts around the world. Part of that network of experts is comprised of the best financial service providers in the Cayman Islands, one of our all-time favorite jurisdictions.

Our work together with the most prestigious experts of the turquoise paradise is what allows us today to offer our readers a variety of financial services, among which is the establishment of investment funds in this favorable jurisdiction.

So, what are you waiting for? Contact us right now to start the process of establishing a mutual fund in the turquoise paradise! 

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