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Thinking About Launching a Cayman Fund?

Posted on Apr 23, 2025

For fund managers in Canada or the United States, launching a Cayman Islands fund is an attractive option. The Cayman Islands is one of the most popular offshore fund domiciles due to its tax neutrality, regulatory flexibility, and global recognition among institutional investors. However, establishing a Cayman fund also comes with certain challenges, including regulatory scrutiny, reputational concerns, and ongoing compliance requirements.

This blog post explores the advantages and challenges of launching a Cayman Islands investment fund to help fund managers in North America determine whether this jurisdiction is the right fit for their investment strategy.

 

Advantages of a Cayman Fund

 

  • Tax Neutrality: The Cayman Islands does not impose corporate income tax, capital gains tax, or withholding tax on investment funds, making it an appealing choice for international investors.
  • Global Recognition: Hedge funds, private equity funds, and venture capital funds widely use the jurisdiction, which offers institutional investors credibility and familiarity.
  • Regulatory Efficiency: The Cayman Islands Monetary Authority (CIMA) provides a streamlined registration process, especially for mutual funds and private funds.
  • Flexibility: The jurisdiction accommodates a variety of fund structures, including standalone funds, master-feeder funds, and segregated portfolio companies.

 

Challenges of a Cayman Fund

 

  • Regulatory and Compliance Requirements: While Cayman funds benefit from light-touch regulation, there are still important compliance obligations, particularly in response to global regulatory scrutiny such as Anti-Money Laundering (AML) and Know-Your-Customer (KYC) obligations, and FATCA/CRS requirements.
  • Reputational Risks: Although legitimate, the Cayman Islands often draws associations with tax avoidance and secrecy, raising concerns among certain investors, regulators, and counterparties.
  • Limited Retail Investor Access: Cayman funds primarily target institutional, non-taxable, and high-net-worth investors. Raising capital from retail investors may require alternative structures or parallel fund setups in onshore jurisdictions.

 

Registration and Formation Process

In addition to choosing the correct fund structure and drafting the legal documents based on investor and strategy requirements, follow this step-by-step process to set up a Cayman investment fund:

CIMA Registration:

Funds must be registered with the Cayman Islands Monetary Authority, which involves submitting:

  • Fund application form
  • Offering memorandum and constitutional documents
  • Auditor’s Consent Letter
  • Declaration of compliance with AML laws
  • Payment of registration fees.

 

Appoint Key Service Providers:

A licensed service provider, typically legal counsel, must provide a registered office in the Cayman Islands. Other service providers to be considered are:

  • Fund Administrator
  • Money Laundering Reporting Officer (MLRO)*
  • Deputy MLRO (DMLRO)*
  • Compliance Officer (AMLCO)*
  • Auditor – Cayman funds must appoint a local auditor
  • Directors – certain fund structures require two directors, but need not be local
  • Prime Broker and/or Custodian
  • Bank Account to handle subscriptions, redemptions and transaction payments.

* MLRO, DMLRO and AMLCO positions must be held by a natural person.

Implement AML & Compliance Measures:  

AML and FATCA/CRS programs need to be documented and in force with various compliance officers engaged.

  • Appoint MLRO, DMLRO and AMLCO
  • Register and comply with CRS & FATCA, including the appointment of a Principal Point of Contact (PPOC) and a Responsible Person.
  • Funds not exempt from the Beneficial Ownership Transparency Act must appoint a Beneficial Ownership Contact Person.  This person must be a licensed corporate service provider in the Cayman Islands.

 

Launch and Begin Operations:

After regulatory approvals and setup, Fund Managers may begin capital raising and investor onboarding.  They then execute the investment strategy.  Ongoing compliance and reporting obligations must also be maintained.

 

How Pinnacle Can Help

At Pinnacle Fund Services, we specialize in helping fund managers navigate the complexities of launching and operating a Cayman Islands investment fund. As a licensed offshore fund administrator, we provide the expertise and infrastructure you need to ensure a smooth setup, regulatory compliance, and efficient operations.

Here’s how we can support you:

  • Fund Formation Assistance:  We coordinate with legal counsel and service providers to streamline your CIMA registration and ensure full regulatory compliance.
  • Regulatory and Compliance Support:  Our team can implement AML and KYC procedures to keep your fund in line with Cayman AML laws, as well as FATCA and CRS preparation and filing.
  • Act as regulatory appointees:  Pinnacle can serve as MLRO, Deputy MLRO, AMLCO and PPOC
  • NAV Calculation and Investor Services:  We handle net asset value (NAV) calculations, investor subscriptions, redemptions, and capital account statements, providing complete transparency.
  • Financial Reporting & Audit Coordination:  We prepare regulatory filings, financial statements, and audit support to keep your fund compliant with Cayman requirements.

 

Conclusion

Launching a Cayman Islands fund offers key advantages for Canadian or U.S. managers.  However, it also presents unique challenges.  Careful consideration is essential before proceeding.

If you’re launching a Cayman fund, consult legal and tax professionals.  They’ll help ensure compliance and optimize your fund structure.

Please reach out to Joanne Remillard at jremillard@pinnaclefundservices.com or 1-604-559-8920 for more information about how Pinnacle can help you decide if a Cayman fund is right for you.