Cayman Hedge Funds

Our Cayman Hedge Funds team advises investment managers, investment advisers and their investors on establishing and operating Cayman hedge funds. We advise on all types of funds, including absolute return funds, market neutral funds, systemic quantitative funds, and fundamental strategy funds. We work with funds adopting a broad range of investment strategies, including: global macro; long/short equity; distressed securities; risk arbitrage; special situations; relative value; fixed-income; multi-strategy; fund of funds; and commodities.

We advise on the key terms of hedge fund vehicles, including: management and performance fee terms; allocations; hurdles and high-watermarks; equalisation; subscription and redemption charges; liquidity terms; lock-ups; gating provisions; suspensions; key man provisions; side pockets; synthetic side pockets; and Cayman regulation of hedge funds.

About Cayman hedge funds:

The Cayman exempted limited company, LLC, exempted limited partnership and exempted unit trust are flexible structures ideally suited for use as open-ended investment vehicles which allocate subscriptions across their asset classes as they are received.

The exempted limited company structure is the most commonly used entity for hedge funds established as a company with a separate legal personality. Its directors have overall management control and appoint the service providers, including the investment manager. The Cayman LLC also provides a corporate vehicle with a legal personality distinct from that of its members and managers – but provides its investors with capital accounts rather than unitised shares in its share capital. Flexibility is a key feature of the Cayman hedge fund structure. For example, the LLC law allows for an LLC fund to provide for changes to its constitutional and offering documents using negative consent.

The Cayman exempted unit trust is broadly a contractual arrangement between its unitholders and the trustee of the fund which issues units to its investors. The trustee has overall control of the trust and will delegate the management of the trust assets to the investment manager. Where a Cayman exempted limited partnership is used for a hedge fund structure, it provides for a contractual arrangement between its passive investors and its managing general partner which will generally be a special purpose vehicle which appoints the hedge fund’s investment manager.

Cayman hedge funds can be established as stand-alone vehicles or as parallel funds, feeder funds or co-investment vehicles to address the particular needs of investors in the fund structure. They are commonly found alongside the Delaware limited partnership in hedge funds seeking commitments from both US and non-US investors.

Hedge funds formed in Cayman fall within three broad categories of regulation.

  • The regulated fund is open-ended, has a minimum initial investment requirement of USD 100,000 and is required to register with the Cayman Islands Monetary Authority.
  • The regulated master fund has one or more Cayman regulated funds conducting more than 51% of their investing directly or indirectly in it, and is also required to register with the Cayman Islands Monetary Authority.
  • The exempted fund is open-ended, has no more than 15 investors and allows a majority of its investors to replace its directors, managers, trustee or general partner.