is also possible that the government is seeking to get more revenue from the new levies to be charged.

According to Bryan Hunter, Partner at Appleby law firm, the cost will be minimal to Master Funds, but the levy will add to the costs of the financial sector and of doing business in the Cayman Islands generally.

“The amendment law will marginally increase the set-up costs for a master-feeder structure in Cayman, but this is not expected to materially undermine the reasons why Cayman has become the leading offshore jurisdiction in which to establish hedge funds,” he told the Cayman Net News in an email.

“It was also stated to be a revenue-raising measure,” he added in the email.

The lawyer noted that in a typical master-feeder structure, investors invest in offshore and onshore feeder funds, which in turn invest in a master fund, which in turn makes the underlying investments.  

“The impact of the amendment law is to require master funds to register with the Cayman Islands Monetary Authority (CIMA), whereas prior to the law, most master funds were not required to be registered with CIMA.

“The government's stated reason for the amendment to require master fund registration is to satisfy the claims from certain international bodies, including the OECD, that master funds should be subject to regulation by the Cayman Islands Monetary Authority.  

Mr Hunter noted that the requirement for master funds to be regulated exists in some but not all offshore jurisdictions.  

He noted that the new law is primarily geared towards meeting the international standards required by the OECD and meeting international regulatory standards. The lawyer noted that the new infrastructure would allow funds to be established quickly and cost effectively. He also noted that there is the availability of a broad pool of professional service providers that are able and willing to provide services of the quality and with the responsiveness expected by onshore clients and service providers.

“Based on its previously published reports on the Cayman Islands regulatory regime, the OECD has commented that the maintenance of ownership and identity information for investors in unregistered master funds could be improved.  It remains to be seen whether the introduction of the requirement for master funds to be registered with CIMA will satisfy the OECD's concerns in this regard,” he noted.

 The George Town-based lawyer noted that the new law has nothing to do with the case of Weavering Macro Fixed Income Fund Limited (In Liquidation) vs. Stefan Peterson and Hans Ekstrom.

In this case the Grand Court of the Cayman Islands in August last year awarded USD111m against the two non-executive directors in question for their willful neglect or default of their duties, which contributed to the fund collapsing with losses of more than US$500m.

However, Mr Hunter said that the decision in Weavering relates primarily to the issue of directors duties and is not considered to be related to the government's decision to require master funds to be registered. 

“Furthermore, the government's proposal to register master funds was announced in June 2011, before the decision in Weavering was handed down (in August 2011),” he said in the email.

In June 2011, the Cayman Islands Government announced a proposal to require registration of new and existing 'master funds' in a traditional 'master/feeder' structure. The relevant legislation was passed by the Legislative Assembly on 5 December 2011 and, as expected by Cayman industry professionals, the registration and ongoing reporting requirements are not onerous.

In a typical 'master/feeder' structure, most of the assets are held at the master fund level and the Cayman Islands authorities have sought to respond to suggestions from various international bodies to bring master funds under the aegis of the Cayman Islands Monetary Authority's (CIMA) regulatory framework.

Closed-ended funds and master funds that do not have Cayman Islands regulated feeder funds investing in them are not subject to the new registration requirements.

New master funds (i.e. those set up after the law comes into effect) will need to be registered straight away. Existing master funds will have 90 days from the commencement date of the legislation to make the necessary filing.