A Guide to Setting Up a Private Fund in the Cayman Islands: What Family Offices Need to Know

Introduction 

The Cayman Islands continues to be one of the most prominent jurisdictions for establishing private funds. Its appeal lies in a combination of legal certainty, tax neutrality and operational flexibility. For family offices aiming to consolidate and professionally manage their wealth, Cayman fund structures offer a well-regulated yet accommodating environment. This guide explores the legal framework, structural options, regulatory steps and practical requirements for forming a private fund, with a focus on compliance under the Cayman Islands Private Funds Act (PFA).

Understanding the Private Funds Act

Enacted in 2020, the Private Funds Act regulates closed-ended funds domiciled in the Cayman Islands. These funds typically raise capital through a private placement, aggregate that capital for pooled investment and do not permit regular redemption rights for investors. This regulatory evolution brought greater oversight to vehicles such as private equity, real estate, infrastructure and private credit funds.

Family offices use these structures to implement bespoke investment strategies, manage intergenerational wealth and facilitate co-investment opportunities. The law mandates that all qualifying private funds register with the Cayman Islands Monetary Authority (CIMA), meeting certain operational, reporting and governance standards. Importantly, the regulation also protects investors by requiring independent verification of assets, robust cash monitoring and periodic valuation procedures.

Key Structural Options for a Private Fund in Cayman

Exempted Limited Partnership (ELP)

The preferred vehicle for most private equity and venture capital strategies.

• Operates without separate legal personality; managed and controlled by a General Partner (GP).
• Enables tax transparency for investors, as income flows directly through to the limited partners (LPs).
• Offers contractually flexible governance and profit-sharing arrangements via the Limited Partnership Agreement (LPA).

Exempted Company

Commonly used for hedge fund platforms or as a General Partner entity.

• Possesses legal personality and limited liability for shareholders.
• Can issue shares with varying rights and classes, allowing customisation for different investor groups.
• Suitable for investors seeking a familiar corporate structure with statutory protections.

Segregated Portfolio Company (SPC)

SPCs are attractive to family offices managing multiple investment pools or requiring flexible compartmentalisation of assets.

• A special type of exempted company that allows the creation of separate portfolios (or cells) within a single legal entity.
• Assets and liabilities of each portfolio are legally segregated, offering ring-fencing of investment strategies or investor groups.
• Ideal for multi-strategy funds, platform structures, or when different investment themes require structural separation without setting up multiple companies.
• Each portfolio can have its own investment strategy, service providers and fee arrangements.

Choosing between these structures depends on intended investment duration, investor domicile, tax considerations and operational complexity. A hybrid structure involving multiple entities (such as an ELP with an exempted company as GP) is often used for tax and liability optimisation.

Regulatory Requirements for Private Funds in Cayman

Registration Timeline

• Registration with CIMA must occur within 21 days of the fund receiving capital commitments from investors.
• The fund must complete registration prior to drawing any capital for investment purposes.

Documents Required

• Certificate of incorporation or partnership registration.
• The constitutional document (LPA, M&A, or operating agreement).
• Offering memorandum or a clearly written summary of terms.
• A fund structure chart showing relationships among entities.
• Consent letters from the auditor and, where applicable, the fund administrator.

The application is submitted via CIMA’s REEFS portal by local counsel, who will also manage correspondence and follow-ups. Once registered, the fund receives a Certificate of Registration and is added to CIMA’s official list.

Annual Obligations

• Audited financial statements prepared by a CIMA-approved auditor must be submitted within six months of the fund’s financial year-end.
• A Fund Annual Return (FAR) must accompany the financials.
• The fund must pay an annual regulatory fee by 15 January each year.
• Ongoing compliance with Anti-Money Laundering (AML), FATCA and Common Reporting Standard (CRS) regimes is required, including maintenance of AML officers and relevant onboarding procedures.

Operational and Compliance Considerations

Asset Title Verification

If assets cannot be custodied due to their nature (e.g. private company shares), an independent party such as an administrator, director, or auditor must verify asset ownership. This must be documented and disclosed to CIMA. Custodians may be required for assets capable of being held electronically or physically.

Cash Flow Monitoring

All investor capital inflows and distributions must be monitored by a designated party, usually the administrator. If this function is handled internally by the GP, independent oversight mechanisms should be implemented.

Valuation Policy

Valuation must occur at least annually and follow a documented, consistent methodology. The valuation policy should be included in fund documents and must clearly state who is responsible for valuations, either a qualified third party or a sufficiently independent internal party.

Governance

The fund must maintain a corporate governance framework proportionate to its size and complexity. This includes oversight by the GP or board, internal controls and policies for conflicts of interest, risk management and service provider monitoring. CIMA’s rules on corporate governance and internal controls apply to all regulated funds.

Investor Onboarding

All investors must complete AML/KYC screening and execute subscription agreements. Capital call notices must follow procedures outlined in the LPA. Equalisation clauses typically apply to investors entering after the initial close, requiring backdated capital adjustments to ensure fair treatment.

Record-Keeping and Reporting

Accurate records of investor contributions, capital calls, valuations and distributions must be maintained. A capital account register is often managed by the administrator. Investors expect quarterly or semi-annual reports and many funds hold annual investor meetings.

Why Family Offices Choose the Cayman Islands

• Tax neutrality – The jurisdiction imposes no corporate income, capital gains, or withholding taxes.
• Regulatory reputation – Cayman’s legal and compliance framework is well-understood by institutional investors.
• Customisation–  Partnership and company structures can be tailored extensively through constitutional documents.
• Operational efficiency–  Fund setup is efficient: incorporating an exempted company or ELP typically takes 1-5 business days. Full fund structuring, documentation and service provider engagement generally takes 4-6 weeks.
• Global access: Cayman structures are accepted by custodians, banks and fund administrators worldwide.

The Cayman model offers a combination of legal sophistication and administrative efficiency, enabling family offices to establish and operate investment vehicles with minimal jurisdictional friction.

Conclusion

Setting up a private fund in the Cayman Islands enables family offices to achieve bespoke control over investment strategy, governance and tax planning. While post-2020 regulatory obligations require thoughtful planning and coordination, the benefits of fund formation in Cayman far outweigh the administrative burden. With proper legal, compliance and operational support, family offices can launch a compliant, flexible and investor-friendly private fund.

FundFront works with alternative investment sponsors, including family offices, to streamline fund formation, coordination and ongoing maintenance. To learn more about structuring and managing a Cayman private fund, contact us for tailored assistance and execution support.

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Disclaimer

FundFront provides operational and technological solutions for 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.