Offshore Services- Cayman Islands

More than six months have passed since the enactment of the Mutual Funds (Amendment) Law 2006 and the status of the Cayman Islands as the offshore hedge fund capital seems to have been unaffected.

The November 2006 revisions to the Mutual Funds Law followed upon the report of a working group made up of government officials and industry representatives charged with revisiting the law with a view to identifying areas for improvement. The flexibility of the existing legislative regime is well known internationally and has been instrumental in the Cayman Islands' development into the pre-eminent offshore jurisdiction for hedge funds. The legislature in the islands did not adopt all of the recommendations for change made by the working group, but instead picked up a limited number of amendments to certain key provisions in the law, as follows:

• The Cayman Islands Monetary Authority (CIMA) can now formally waive the ordinary requirement that a fund file its audited accounts annually;
• Funds established in overseas jurisdictions can now be administered by Cayman-based administrators without the need for that overseas fund to register with CIMA; and
• The minimum required subscription per investor for registered funds has been increased from $50,000 to $100,000.

The audit waiver is an important addition to CIMA's formal discretions and will, for example, allow funds which delay their launch to seek a waiver and make the associated cost savings.

The increased allocations of pension funds to alternatives are reported in the United States as fuelling a growth in the use of third-party administration. The increased flexibility and cost competitiveness for Cayman-based administrators in removing the requirement for foreign funds administered in Cayman to register with CIMA should allow Cayman-based service providers to compete for an increased book of business overseas.

The rise in the investment minimum per investor for registered funds to $100,000 follows the recommendation for an increase made by the International Monetary Fund as part of its March 2005 supervisory and regulatory assessment of the jurisdiction. It also tracks investment minima in a number of other jurisdictions and is intended to control the participation in certain collective investment schemes by investors for which the investment is unsuitable.

Fund managers and sponsors continue to select the Cayman Islands as their preferred offshore jurisdiction, and it would seem that the November 2006 amendments to the Mutual Funds Law have achieved a balance between the need for continued simplicity and flexibility in the Cayman legislative regime and the requirement to modernize certain provisions of the law to allow for continued growth in the funds industry in the islands.

International Law Office