Entity options available for structuring investment funds include exempted limited partnerships, exempted companies, limited liability companies and unit trusts. Closed-ended funds (such as private equity, credit and venture capital funds) are typically structured as exempted limited partnerships allowing for easy drawdown and waterfall mechanics, and open-ended funds (such as hedge funds) make use of both exempted company and exempted limited partnership vehicles in standalone and master-feeder structures. Cayman Islands unit trusts continue to be a popular choice of vehicle and are predominantly used as investment vehicles for investors in Asia, including China and Japan. While the limited liability company is less frequently used as the investment fund vehicle, it is an attractive and popular choice for general partner and downstream holding vehicles.

A key difference between an exempted limited partnership and an exempted company is that an exempted limited partnership acts as a pass-through vehicle. Notwithstanding registration, an exempted limited partnership is not a separate legal person distinct from its partners. An exempted limited partnership acts through its general partner, and all agreements and contracts are entered into by or on behalf of the general partner. Any right or property of the exempted limited partnership that is conveyed to, vested in or held either on behalf of the general partner or in the name of the exempted limited partnership is an asset of the exempted limited partnership deemed to be held upon trust in accordance with the terms of the relevant statutory regime. 

The formation and registration processes in the Cayman Islands are streamlined and efficient and can be completed on the same day. Exempted companies are formed upon the filing of a declaration and the memorandum and articles of association with the Registrar. Exempted limited partnerships and limited liability companies are formed upon the execution of the relevant operating agreement and the filing of a registration statement with the Registrar. 

Subject to certain exceptions including for single investor funds, open-ended funds must register with the Cayman Islands Monetary Authority (CIMA) under the Mutual Funds Act (As Revised), and closed-ended funds must register with CIMA under the Private Funds Act (As Revised).

To register an open-ended fund, the requisite application form and offering memorandum must be submitted to CIMA prior to the fund launch and directors are required to be registered under the Director Registration and Licensing Act.

To register a closed-ended fund, the requisite application form and offering memorandum (or summary of terms) must be submitted to CIMA within 21 days of a fund accepting capital commitments or, if earlier, prior to the fund receiving any capital contributions for the purpose of investments.

All CIMA registration applications must include consent letters from the administrator (if any) and the auditor of the fund confirming their responsibility for these important roles.

The Cayman Islands legal system is based on well-recognised legal concepts founded in English law, including limited liability and separate corporate personality, which underpin the corporate, partnership and trust vehicles used as collective investment schemes, all of which were tried and tested and found to be robust and effective during the 2008 global financial crisis.

As a general rule, in the absence of a contractual arrangement to the contrary, the liability of a shareholder of a Cayman Islands company that has been incorporated with limited liability and with share capital is limited to the amount from time to time unpaid in respect of the shares it holds. A Cayman Islands company has a legal personality separate from that of its shareholders, and it is separately liable for its own debts due to third parties.

As noted above, a Cayman Islands exempted limited partnership does not have legal personality separate from its partners. General partners have statutory unlimited liability for all the debts and obligations of such partnerships. Fund investors typically subscribe for limited partnership interests on terms that their liability is limited to their contributed capital and outstanding capital commitment (if any).

However, there are limited circumstances under Cayman Islands law whereby an investor who takes part in the conduct of the business of the partnership and holds itself out as a general partner to third parties may, like a general partner, assume unlimited liability for the debts and obligations of the partnership. Exempted limited partnerships are the most common type of Cayman Islands vehicle used in credit and private equity fundraising, and investors in such funds commonly seek Cayman Islands legal opinions in respect of the limited liability nature of their partnership interest, amongst other things.

Every open-ended fund registered with CIMA (unless that fund is a “master fund” as defined under the Mutual Funds Act or a “limited investor fund” – see 2.3.1 Regulatory Regime) is required to issue an offering document that describes the equity interests in all material respects and contains such other information as is necessary to enable a prospective investor to make an informed decision as to whether or not to invest in the fund. In recognition that many closed-ended funds will not have a continued offering, closed-ended funds registered with CIMA may adopt a shorter-form summary of terms in support of their registration application.

CIMA has issued rules regarding the content of marketing materials for both open-ended and closed-ended registered funds.

In addition to the regulatory requirements regarding content, general legal principles and obligations apply in respect of the representations and statements made in the fund marketing materials, including the laws of misrepresentation.

Most investment funds established in the Cayman Islands are private non-retail funds managed by US sponsors and geared principally towards US tax-exempt investors and non-US investors. The availability of Cayman Islands corporate structures (particularly exempted limited partnerships) that emulate many of the features of their Delaware equivalents makes integrating Cayman Islands entities into US-managed fund structures highly efficient due, for example, to ease of adaptation of US-style governing and marketing documents, while providing flexibility of terms to suit non-US investors and US tax-exempt investors.

Cayman Islands vehicles, particularly unit trusts, are popular choices for funds targeting investment from Asia, including China and Japan.

Closed-ended funds (such as private equity, credit and venture capital funds) requiring efficient and well-defined drawdown and waterfall mechanics are most typically structured as exempted limited partnerships. Open-ended funds (such as hedge funds) are commonly structured as exempted companies or exempted limited partnerships depending on sponsor and investor preference, with a clear trend in the US market for the master fund to be structured as an exempted limited partnership. 

For those sponsors raising capital in Asia, the Cayman Islands unit trust remains the investment vehicle of choice for both open-ended and closed-ended funds.

Most open-ended funds regulated by CIMA under the Mutual Funds Act are “registered mutual funds”, which is a sophisticated investor regime and generally requires an initial minimum investment amount of KYD80,000 or equivalent (approximately USD100,000) by each investor, unless the fund was registered with CIMA prior to 14 November 2006, in which case, a lower, grandfathered minimum initial investment amount will apply. 

No equivalent minimum investment amounts apply in respect of “licensed”, “administered” or “limited” investor funds, although different requirements do apply (see 2.3.1 Regulatory Regime). Similarly, there is no minimum investment amount for closed-ended funds registered with CIMA under the Private Funds Act.

Investment funds that fall within the definition of either a “mutual fund” under the Mutual Funds Act or a “private fund” under the Private Funds Act are required to be regulated by CIMA.

Mutual Funds

A mutual fund is any company, unit trust or partnership (established or registered in the Cayman Islands) that issues equity interests that are redeemable at the option of the investor, the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and enabling investors to receive profits or gains from investments. Mutual funds that issue debt are excluded from regulation, even if the bonds or notes are convertible or have warrants attached.

Regulated mutual fund types

There are four types of regulated mutual funds.

• The “registered mutual fund” – Representing approximately 93% (as at Q3 2025) of all mutual funds registered with CIMA, this type of fund is not subject to the same requirements as a licensed or administered fund (see below). The registration requirements are well established, and the review process is efficient – providing certainty around the launch timetable. However, each fund must have either (i) a minimum initial investment amount of at least KYD80,000 or equivalent (approximately USD100,000) per investor, thus limiting access only to sophisticated investors, or (ii) its equity interests listed on a recognised stock exchange, such that it is subject to additional regulation by the stock exchange.
• The “licensed mutual fund” – Typically reserved to those funds wishing to admit retail investors, a fund may obtain a licence from CIMA if CIMA considers that each promoter is of sound reputation, that the administration of the fund will be undertaken by persons who have sufficient expertise and are fit and proper to be directors (or, as the case may be, managers or officers in their respective positions), and that the business of the fund will be carried out in a proper way. The licensing process can take a few months, and a fund must not commence operations until the licence has been granted.
• The “administered mutual fund” – As an alternative to the licensed funds, these funds may also admit smaller investors with no applicable minimum initial investment amount, but they are required to designate a principal office in the Cayman Islands at the office of a licensed mutual fund administrator (MFA). Instead of CIMA doing so, it is the MFA that is required to be satisfied that the promoter is of sound reputation, that the administration of the fund will be undertaken by persons who have sufficient expertise to administer the fund and are of sound reputation, and that the business of the mutual fund and the offer of equity interests will be carried out in a proper way.
• The “limited investor fund” – This type of fund is reserved for those structures where there are 15 or fewer investors, a majority of whom must be capable of appointing and removing the operator(s). Unlike a registered mutual fund, a limited investor fund is not subject to any minimum initial investment amount. However, prior to the admission of a sixteenth investor, a limited investor fund will be required to re-register with CIMA under one of the other heads of regulation described above.

Master funds

A “master fund” is defined under the Mutual Funds Act as a company, partnership or unit trust (established or registered in the Cayman Islands) that issues equity interests that are redeemable at the option of the holder to one or more investors, one of which must be another fund regulated by CIMA that conducts more than 51% of its investing in the “master fund” directly or indirectly (a “regulated feeder fund”). The “master fund” must hold investments or conduct trading activities for the principal purpose of implementing the overall investment strategy of the regulated feeder fund. Each fund that falls within the definition of a “master fund” is required to register as a “master fund” under the registered mutual fund category and is subject to the same minimum initial investment amount as a registered mutual fund.

Filing requirements

All mutual funds regulated by CIMA (other than “master funds”) are required to file offering documents or a summary of terms upon registration, and they must notify CIMA within 21 days of any material changes to service providers or the terms of the offering. In addition, all CIMA-regulated mutual funds must file audited accounts and a fund annual return within six months of their financial year-end. 

Private Funds

A private fund is any company, unit trust or partnership (wherever established) that offers or issues or has issued investment interests, the purpose or effect of which is the pooling of investor funds with the aim of enabling investors to receive profits or gains from such entity’s acquisition, holding, management or disposal of investments, where:

• the holders of investment interests do not have day-to-day control over the acquisition, holding, management or disposal of the investments; and
• the investments are managed as a whole by or on behalf of the operator of the private fund, directly or indirectly, but this does not include certain licensed or registered persons or any non-fund arrangements.

Like mutual funds, all CIMA-regulated private funds must notify CIMA of any material changes within 21 days and file audited accounts and a fund annual return within six months of their financial year-end.

Global Fund Regulation Concerns: International Co-Operation, Fund Manager Domicile Requirements and AML Arrangements

CIMA has wide-ranging powers in respect of Cayman Islands entities that are regulated as mutual funds or private funds in the jurisdiction. CIMA has worked alongside overseas regulators in regulatory investigations involving investment funds, including the US Securities and Exchange Commission and the UK’s Financial Conduct Authority.

There is no requirement for the investment manager or manager of a fund to be domiciled in the Cayman Islands or for a non-Cayman Islands manager or investment manager to be regulated in the Cayman Islands. Indeed, most Cayman Islands funds appoint managers and sponsors domiciled outside of the Cayman Islands, with most of those fund managers domiciled in North America.

The Cayman Islands continues to adopt and embrace international best practice approaches for anti-money laundering (AML) and combatting terrorist and proliferation financing. The AML regime covers a wide range of investment entities, including all types of investment funds (whether regulated or not) in the Cayman Islands. Under the regime, there is a requirement to conduct appropriate know your customer (KYC) checks and customer due diligence (CDD) on investors of record, as well as their beneficial owners, and to refresh such information periodically in accordance with an established risk-based process. Among other things, there is also a requirement to conduct risk-based checks in connection with the fund’s investment activities. To assist with the proper implementation of AML processes and procedures and to help ensure compliance, all investment entities are required to appoint experienced risk and compliance professionals with specific knowledge of the Cayman Islands AML regime to the roles of anti-money laundering compliance officer (AMLCO), money laundering reporting officer (MLRO) and deputy MLRO. The AMLCO, in particular, will assist the investment entity in ensuring compliance with relevant requirements and, where the investment entity looks to rely upon a third party for carrying out AML/KYC checks on investors, the AMLCO will likely take a lead role in assessing the suitability of that third party. The AML regime requires the operators of investment entities, together with their AMLCO, to carry out a risk-based due diligence exercise when assessing the suitability of a service provider or a transaction counterparty.

The increased compliance burden globally has led to an increase in outsourced administration and compliance services among closed-ended investment entities. Outsourced service providers are increasingly acting as a “one-stop shop” for compliance solutions, where expertise and scalable data can help manage compliance risk and drive efficiency.

There is generally no requirement for non-local service providers to be regulated in the Cayman Islands. However, all directors of companies regulated by CIMA as mutual funds under the Mutual Funds Act must be registered with, or licensed by, CIMA pursuant to the Directors Registration and Licensing Act.

There is generally no restriction on a fund manager from another jurisdiction managing a fund established as a Cayman Islands vehicle. However, if an overseas manager establishes a Cayman entity to act as the investment manager for a fund or other entity, such Cayman entity may be subject to licensing or registration with CIMA under the Cayman Islands Securities Investment Business Act (As Revised). A Cayman Islands entity acting as a discretionary manager of an investment fund may also be subject to local substance requirements under the Cayman Islands International Tax Co-operation (Economic Substance) Act (As Revised), and specialist advice should be sought with respect to these obligations.

Licensed mutual funds must apply to CIMA for a licence to operate. The licensing application process is an engaged process, and it can take a few months before approvals are granted. Licences are typically granted subject to certain ongoing conditions, and a fund must not commence operations until the licence has been granted.

Administered mutual funds, registered mutual funds and limited investor funds must make an electronic filing with CIMA in the prescribed form and submit an offering document (or summary of terms), service provider consent letters and an application fee before the launch date.

Similarly, private funds must also make an electronic filing with CIMA in the prescribed form and submit an offering document (or summary of terms), service provider consent letters and an application fee within 21 days of accepting capital commitments or, if earlier, prior to the fund receiving any capital contributions for the purpose of investments.

Provided that the application materials submitted are in good order, and subject to any queries or requests that CIMA may present during the review process, the CIMA registration process for non-licensed mutual funds and private funds is well-defined and efficient and does not typically present any uncertainty in timeline to launch. 

See 2.3.6 Rules Concerning Marketing of Alternative Funds.

The marketing of investment funds in the Cayman Islands does not require specific regulatory approval.

Irrespective of the vehicle type chosen to structure the investment fund, there are limitations on the ability to offer interests to the public in the Cayman Islands. An exempted company that is not listed on the Cayman Islands Stock Exchange is prohibited from making any invitation to the public in the Cayman Islands to subscribe for any of its securities. Exempted limited partnerships and limited liability companies are prohibited from undertaking business with the public in the Cayman Islands other than so far as may be necessary for the carrying on of their business exterior to the Cayman Islands. Finally, if a trust is registered as an “exempted trust”, investors must not – and must not be likely to – include any person who is resident or domiciled in the Cayman Islands (other than exempted and ordinary non-resident Cayman Islands companies or the object of a charitable trust or power).

The “public in the Cayman Islands” does not include any of the following.

• A sophisticated person – being a person:
1. regulated by the Cayman Islands Monetary Authority;
2. regulated by a recognised overseas (ie, non-Cayman Islands) regulatory authority;
3. any of whose securities are listed on a recognised securities exchange; or
4. who (i) by virtue of knowledge and experience in financial and business matters is reasonably to be regarded as capable of evaluating the merits of a proposed transaction and (ii) participates in a transaction with a value of at least KYD80,000 (or its equivalent in another currency), in the case of each single transaction.
• A high net worth person – being (i) an individual whose net worth is at least KYD800,000 or its equivalent in another currency or (ii) any person that has total assets of not less than KYD4 million or its equivalent in another currency.
• Any exempted or ordinary non-resident company registered under the Cayman Islands Companies Act.
• A foreign company registered pursuant to Part IX of the Companies Act.
• A foreign limited partnership registered under Section 42 of the Cayman Islands Exempted Limited Partnership Act.
• Any company acting as general partner of a partnership registered under the Exempted Limited Partnership Act.
• Any director or officer of the same acting in such capacity, or the trustee of any trust registered or capable of registration as an exempted trust under the Cayman Islands Trusts Act acting in such capacity.

See 2.3.6 Rules Concerning Marketing of Alternative Funds.

See 2.3.6 Rules Concerning Marketing of Alternative Funds.

There are no investor protection rules that restrict the ownership of fund interests to certain classes of investors, except that a registered mutual fund, which is geared toward more sophisticated investors, must have a minimum initial investment amount of KYD80,000 (or its equivalent in another currency). Where a mutual fund wishes to admit investors with a minimum initial investment amount of less than KYD80,000, it will (unless it qualifies as a limited investor fund) be subject to increased regulation by CIMA and required to obtain a licence or have a “principal office” provided by a CIMA-licensed mutual fund administrator.

CIMA is a well-respected and dynamic regulator that consistently evolves its practice and approach to reflect the changing regulatory environment. CIMA has well-established consultation processes that are mandated by statute and allow for co-ordinated feedback from industry.

CIMA has always adopted a collaborative and engaged approach to enforcement, providing an opportunity to remedy breaches and requiring changes to process to reduce the chance of future errors, rather than penalising regulatory oversights as an initial step. However, with the continued global focus on active enforcement and the imposition of sanctions and penalties for regulatory breaches, there is a keen focus on CIMA’s powers in relation to offences for non-compliance set out in the Mutual Funds Act and the Private Funds Act, as well as its newer powers to impose administrative fines for regulatory breaches without recourse to the judicial system. Breaches of prescribed provisions are categorised as being “minor”, “serious” or “very serious”. There is a sliding scale of fines, as follows:

• a fixed fine of KYD5,000 for minor breaches;
• up to KYD50,000 for individuals or KYD100,000 for entities for serious breaches; and
• up to KYD100,000 for individuals or KYD1 million for entities for very serious breaches.

Upon determination of a breach, CIMA will provide a breach notice to the relevant party with a 30-day opportunity to reply to the notice and, in the case of a minor breach, to rectify the breach to CIMA’s satisfaction. Where a minor breach goes unresolved or is not resolved to CIMA’s satisfaction, CIMA is required to impose an administrative fine. For serious or very serious breaches, CIMA has discretion whether to impose a fine, and in what amount, up to the cap for the relevant category of breach.

The potential for administrative fines even for minor breaches reinforces the need for all operators of regulated investment funds to understand their obligations under the Mutual Funds and Private Funds Acts and to ensure that they maintain appropriate systems and controls to meet these obligations, as failure to do so could potentially result in the imposition of significant fines.

The majority of investment funds established in the Cayman Islands are private non-retail funds. Indeed, an exempted company that is not listed on the Cayman Islands Stock Exchange is prohibited from making any invitation to the public in the Cayman Islands to subscribe for any of its securities. Exempted limited partnerships and limited liability companies are prohibited from undertaking business with the public in the Cayman Islands other than so far as may be necessary for the carrying on of their business exterior to the Cayman Islands. Finally, if a trust is registered as an “exempted trust”, investors must not – and must not be likely to – include any person who is resident or domiciled in the Cayman Islands (other than exempted and ordinary non-resident Cayman Islands companies or the object of a charitable trust or power).

See 2.3.7 Marketing of Alternative Funds for a detailed breakdown of persons who are not the “public in the Cayman Islands”.

Investors in an exempted trust registered under Part VI of the Trusts Act must not and must not be likely to include any person who is resident or domiciled in the Cayman Islands (other than exempted and ordinary non-resident Cayman Islands companies or the object of a charitable trust or power).

Subject to the above restrictions, certain categories of regulated open-ended mutual funds may be established without a statutory minimum investment requirement and therefore could be established as retail funds, although they are not common in the Cayman Islands.

A mutual fund is any company, unit trust or partnership (established or registered in the Cayman Islands) that issues equity interests that are redeemable at the option of the investor, the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and enabling investors to receive profits or gains from investments. Mutual funds that issue debt are excluded from regulation, even if the bonds or notes are convertible or have warrants attached.

See 2.3.1 Regulatory Regime for a detailed discussion of the four types of regulated mutual funds in the Cayman Islands.

See 3.1.1 Fund Structures.

See 3.1.1 Fund Structures.

See 3.1.1 Fund Structures.

See 3.1.1 Fund Structures.

See 3.1.1 Fund Structures.

See 3.1.1 Fund Structures.

See 3.1.1 Fund Structures.

See 3.1.1 Fund Structures.

See 3.1.1 Fund Structures.

See 3.1.1 Fund Structures.

See 3.1.1 Fund Structures.

See 3.1.1 Fund Structures.

See 3.1.1 Fund Structures.

See 3.1.1 Fund Structures.

See 3.1.1 Fund Structures.

See 3.1.1 Fund Structures.

See 3.1.1 Fund Structures.