In May, Premier McKeeva Bush announced in his budget address that certain master funds will in the future be regulated by the Cayman Islands Monetary Authority and required to pay a fee of $1,500. Critics at the time noted the current Mutual Funds Law does not include a clear definition of what constitutes a master fund.
A new Mutual Funds (Amendment) Bill 2011, gazetted last week, seeks to amend the Mutual Funds Law to provide for the registration of master funds and includes a definition of feeder funds, master funds and regulated feeder funds. According to the definitions in the bill, a feeder fund conducts more than 51 per cent of its investing through another mutual fund. A master fund in turn is a mutual fund, incorporated or established in the Cayman Islands, which holds the investments of and conducts trading activities on behalf of one or more regulated feeder funds.
Under a master/feeder fund structure, investors invest into the feeder fund, which then invests into the master fund. Any assets are typically acquired, held and traded at the master fund level. While feeder funds were already regulated by law and required to register with CIMA, such provisions did not exist for master funds.
The new bill would plug the regulatory gap by amending section 4 of the Mutual Funds Law to provide for the registration of master funds that have a minimum investment requirement for individual investors of $80,000 or master funds whose equity interests are listed on a stock exchange or an over-the-counter market.
The existing subsection 4a of the law which exempts mutual funds with 15 or fewer investors from registration with CIMA would not apply to master funds, according to the bill.
However, the bill exempts master funds from filing an offering document if the only investors in the fund are feeder funds and the offering document is identical in all material aspects to that of the regulated feeder fund.
If the bill is passed into law, any existing master funds will have to comply and register with CIMA within 90 days from the date at which the Law takes effect.