Cayman Islands Issues New Rules Impacting Regulated Funds

The new Segregation Rules apply to Hedge Funds regulated under the Mutual Funds Law (2020 Revision) and private closed-end funds registered under the Private Funds Law (2020). The rules deal with the segregation of fund assets and are designed to further align the open and closed-end regulations with each other, and with those in other key jurisdictions.

Segregation of Assets Rule

The principal requirement of the Segregation Rule is that a fund regulated by CIMA must ensure that none of its service providers use any of the financial assets and liabilities of the fund to finance their own or any other operations in any way.

The Board of Directors, GP or similar governing body (the operators) of a regulated fund must establish, implement and maintain strategies, policies, controls and procedures to ensure compliance with the Segregation Rules. These policies and procedures must be consistent with the regulated fund’s offering document and/or marketing material and appropriate for the size, complexity and nature of the fund’s activities and investors.

Regulated funds must also ensure that:

• A service provider is appointed with respect to ensuring safekeeping of the Regulated Mutual Fund portfolio
• The asset title verification function is independent from the portfolio management function or that potential conflicts of interest are properly identified, managed, monitored and disclosed to the investors of the Regulated Mutual Fund

Marketing Rules

CIMA has also published new Marketing Rules regarding the contents of offering documents of regulated funds.

Regulated Mutual Funds

The Marketing Rules will apply to any document where equity interests in the Mutual Fund are offered for sale, or persons are invited to subscribe or purchase equity interests in the fund – typically the Offering Document. The rule will not apply to any other notice, circular, advertisement, letter or other communication used in connection with the offer for sale of a fund.

The new rule does not represent a fundamental shift to the typical contents of Offering Documents, so any amendments will generally be minor. However, the rule does include a requirement to include a Mandatory Statement regarding CIMA, which means every new or updated Offering Document will require some minor changes to be compliant.

Registered Private Funds

The Marketing Rules will apply to any Registered Private Fund that intends to prepare documents for investor review prior to the purchase of interests in a fund including Offering Documents, but does not require the preparation of marketing materials where there is no ongoing offering.

Although the new rule does not represent any significant changes, the requirement to include a Mandatory Statement will also apply and any new or updated marketing materials will need to be amended to incorporate the new statement.

How Apex Can Help

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