Alternative Investment Funds 2020 A practical cross-border insight into alternative investment funds work Eighth Edition Featuring contributions from: Anderson Mori & Tomotsune Dechert LLP Mori Hamada & Matsumoto Bär & Karrer Ltd. Deloitte Legal Travers Smith LLP Bonn & Schmitt Dillon Eustace VdA Brodies LLP Flick Gocke Schaumburg Vivien Teu & Co LLP Cadwalader, Wickersham & Taft LLP IC Universal Legal Walkers (Bermuda) Limited Cases & Lacambra Maples Group Collas Crill LLP McCarthy Tétrault LLP Table of Contents Expert Chapters The Rise of ESG Investing 1 Mikhaelle Schiappacasse, Dechert LLP The Global Subscription Credit Facility and Fund Finance Markets – Key Trends and Forecasts 8 Wesley A. Misson & Joseph P. Zeidner, Cadwalader, Wickersham & Taft LLP Bringing Foreign Investment Funds into Japan 12 Yasuzo Takeno & Fumiharu Hiromoto, Mori Hamada & Matsumoto Private Fund Management Issues Arising From COVID-19 17 Sam Kay, Travers Smith LLP Q&A Chapters Andorra Japan 22 Cases & Lacambra: Miguel Cases Nabau & 113 Anderson Mori & Tomotsune: Koichi Miyamoto & Laura Nieto Takahiko Yamada Angola Jersey 122 29 VdA: Pedro Simões Coelho, Ricardo Seabra Moura, Collas Crill LLP: Dilmun Leach & David Walters Carlos Couto & Inês Moreira dos Santos Luxembourg 128 Bermuda Bonn & Schmitt: Amélie Thévenart 36 Walkers (Bermuda) Limited: Sarah Demerling & Melanie Fullerton Mexico 136 Deloitte Legal: Martín Cortina Camargo, Ramón Canada Bravo Herrera, Héctor Alejandro Cuevas González & 45 McCarthy Tétrault LLP: Sean D. Sadler, Eduardo Michán Escobar Nigel P.J. Johnston & Cristian O. Blidariu Mozambique 143 VdA: Pedro Simões Coelho, Ricardo Seabra Moura, Cayman Islands Carlos Couto & Inês Moreira dos Santos 54 Maples Group: Grant Dixon & Andrew Keast Portugal England & Wales 150 62 VdA: Pedro Simões Coelho, Ricardo Seabra Moura, Travers Smith LLP: Jeremy Elmore & Emily Clark Carlos Couto & Inês Moreira dos Santos Germany 74 Scotland Flick Gocke Schaumburg: Christian Schatz 161 Brodies LLP: Andrew Akintewe Hong Kong Spain 80 Vivien Teu & Co LLP: Vivien Teu & Sarah He 170 Cases & Lacambra: Miguel Cases Nabau & Toni Barios Asensio India 92 Switzerland IC Universal Legal: Tejesh Chitlangi & 179 Sushreet Pattanayak Bär & Karrer Ltd.: Rashid Bahar & Martin Peyer USA Ireland 189 101 Dillon Eustace: Brian Kelliher & Richard Lacken Dechert LLP: Karen L. Anderberg & Adrienne M. Baker 54 Chapter 9 Cayman IslandsCayman Cayman Islands Grant Dixon Maples Group Andrew Keast 1 Regulatory Framework and advising in relation to securities, but only if the advice is given to someone in their capacity as investor or potential investor or in their capacity as agent for an investor or a potential investor 1.1 What legislation governs the establishment and and the advice is on the merits of that person (whether acting operation of Alternative Investment Funds? as principal or agent) buying, selling, subscribing for or under- writing a particular security or exercising any right conferred The Mutual Funds Law (2020 Revision) (the “MF Law”) by a security to buy, sell, subscribe for or underwrite a security. provides for the regulation of open-ended investment funds and “Securities” are defined to include most forms of shares and mutual fund administrators. Responsibility for regulation under stock, debt instruments, options, futures, contracts for differ- the MF Law rests with the Cayman Islands Monetary Authority ences, and derivatives. (“CIMA”). Schedule 3 to SIBL specifically excludes certain activities from The Private Funds Law, 2020 (the “PF Law”) provides for the definition of securities investment business, although those the regulation of closed-ended investment funds. Responsibility exclusions are unlikely to apply to a person conducting discre- for regulation under the MF Law rests with CIMA. tionary investment management or investment advisory activities. In addition, the Retail Mutual Funds (Japan) Regulations Any person within the scope of SIBL conducting securities (2018 Revision) (the “Japan Regulations”) provide a regu- investment business must be licensed by CIMA, unless that latory regime for retail mutual funds that are marketed to the person is registered as a “Registered Person” under the SIBL public in Japan. Law. A licence may be restricted (meaning that securities invest- Although not Cayman Islands law, the broad scope and ment business may only be transacted with particular clients) or extra-territorial effect of the EU Directive on Alternative unrestricted. A licence may also be issued subject to conditions Investment Fund Managers (“AIFMD”) will capture most types or may be unconditional. of Cayman Alternative Investment Funds, regardless of whether A person carrying on securities investment business may be they are open-ended or closed-ended and regardless of their legal exempt from the requirement to obtain a licence but will still structure and investment strategy, with very few exceptions, to be required to be registered as a “Registered Person” under the extent that they are being marketed or managed in Europe the SIBL. In the case of Registered Persons, which is likely to (as such terms are defined for the purposes of the AIFMD). apply to fund managers or advisers, they are required to register Legislation for AIFMD-consistent regimes for Cayman Islands with CIMA by filing a declaration and paying a fee of CI$5,000 funds and their managers was introduced in 2019, which enable (approximately US$6,097.56), prior to carrying on securities Cayman Islands AIFs and AIFMs to “opt-in” to take full advan- investment business and annually thereafter, confirming that tage of the AIFMD if and when the AIFMD passport is extended they are entitled to rely on the relevant exemption. to the Cayman Islands. The legislation also contemplates a An “Excluded Person” includes: CIMA notification regime for CIMA licensed managers and any (a) a company carrying on securities investment business exclu- fund managed by a manager registered in an EU Member State or sively for one or more companies within the same group; being marketed to investors in an EU Member State. (b) a person, whose registered office in the Cayman Islands is provided by a licensee under the law, carrying on securi- 1.2 Are managers or advisers to Alternative Investment ties investment business exclusively for one or more of the Funds required to be licensed, authorised or regulated by following classes of person: a regulatory body? (i) a sophisticated person (a person regulated by CIMA or a recognised overseas regulatory authority or whose securities are listed on a recognised securities A manager or adviser which is established in or, in the case of exchange or who by virtue of knowledge and expe- a foreign company, registered in the Cayman Islands and which rience in financial and business matters is reasonably conducts “securities investment business”, whether or not that to be regarded as capable of evaluating the merits of a securities investment business is carried on in the Cayman proposed transaction and participates in a transaction Islands, will fall within the scope of the Securities Investment with a value or in amounts of at least US$100,000 in Business Law (“SIBL”). each single transaction); or “Securities investment business” is defined as being engaged (ii) a high-net-worth person (an individual whose net in the course of business in any one or more of the activities set worth is at least US$1,000,000 or any person that has out in Schedule 2 to SIBL. Those activities include managing any assets of not less than US$5,000,000); or securities belonging to another person on a discretionary basis Alternative Investment Funds 2020 Maples Group 55 (iii) a company, partnership or trust of which the share- (c) where the mutual fund is a “master fund” (as holders, limited partners or unitholders are all sophis- defined in the MF Law) and either: ticated persons or high-net-worth persons; or (i) the minimum investment per investor is at (c) a person who is regulated by a recognised overseas regu- least US$100,000; or latory authority in the country or territory (other than the (ii) the equity interests are listed on a recog- Cayman Islands) in which the securities investment busi- nised stock exchange. ness is being conducted. 4. Limited investor funds registered under section 4(4) of the MF Law have 15 or fewer investors, a majority in number of whom have the power to appoint 1.3 Are Alternative Investment Funds themselves required to be licensed, authorised or regulated by a and remove the fund’s directors, GP or trustee, as regulatory body? applicable. A master fund is a Cayman Islands entity that issues equity interests to at least one feeder fund (either directly or through an An investment fund qualifies as a “mutual fund” and is required intermediate entity established to invest in the master fund) that to be regulated under the MF Law if: is itself regulated by CIMA under the MF Law that holds invest- (a) it is a company, partnership or unit trust carrying on busi- ments and conducts trading activities for the principal purpose ness in or from the Cayman Islands; of implementing the overall investment strategy of the regulated (b) it issues “equity interests” to investors (i.e. shares, part- feeder. nership interests or trust units that carry an entitlement to An investment fund qualifies as a “private fund” and is participate in profits or gains and which may be redeemed required to be regulated under the PF Law if it is a company, unit or repurchased at the option of those investors prior to trust or partnership whose principal business is the offering and winding up); and issuing of its investment interests (being interests that are not (c) its purpose or effect is the pooling of investor funds with redeemable or repurchasable at the option of the investor), the the aim of spreading investment risks and enabling inves- purpose or effect of which is the pooling of investor funds with tors to receive profits or gains from investments.