This is the most common category of regulation under the MF Act, with approximately 69 per cent of Cayman Islands mutual funds registered with CIMA coming under this category. To qualify for registration, a mutual fund must have either:

• A minimum initial subscription amount of US$100,000, or its equivalent in any other currency (by far the most common), or
• Its equity interests listed on a recognised stock exchange approved by CIMA

Master funds are a sub-category of registered funds. Approximately 27 per cent of Cayman Islands mutual funds registered with CIMA are master funds.

A master fund is a vehicle that facilitates the investment by a regulated feeder fund (which is a mutual fund regulated by CIMA under the MF Act that conducts more than 51 per cent of its investing through a master fund) in the underlying assets pursuant to a particular investment strategy. A master fund does not benefit from the single investor exemption.

For example, a typical master/feeder structure may involve a Cayman Islands feeder fund and a US feeder fund being set up to invest in a Cayman Islands master fund. If the Cayman Islands feeder fund were registered or licenced by CIMA then the master fund would have to register.

However, if the Cayman Islands feeder fund is not required to register with CIMA (for example, because it is a single investor fund or it is an exempted fund) and the only other investor is the US feeder fund, the master fund would not have to register with CIMA and is not considered to be a mutual fund.

Limited investor funds are those mutual funds of which the equity interests are held by not more than 15 investors, a majority of whom (in number and without reference to the number of shares or other equity interests held by each investor) are capable of appointing or removing the operator of the fund. A limited investor fund excludes master funds.

This category of fund was previously known as a “section 4(4) fund” or “exempt fund” because it was not required to be registered with CIMA. However, changes to the mutual funds registration regime in 2020 now require all such funds to be registered with CIMA by the deadline.

The key difference between a registered mutual fund and a limited investor fund is that a limited investor fund does not need to comply with a minimum initial investment amount of US$100,000 and is not required to have an offering document.

Administered funds make up approximately 3 per cent of mutual funds that are registered with CIMA.

Administered funds will generally be used if the promoter does not want to have a minimum initial investment amount for its investors. The mutual fund must designate a principal office in the Cayman Islands at the office of a Cayman Islands-based licensed mutual fund administrator. The key difference to registered funds is that responsibility for regulatory oversight for administered funds is largely delegated to the licensed mutual fund administrator, and therefore, the administrator providing the fund's principal office must be satisfied that:

• Each promoter of the fund is of sound reputation
• The fund's administration will be undertaken by persons with sufficient expertise to administer the mutual fund and who are of sound reputation
• The fund's business and any offering of its equity interests will be carried out in a proper way

On an ongoing basis, the licensed fund administrator must notify CIMA if it has reason to believe that a fund for which it provides the principal office is acting in breach of the MF Act, is insolvent or is otherwise acting in a manner that is prejudicial to its creditors or investors. There are also specific on-going obligations applicable to licensed mutual fund administrators.

This is the rarest category of Cayman Islands funds with fewer than 1 per cent of regulated mutual funds being registered under this category.

Unless a mutual fund falls within one of the other categories described above, it must obtain a mutual fund licence. A fund promoter or manager would usually choose to license a fund under the MF Act if the fund is intended to be a retail fund offered generally to the public outside the Cayman Islands, with its administrator and/or manager and other key service providers located outside the Cayman Islands.

Licensed funds are rarely encountered in practice as retail investment funds are normally set up as onshore funds in accordance with the regulatory requirements of their relevant home jurisdiction. However, one of the main exceptions to this practice has been in Japan, where the use of licensed funds structured as Cayman Islands-exempted unit trusts has been popular. This type of category is usually only chosen by well-known financial institutions.

The Cayman Islands Government passed legislation which introduces the concept of ‘EU Connected Funds’ to enable Cayman Islands funds to take advantage of the passport regime under the Alternative Investment Fund Managers Directive as and when it becomes available to Cayman Islands investment funds. Further secondary legislation sets out in detail how EU Connected Funds will be regulated. The EU Connected Fund regime under the MF Act will allow both open-ended and closed-ended funds to apply to be registered or licensed with CIMA as EU Connected Funds and therefore enable them to benefit from the EU passport regime.