Cayman Islands Fund Setup Checklist: What Every Family Office Needs to Know

The Cayman Islands remains a top jurisdiction for family offices looking to set up investment funds. With its tax-neutral status, flexible fund structures and investor-friendly regulations, it offers an ideal framework for managing family wealth. However, navigating the setup process requires careful planning to ensure compliance with Cayman’s legal and regulatory landscape. 

This guide below outlines the key steps family offices should take when launching a Cayman Islands fund. From choosing the right structure to maintaining ongoing compliance.

Choosing the Right Cayman Islands Fund Structure

The first step in establishing a Cayman fund is selecting the right legal structure. This depends on whether the fund will be open-ended (allowing investors to redeem their capital at will) or closed-ended (where capital is locked in for a period).

For hedge fund-style investments, an Exempted Company is the most common choice. Private equity, venture capital, and real estate funds typically opt for an Exempted Limited Partnership (ELP) due to its flexibility in managing capital calls and distributions. Alternatively, a Limited Liability Company (LLC) offers a hybrid approach, balancing corporate-style governance with partnership-like structuring.

Single-family investment vehicles that do not raise capital from outside investors may qualify as non-fund arrangements, meaning they are not subject to regulation by the Cayman Islands Monetary Authority (CIMA). However, once external investors are involved, the fund must register under either the Mutual Funds Act (MFA) for open-ended funds or the Private Funds Act (PFA) for closed-ended structures.

Regulatory Registration and Compliance

If a fund falls under CIMA’s oversight, registration is a critical next step. Open-ended funds must register under the Mutual Funds Act, which typically requires either a minimum investment of $100,000 per investor or the appointment of a Cayman based administrator. Closed-ended funds must register under the Private Funds Act within 21 days of accepting capital commitments and before drawing down investor funds.

Beyond registration, regulated funds must also comply with ongoing obligations, including annual audits, financial reporting, and adherence to valuation and asset verification standards. Family offices should work closely with legal advisors to ensure the fund structure aligns with these regulatory requirements.

Key Service Providers in the Cayman Islands

A successful Cayman fund requires the right team of service providers. Cayman law mandates the appointment of an auditor, and in most cases, an administrator to handle investor reporting and net asset value (NAV) calculations. Custodians are necessary for funds holding publicly traded securities, while private funds investing in illiquid assets must implement independent title verification procedures to confirm asset ownership.

Anti-money laundering (AML) compliance is another key requirement. Every Cayman fund must appoint an AML Compliance Officer (AMLCO) and a Money Laundering Reporting Officer (MLRO) to oversee due diligence on investors and ensure the fund meets global financial crime prevention standards.

For tax and cross-border structuring, a US or international tax advisor should be consulted, particularly if the fund will have US investors or invest in US based assets, where tax-efficient structures such as blocker entities may be required.

Drafting Legal and Offering Documents

Every investment fund needs properly drafted legal documents that set out its governance, investor terms, and operational framework. These typically include:

• Offering Memorandum (OM) or Private Placement Memorandum (PPM): Details investment strategy, risks, and investor rights.
• Limited Partnership Agreement (LPA) or Shareholders’ Agreement: Governs capital contributions, distributions, and decision-making authority.
• Subscription Agreements: Outlines investor commitments and regulatory disclosures.
• Valuation and Asset Title Verification Policies: Required under the Private Funds Act to ensure accurate reporting of asset values and ownership.

For a family office running a single-family investment vehicle, formal offering documents may not be necessary, but having a well-drafted constitutional document is still advisable to clarify governance and succession planning.

Opening Bank and Custody Accounts

Once the legal structure is in place, the fund must establish dedicated bank and brokerage accounts. These accounts will be used to receive capital contributions, process investment transactions, and distribute profits to investors.

A cash monitoring system must also be implemented, ensuring that all capital flows are tracked, reconciled, and properly recorded. For regulated funds, this is a requirement under the Private Funds Act, typically handled by an administrator or finance team.

Onboarding Investors and Managing Capital

Investor onboarding involves subscription agreements, know-your-customer (KYC) checks, and compliance verifications. Once investors commit capital, the fund manager must issue capital call notices to draw down funds as needed.

For private equity and venture capital funds, capital is called in stages rather than being invested all at once. Each capital call should be planned in line with investment opportunities and structured according to the terms of the Limited Partnership Agreement.

Distributions must also follow a defined policy. Most private funds distribute profits through a waterfall structure, ensuring investors receive a return of capital and preferred returns before any performance fees (carried interest) are allocated to the fund manager.

Ongoing Compliance and Reporting

Regulatory compliance does not end with fund registration. Cayman islands funds must meet several ongoing requirements, including:

• Annual Audits: Financial statements must be audited by a CIMA-approved firm and submitted within six months of the financial year-end.
• Fund Annual Return (FAR): Required for all regulated funds, providing financial and operational details to CIMA.
• Reg Notifications: Any material changes (e.g., service provider changes, fund governance updates) must be reported to CIMA within 21 days.
• FATCA & CRS Reporting: Cayman-domiciled funds must comply with global tax reporting standards, including the US Foreign Account Tax Compliance Act (FATCA) and the OECD’s Common Reporting Standard (CRS).

Additionally, investment valuation policies must be consistently applied, and any securities held must be properly identified with relevant codes (ISIN, LEI, etc.), ensuring clear record-keeping and investor transparency.

Winding Down the Fund

At the end of the fund’s lifecycle, a structured wind-down process is required. The fund manager must liquidate remaining investments, distribute final proceeds to investors and formally deregister the fund with CIMA. This includes filing a final audit and ensuring all outstanding regulatory fees are paid.

If the fund was structured as an Exempted Limited Partnership, the General Partner must also complete the dissolution process with the Cayman Registrar. Fund records should be retained for at least five years post-liquidation to comply with Cayman’s legal requirements.

Final Points

Setting up a Cayman fund for a family office is a highly effective way to manage wealth, but it requires careful planning and adherence to Cayman’s regulatory framework. Whether launching a single-family investment vehicle or a regulated fund with external investors, the right structure, service providers and compliance measures will ensure the fund operates efficiently and meets investor expectations.

If you’re considering setting up a Cayman fund for your family office and want to ensure every aspect is optimised, FundFront is here to assist. We specialise in delivering fund setup and administration solutions, tailored to meet the unique needs of wealth managers and family offices. Contact us today to explore how we can simplify your Cayman fund launch and ongoing management.

Email hello@fundfront.com or complete the contact form on our website. 

Other articles that may be of interest:

• Understanding SPVs and Securitisation: How Family Offices Can Optimise Asset Management
• Segregated Portfolio Companies in the Cayman Islands: A Guide for Family Offices
• 10 Lessons from More than 10 Years of Working with Family Offices

Disclaimer

FundFront provides operational and technological solutions for family offices, fund structuring, securitisation and management. We do not provide legal, tax or financial advice. We recommend that you consult with professional legal or financial advisors to ensure compliance and appropriateness for your specific situation.