Chambers And Partners: Investment Funds Guide 2026

1. Market Overview

1.1 State of the Market

The Cayman Islands remains the leading fund domicile outside of the United States. It is a popular domicile for globally managed funds across a broad set of asset classes including credit, private equity, hedge, digital and hybrid funds owing to its tax neutral status, its Åexible structuring options and its established and experienced Änancial services sector and professional service providers. Additionally, the Cayman Islands is recognised as an attractive jurisdiction for investment funds due to its robust legal and regulatory framework and its English-based legal system with established judiciary, and the absence of political or sovereign concerns.

The Cayman Islands is the jurisdiction of choice for US sponsors structuring funds for US tax-exempt investors and non-US investors, while the Cayman Islands unit trust remains the pre-eminent vehicle of choice for those sponsors looking to raise capital in Asia. The majority of investment funds established in the Cayman Islands are private non-retail funds.

2. Alternative Investment Funds

2.1 Fund Formation

2.1.1 Fund Structures

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 openended 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 diɈerence 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.

2.1.2 Common Process for Setting Up Investment Funds

The formation and registration processes in the Cayman Islands are streamlined and eɉcient and can be completed on the same day. Exempted companies are formed upon the Äling 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 Äling 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 oɈering 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 oɈering 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 conÄrming their responsibility for these important roles.

2.1.3 Limited Liability

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 eɈective during the 2008 global Änancial 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.

2.1.4 Disclosure Requirements

Every open-ended fund registered with CIMA (unless that fund is a "master fund" as deÄned under the Mutual Funds Act or a "limited investor fund" – see 2.3.1 Regulatory Regime) is required to issue an oɈering 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 oɈering, 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 closedended 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.

2.2 Fund Investment

2.2.1 Types of Investors in Alternative Funds

Most investment funds established in the Cayman Islands are private non-retail funds managed by US sponsors and geared principally towards US taxexempt 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 eɉcient due, for example, to ease of adaptation of US-style governing and marketing documents, while providing Åexibility 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.

2.2.2 Legal Structures Used by Fund Managers

Closed-ended funds (such as private equity, credit and venture capital funds) requiring eɉcient and well-deÄned 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.

2.2.3 Restrictions on Investors

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 diɈerent 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.

2.3 Regulatory Environment

2.3.1 Regulatory Regime

Investment funds that fall within the deÄnition 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 eɈect of which is the pooling of investor funds with the aim of spreading investment risks and enabling investors to receive proÄts 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 eɉcient – 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 thatit 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 suɉcient expertise and are Ät and proper to be directors (or, as the case may be, managers or oɉcers 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 oɉce in the Cayman Islands at the oɉce of a licensed mutual fund administrator (MFA). Instead of CIMA doing so, it is the MFA that is required to be satisÄed that the promoter is of sound reputation, that the administration of the fund will be undertaken by persons who have suɉcient expertise to administer the fund and are of sound reputation, and that the business of the mutual fund and the oɈer 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 deÄned 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 deÄnition 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 Äle oɈering 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 oɈering. In addition, all CIMA-regulated mutual funds must Äle audited accounts and a fund annual return within six months of their Änancial year-end.

Private Funds

A private fund is any company, unit trust or partnership (wherever established) that oɈers or issues or has issued investment interests, the purpose or eɈect of which is the pooling of investor funds with the aim of enabling investors to receive proÄts 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 Äle audited accounts and a fund annual return within six months of their Änancial 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.

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