New amendments to the Cayman Private Funds Law
The Private Funds (Amendment) Act, 2020, passed on 7 July 2020, amends the Private Funds Law, 2020 in several significant ways. It widens the definition of "private fund" and brings within registration with the Cayman Islands Monetary Authority certain corporate entities previously thought to be excluded: the principal business, spreading of investment risk and incentive scheme limbs of the definition have been deleted, and "issuing" has become "issuing or having issued" investment interests. It also requires those who value fund assets, act as custodian or monitor cash to identify, manage and monitor conflicts of interest and disclose them to investors.
16 July 2020
The Private Funds (Amendment) Act, 2020, passed on 7 July 2020, amends the Private Funds Law, 2020 (the PFL) in several significant ways: it widens the definition of "private fund" in the PFL, and brings within the scope of registration with CIMA certain corporate entities that were previously thought to be excluded.
In the definition of "private fund":
1. Principal business
This has been deleted. An entity whose principal business is not fund business, for example buying and selling agricultural land in order to produce and sell agricultural produce at scale, but which also carries on some private fund business, for example raising money for such an enterprise by issuing LP interests, will no longer be automatically excluded from registration with CIMA.
2. Issuing and offering its investment interests
This is replaced by "issuing or having issued its investment interests", which widens the definition to include companies that are not currently issuing investment interests but have issued them in the past, so that they fall within the PFL.
3. For the purpose of spreading investment risk
This has been deleted. The amendment means that a closed-ended fund with only one investment or project will not automatically be excluded from registration with CIMA. Many closed-ended funds that took comfort from the FAQ CIMA published in May 2020 will now need to reassess whether, following the amendment of the Private Funds Law, they remain excluded from registration.
4. Assets of a unit trust, company or partnership formed under an incentive scheme
This has been deleted, so that funds which do not pay management fees, or which charge fees in stages within a closed-ended fund structure, are not excluded from the requirement to register with CIMA.
Conflicts of interest
The Private Funds (Amendment) Act now provides that any person connected or associated with the fund, such as its general partner, which is to carry out (i) valuation of assets, (ii) custody or safekeeping of the fund's assets, or (iii) cash monitoring, must not only identify potential conflicts of interest properly but must also "manage" and "monitor" them and disclose them to the investors in the private fund. The addition of the words "managed and monitored" appears to indicate that CIMA expects a private fund to have policies and procedures for addressing conflicts, and perhaps that it also expects to see an advisory committee or other mechanism established to identify, monitor and manage conflicts in accordance with those policies and procedures.
Non-fund arrangements
Interestingly, the Private Funds (Amendment) Act, which includes the deletion of the business and incentive limbs of the definition of "private fund" discussed above, does not amend the schedule of "non-fund arrangements" in the PFL. So although the schedule sets out "non-fund arrangements", it continues to include "non-trading arrangements".
For further guidance and assistance on registering a private fund with CIMA, please contact us:
Telephone: 021-68819098