Exploring the Funds Hub

This guide sets out the continuing obligations under Cayman Islands law of a closed-ended fund registered with the Cayman Islands Monetary Authority (CIMA) under the Private Funds Act (Private Funds Act).

Part A of this guide covers the ongoing obligations of a private fund that is registered under the Private Funds Act, as well the various FATCA and CRS requirements, and anti-money laundering compliance.

A private fund, registered with CIMA under the Private Funds Act, can be structured as an exempted company, limited partnership, limited liability company or unit trust, each of which also have ongoing obligations.

Part B applies to a fund that is an exempted company incorporated with limited liability and an authorised share capital. If the fund is an exempted limited partnership see also Part C. If it is a limited liability company (LLC) incorporated under the Limited Liability Companies Act (LLC Act) see also Part D and if it is an exempted trust, see also Part E.

Please see our guide to private funds in the Cayman Islands for more details of the closed-ended fund structures and requirements under the Private Funds Act.

CIMA has the power under the Monetary Authority Act (MA Act) to impose significant administrative fines of up to CI$1 million (US$1.2 million) for each breach of certain provisions of the Anti-Money Laundering Regulations (AML Regulations) and other Cayman Islands regulatory laws and regulations, including the Private Funds Act and Securities Investment Business Act. The level of an administrative fine will depend on various factors including whether the breach is committed by an individual or a body corporate and if the breach is classified as minor, serious or very serious.

An overview of the annual compliance dates is set out in our compliance calendar, which can be found here on our website.

Note in particular that penalties frequently apply for late filings and so the registered office should be informed promptly of any notifiable changes to allow the appropriate filing/s to be made.

Action Required

Timing and Penalties

Must be paid to CIMA.

CI$4,125/US$5,031

If the fund has alternative investment vehicles an additional annual fee of CI$525/US$641 per alternative investment vehicles is also payable to CIMA.

If a fund is structured as a segregated portfolio company an additional annual fee of CI$525/US$641 per segregated portfolio is also payable to CIMA.

By 15 January of each calendar year.

1/12 of the annual fee due for each month the payment remains outstanding.

Action Required

Timing and Penalties

A copy of such changes must be filed with CIMA.

Filing fee CI$125/US$153.

Within 21 days of becoming aware of the change.

Penalty under Private Funds Act of CI$20,000/US$24,390 for failing to do so.

Action Required

Timing and Penalties

All private funds must conduct asset valuations.

The valuation must be done on an appropriate and consistent basis, which must be at least annually, and in accordance with CIMA's Rules on the Calculation of Net Asset Values for private funds.

The valuation must be done by an independent third party, independent administrator, or the manager or operator of the private fund subject to appropriate operational independence and disclosure of the potential conflicts of interest to investors.

Must be done on an appropriate and consistent basis, at least annually.

CIMA has the power to require that the valuation is verified by an auditor or independent third party, where the valuation is not undertaken by an independent third party.

Penalty under Private Funds Act of CI$20,000/US$24,390 payable by the operator if the fund does not comply with the law.

Action Required

Timing and Penalties

All private funds must monitor cash flows, cash account receipts and payments to investors.

The monitoring must be done by an independent third party, custodian or administrator, or the manager or operator of the private fund subject to appropriate operational independence and disclosure of the p...

Last week, the Cayman Islands welcomed an influx of professionals in the digital assets space for its inaugural "Cayman Crypto Week". As a jurisdiction at the forefront of innovative structuring for the digital assets space, this event was testament to the strength of the offering and experience of the professionals based here, and the increasing institutionalisation of crypto.

Tokenised funds were the talk of the town, and unsurprisingly so, given the aptly timed draft legislative updates published in early February heralding a clear regulatory framework for tokenised funds set up in the Cayman Islands.

To add context, let's briefly summarise a traditional fund – an investment vehicle pooling capital from a number of investors. Investors typically will hold their interests in the fund by subscribing for shares in the fund vehicle (in the case of a company), limited partnership interests (in the case of a limited partnership), or membership interests (in the case of an LLC). The concept of a tokenised fund, fundamentally, is an investment fund which allows investors to subscribe for interests in the fund by acquiring tokens on a blockchain. The fund would mint and send tokens to an investor who has successfully subscribed for fund interests and sent capital to the fund (usually via a smart contract).

Conceptually, in the ideal of a tokenised fund, the tokens issued by the fund vehicle would be the sole representation of fund interests (investors would not need to hold shares or other forms of interest), and the fund would operate entirely on-chain. In practice, due to other requirements and regulations applicable to operating an investment fund (as well as investor readiness), for now the most typical "tokenised fund" would issue tokens which represent/mirror the more traditional shares which are also issued. While investors in such a fund will likely consider the tokens to be the representation of their ownership interest in the fund, in reality there would be a conventional share register behind the scenes as well, which would reflect the ownership of those shares mirrored by the tokens.

Tokenised funds are not new in Cayman or the offshore world generally, and many prominent tokenised funds already operate in Cayman. That said, many such funds to date have been set up within the constraints of frameworks designed for traditional funds, with solutions to issues raised by tokenisation being developed to fit without a clear framework or certainty as to expectations of the regulator. The proposed legislative changes[1] (once in force) will provide a definitive and clear framework allowing for certainty in setting up in Cayman, boosting confidence for both managers and investors.

Critically for offering certainty for tokenised fund launches in Cayman, the issuance, creation, sale, transfer or other disposition of tokenised equity or investment interests by regulated private and mutual funds will not constitute the 'issuance of virtual assets' under the Virtual Assets (Service Providers) Act, and will therefore not be a regulated activity under that Act. The changes add clarifications and additional requirements specific to digital tokens to the existing funds regime. The key operational requirements and considerations to comply with the licensing regime as tokenised funds formed in the Cayman Islands are set out below:

Comprehensive token records and availability to the Cayman Islands Monetary Authority (CIMA). Tokenised funds must obtain and securely maintain all records of the issuance, creation, sale, transfer and ownership of tokenised interests (including any additional data CIMA may require), and make them available within periods specified by CIMA. For mutual funds, licensed administrators must be satisfied these records exist and are accessible; for private funds this is framed as a registration-stage and ongoing obligation.

Annual operator confirmation. The operator must confirm to CIMA annually that all token-relate...

blogs

Funds Hub

The Funds Download - PRC securities access in 2026, from market entry channels to next generation ETF products

blogs

Funds Hub

The Funds Download - CayLux funds: Parallel funds without parallel headaches (Part II)

blogs

Funds Hub

The Funds Download - Cayman–Luxembourg funds: Parallel funds without parallel headaches (Part I)

In this episode of Funds Hub, Vanessa Molloy and Pierre Luc-Wolff discuss Luxembourg's new carried interest tax regime. They explain the two categories now available, contractual carry and participation carry, and explore who can benefit, including employees, partners, directors, and advisors.

Click here to subscribe to the Funds Download podcast. Choose your preferred platform from the list presented and click subscribe or follow once logged in.

Visit the Funds Download podcast page to catch up on all the Funds Download episodes.

If you're considering establishing a fund in the Cayman Islands, Luxembourg, or the British Virgin Islands, visit our Funds Hub for guidance.

In this first episode of our new podcast series, our Global Head of Financial Services, Maggie Kwok, and Partner Stéphane Karolczuk explore why managers targeting European investors avoid relying on reverse solicitation and instead turn to national private placement regimes (NPPRs) where available, or choose to establish an AIFMD compliant Luxembourg fund alongside their Cayman structure. For managers with a European background, or those with growing European ambitions, setting up a Luxembourg fund managed by a third-party AIFM allows them to enjoy the best of both worlds: namely, (i) access to the AIFMD marketing passport for EU investors, and (ii) the ability to maintain their traditional Cayman fund for non-EU investors without disrupting existing structures. This parallel Luxembourg–Cayman approach offers flexibility, regulatory certainty, and an efficient distribution strategy across jurisdictions.

Stay tuned for our next episode, where we will take a deeper dive into selecting and appointing a third-party AIFM for your Luxembourg fund and discuss the distribution, compliance, and marketing support they can provide.

Click here to subscribe to the Funds Download podcast. Choose your preferred platform from the list presented and click subscribe or follow once logged in.

Visit the Funds Download podcast page to catch up on all the Funds Download episodes.

If you're considering establishing a fund in the Cayman Islands, Luxembourg, or the British Virgin Islands, visit our Funds Hub for guidance.

[1] Undertakings for Collective Investment in Transferable Securities (UCITS).

[2] Refers to undertakings for collective investment (alternative investment funds or AIFS) under the Alternative Investment Fund Managers Directive dated 8 June 2011 (AIFMD), which raise capital from a number of investors with a view to investing it in accordance with a defined investment strategy for the benefit of those investors, and which do no not qualify as UCITS.

[3] Set up under Part II of the Luxembourg Law of 17 December 2010 on undertakings for collective investment.

[4] Set up as a specialised investment fund (SIF).

[5] Investing in risk capital (Société d'investissement en capital à risque or SICAR).

[6] Set up as a reserved alternative investment fund (RAIF).

[7] Set up and subject to the European long-term investment funds regulation (ELTIF) regulation which covers funds that focus on investing in various types of alternative asset classes such as infrastructure, small and medium sized enterprises and real assets.

[8] A fund set up subject to the European venture capital funds regulation covers a sub-category of alternative investment scheme that focuses on start-ups and early stage companies.

[9] A fund set up subject to the European social entrepreneurship funds regulation which covers alternative investment schemes that focus on social enterprises.

[10] A limited partnership agreement (LPA).

[11] a) AIFMs managing AIFs which are not leveraged and without redemption rights for a period of five years, and with aggregate assets under management below €500 million; b) AIFMs managing AIFs whose assets under management, including any assets acquired through the use of leverage, do not exceed €100 million.

These AIFMs must register with the CSSF and provide an annual report but no further obligations under the AIFMD. However, they do not benefit from the AIFMD pre-marketing and marketing passport.

[12] The Law on the financial sector.

[13] CSSF FAQ "Persons involved in AML/CFT for a Luxembourg Investment Fund or IFM supervised by the CSSF for AML/CFT purposes" dated 25 November 2019 and CSSF FAQ "AML/CFT RC Report" dated 1 March 2022.

[14] Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (the SFDR).

[15] The time frame will vary for closed-ended funds listing under the EU Prospectus Directive.

[16] Directive (EU) 2019/1160 of 20 June 2019 (CBFD Directive).

Emerging fund managers in the Middle East—particularly those targeting sub-US$50 million in assets under management (AUM)—face critical decisions when launching their first fund. While the region's domestic markets are maturing, and offer a compelling alternative in certain circumstances, for first time managers selecting an offshore jurisdiction may be the better choice. The Cayman Islands and the British Virgin Islands (BVI) offer cost-effective, internationally respected platforms that simplify fund formation, enhance credibility with global investors, and provide a neutral, well-understood legal framework. This article outlines the key advantages of these two jurisdictions and explains how their structures can align with the strategic needs of new managers in the region.

While distinct in their offerings, the Cayman Islands and BVI share several foundational features that make them attractive to first-time fund managers. These jurisdictions provide a stable, tax-neutral environment, which is crucial for pooling capital from diverse international sources without adding layers of tax complexity. This, combined with their regulatory efficiency, creates a powerful value proposition:

Global recognition and investor confidence – Both are leading international finance centres recognised by institutional investors, regulators, and counterparties worldwide. This global standing enhances a new fund's credibility and significantly simplifies the investor onboarding and due diligence process.

Strong legal foundations – Based on English common law, both jurisdictions offer clear, predictable, and commercially-minded legal frameworks. This provides certainty on matters such as shareholder rights, director duties, and creditor protections, which is highly valued by sophisticated investors.

Political and economic stability – As British Overseas Territories, they benefit from long-term constitutional stability and a reliable court system, with an ultimate right of appeal to the Privy Council in London. This insulates fund structures from local political and economic volatility.

Cost efficiency – For emerging managers, budget is paramount. Startup fees, annual government fees, and professional service costs in these jurisdictions are often substantially lower than in major onshore financial centres, making them ideal for lean, entrepreneurial teams.

Speed to market – Both jurisdictions feature streamlined and efficient regulatory registration or approval processes. This allows managers to launch their funds quickly and predictably, enabling them to capitalise on fundraising opportunities without being delayed by bureaucratic hurdles.

The Cayman Islands is the world's leading offshore fund domicile, with tens of thousands of funds registered with the Cayman Islands Monetary Authority (CIMA). This depth of experience has created a sophisticated ecosystem of world-class service providers. The jurisdiction offers two primary fund structures relevant to emerging managers:

Mutual Funds – Ideal for open-ended strategies with liquid assets (eg hedge funds) where investors can subscribe and redeem on an ongoing basis. These funds are regulated by CIMA and must appoint a Cayman-based auditor and a licensed fund administrator, ensuring robust governance and independent oversight.

Private Funds – Designed for closed-ended strategies with illiquid assets (eg private equity, venture capital, real estate) where investors commit capital for the life of the fund. While still required to register with CIMA and appoint appropriate service providers for cash monitoring, valuation, and safekeeping of assets, the overall regime is more flexible than for mutual funds.

Cayman remains the default choice for many institutional investors due to its regulatory maturity and deep investor familiarity. However, the mandatory appointment of full-service administrators and auditors, while a mark of quality, can drive up setup and maintenance costs, sometimes making it l...

Ready to launch your fund?

Jump straight into our streamlined process by completing our intuitive questionnaire, designed to help you make informed choices about your offshore fund.

Get started

Get started

I regularly act for residential and commercial property investors and those who lend to them and I also have a (probably) slightly unhealthy interest in Rightmove's sold property prices. What better credentials do I need?

With a real estate property magnate in the White House and the increase in property investment generally, the real estate sector is ripe for international private equity fund managers to tap into.

According to The Lawyer's Global 200: Real Estate 2017 Report and data provided by Private Equity Real Estate magazine, the world's top 50 private equity real estate funds raised a combined US$271 billion between 2011 and 2016. Fundraising for global funds declined in 2016 after 5 years of year-on-year growth. PERE reports that this was due in part to a lack of funds closing - 25 per cent fewer funds closed in 2016 than in 2015.

Those who attended MIPIM in early March will have been aware of the positive view of the property sector. Investment in the London commercial property market continues to be popular for High Net Worth Individuals and Family offices, as well as for larger global private equity funds. Asian and Middle Eastern investors still look to London for their property investment and particularly in some of the more distinctive buildings which now pepper London's skyline - from the City to Canary Wharf (the Cheese Grater, the Shard et al). All good signs for onshore and offshore lawyers servicing this market.

Pan European real estate funds are becoming increasingly popular, with London and Germany proving preferred markets for commercial property investment. According to The Lawyer's Real Estate Report, portfolio deals involving particular asset classes (logistics, student accommodation, build to rent and private rented and hotels) are standing out further than single asset investments. In our experience of acting for investors in these sectors, offshore fund vehicles are just the ticket for investment in real estate portfolios - and for good reason.

Whether the investor is looking for a simple offshore company to hold the property assets in his own name or that of a nominee, or a more complex structure involving holding companies and an onshore, midshore or offshore funds vehicle, the legislative regimes in both the British Virgin Islands and in the Cayman Islands provide solid, predicable yet flexible frameworks for private equity investors.

In both jurisdictions, depending on the proposed exit strategy, the investment vehicle may be established as a regulated entity or as a more straightforward unregulated, closed ended funds vehicle or in conjunction with an onshore or midshore fund. Exit strategies will and do vary, depending on the appetite in the market. Private sales of whole property funds or some of their assets, redemptions of holdings or IPOs are all options, although the first two are probably more common of late. Other drivers such as tax and the domicile of the key investing parties will also be relevant.

If you act for investors or lenders who like to finance commercial property investments, and an offshore structure is under consideration, do let us know, we would be delighted to talk through the options.

Sales pitch over, I leave you with a couple of quotes about property investment which I quite like.

"Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world." -- Franklin D. Roosevelt, US President

"Buy land, they're not making it anymore." -- Mark Twain, writer and humorist

Primarily, it means that BVI and Cayman companies are not subject to corporate taxation on income, capital gains or share transfers. Instead, the BVI and Cayman governments raise revenue through other means such as income taxes on resident individuals (in the BVI), real estate taxes, sales and import duties and, in relation to corporate vehicles, through incorporation and licence fees. In Cayman the government goes one step further and will issue a tax exemption certificate to a typical Cayman fund (in return for a fee) confirming that for a period of 20 years (where the fund is a company) the fund will not be subject to certain Cayman taxes irrespective of any change in law.

The fact that BVI and Cayman companies have no corporate taxes can make them particularly useful in fund structures, as one or more corporate vehicles can be used to pool investor funds without adding additional layers of taxation. Investors are still taxed in the jurisdictions in which they are tax resident on any income and gains generated from investment into the fund, but there is no corporate taxation at the fund level. This is subject to certain exceptions where the BVI or Cayman fund may be subject to taxation in another jurisdiction as a consequence of the location of its investments and/or its investors (for example, under US FATCA).

The attraction of tax neutral jurisdictions is not quite as simple as it may sound and it is not always favourable from a tax perspective for all investors for funds to be domiciled in tax neutral jurisdictions. As I set out in more detail in my previous post on fund structures, while some groups of investors would prefer to invest in an offshore, tax-neutral, fund, for others it is advantageous to invest in a domestic onshore fund. For example, U.S taxable investors prefer to invest into domestic U.S. funds structured as partnerships which are "pass through" entities for U.S. tax purposes.

And, it's not all about tax. There are numerous reasons to use BVI and Cayman funds apart from being tax-neutral. Phil has touched on this before in his previous post but, as a recap, both jurisdictions have a modern corporate law, which is supported by hundreds of years of English common law, and a sophisticated court system with ultimate recourse to the Privy Counsel of the United Kingdom. They both offer a range of fund products, suited to different uses and with appropriate regulation and competent and experienced regulators (the British Virgin Islands Financial Services Commission and the Cayman Islands Monetary Authority). In addition, both jurisdictions are home to world-class service providers and Cayman is the fifth-largest banking center worldwide. This makes the BVI and Cayman extremely attractive jurisdictions in which to establish a fund.

If you think that you would benefit from using a BVI or Cayman fund and you would like to discuss the options in more detail, please get in touch.

The original author of this post is no longer with Harneys. For more information on this topic, please reach out to the contact listed above.