Cayman Islands Law Requires Registration
On February 7, the Cayman Islands Government passed sweeping legislation to enhance oversight of investment funds to boost best practices and strengthen investor confidence. The Private Funds Law, 2020 requires private funds formed in Cayman to register with the Cayman Islands Monetary Authority (CIMA) within the next six months. The Mutual Funds Law, 2020 removed the small fund exemption (those with fewer than 15 investors) thereby subjecting substantially all private open ended and closed ended funds formed in Cayman to register with CIMA. (For more insight, please see EisnerAmper’s previous report on the Cayman Islands’ enactment of legislative changes to enhance oversight of investment funds to boost best practices and strengthen investor confidence.)
Under the new laws:
- All impacted funds will be required to register by August 7, 2020;
- Any new funds launched from the effective date will require immediate registration.
- The registration fee for the initial registration of affected funds during the transition period will be waived; and
- The first audited accounts for registered funds will not be required to be filed with CIMA until six months following the first full financial year after registration. Unlike other offshore jurisdictions that do not require local auditors, these audited financial statements must be submitted by a CIMA approved local auditor.
As always, for further instruction, please speak to your legal advisors.
By Elana Margulies-Snyderman
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Cayman Islands Enacts Legislative Changes to Enhance the Oversight of Investment Funds
The Cayman Islands Government has drafted two bills to enhance regulation for all Cayman-domiciled hedge funds and also impact private equity funds for the first time, in an effort to boost best practices, strengthen investor confidence and ensure the Islands remains the preeminent jurisdiction for investment funds formation.
Mutual Funds (Amendment) Bill, 2020 and the Private Funds Bill, 2020 would require both hedge funds and private equity funds to have annual audits issued or undertaken by a Cayman Islands Monetary Authority (CIMA)-approved local auditor.
Under the new Mutual Funds Bill, funds with fewer than 15 investors would now be required to register with CIMA, comply with annual return requirements, retain accessible records and have annual audits done by a CIMA-approved local auditor.
According to the Private Funds Bill, all private funds would have to comply with above. In addition, they would have requirements for valuation, safekeeping, title verification and cash monitoring. The bill also allows private funds the flexibility to choose the service provider(s) who would provide any required valuation, safekeeping, title verification and cash monitoring services; provided that any administrator, custodian or other independent third party appointed is independent from the fund’s manager or operator or, where any of the manager or operator or their affiliates is appointed, they identify and disclose any conflicts of interest.
The Government is planning a series of briefings and releases in the coming months with the first briefing to be held January 10.
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EisnerAmper Global welcomes Singapore member
EisnerAmper Cayman is delighted to welcome EisnerAmper Singapore to the EisnerAmper Global network. EisnerAmper Global is a specialist network of independent member firms operating in key financial services and international trading hubs. EisnerAmper Global member firms provide clients with access to the expertise of 200 partners and 2,000 professionals globally, with office locations including New York, Miami, San Francisco, Cayman, Dublin and Singapore.
EisnerAmper Singapore, formerly Saw Meng Tee & Partners PAC, provides specialist accounting, advisory, outsourcing,and risk & regulatory services to international and domestic clients operating in Singapore and across Asia. At EisnerAmper Singapore’s launch, Managing Partner Saw Meng Tee noted that EisnerAmper Singapore’s vision is to be “recognised as one of Singapore’s leading professional services firms in the specialist areas of financial services, corporate solutions and advisory”. EisnerAmper Ireland and Saw Meng Tee & Partners PAC have been working closely together over the past 18 months to further develop existing ties between Ireland and Singapore.
For enquiries, please contact Saw Meng Tee, Managing Partner, EisnerAmper Singapore or visit the EisnerAmper Singapore website.
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Business in Brief: EisnerAmper Celebrates 10 Years in Cayman
Accounting, auditing and advisory firm EisnerAmper Cayman celebrated its 10th anniversary in the Cayman Islands at The Westin Grand Cayman last week.
EisnerAmper flew in Adam Cheyer, a co-founder of Siri, the digital assistant in Apple’s iPhone, as a key note speaker.
Mr. Cheyer, who also co-founded Viv, the digital assistant which Samsung branded as Bixby for the Galaxy S8, gave two presentations to local high school students and the business community, last Thursday.
Ben Leung, EisnerAmper’s managing partner, said: “We wanted the pupils at all the local schools to have the opportunity to listen to and meet someone who is a high achiever in the technology field. Moreover the area of mobile technology in particular is relevant now and will become more so in the future.”
The evening session was devoted to the future of artificial intelligence. Given that automation has famously reduced the number of blue collar jobs and is anticipated to reduce the number of white collar jobs as well, the presentation addressed how artificial intelligence is likely to affect businesses going forward.
Mr. Cheyer outlined the future of digital assistants which, although ubiquitous on all computer and smartphone operating systems, are not that widely used.
Mr. Cheyer said it will need four things to elevate assistants from a utility “that is nice to have to a paradigm” that every business will need to use.
This would require one assistant that can be accessed from any device for any type of service in a way that can be personalized, he said.
EisnerAmper Cayman started in 2007 as one of the smallest firms in Cayman and has quickly grown its staff and offices, now located at Cricket Square. “The world financial crisis commenced shortly after we launched so arguably it was not the best timing,” Mr. Leung said. “However, there is always a demand for quality, and we positioned ourselves in the market as a firm where senior management were heavily involved in engagements.”
The firm has undertaken many pro-bono audits such as the CI Red Cross, NCVO, CI Chamber of Commerce and Cayman Finance.
James Lewis, partner, said: “We also try and take every opportunity to participate in events supporting charities. Every year we are out at the supermarkets for Veterans Day. We have dress-down days for local charities like Rock Your Socks (Downs Syndrome) and participate in the events such as the 5Ks for the CI Red Cross and Cayman Crisis Centre, also a sponsor for both.”
A copy of the article published on the Cayman Compass can be downloaded from the following link: Business in brief – EisnerAmper celebrates 10 years in Cayman – Cayman Compass
Other articles written during Adam Cheyer’s visit are on the following link:
SIRI co-founder: AI still too narrow to be feared – The Journal
Siri founder shares secrets to success – Cayman Compass
GAIM Ops Cayman 2016 Poll Results
The results can be viewed below or a PDF version of the report can be downloaded here: GAIM 2016 Survey Results
- Hedge Fund Investor: What’s New and What’s Changed
- Calling All Regulators: Active and Recently Retired Regulators Prepare You for What’s Next
- The Evolving Business Model for Hedge Funds: Looking at the Future Model of Sustaining, Growing and Innovating
- Institutional Investor Perspective: The Future Partnership with Managers
In March 2016, EisnerAmper had the opportunity to participate in the annual GAIM Ops Cayman conference, one of the hedge fund industry’s leading operations and compliance events.
This year’s gathering brought together close to 500 operations, due diligence and compliance experts from the alternative investment industry. C-level personnel and fund managers made up the largest percentage of the attendees.
Over the course of the conference, the audience was polled on a variety of topics. The following report details those results.
As you review the responses, we want to offer our own insight to provide a more complete and in-depth look at the findings:
The Evolving Business Model for Hedge Funds
Fifty-five percent of respondents indicated the commingled hedge fund is not an endangered species.
While the commingled fund may not become extinct any time soon, the 2×20 pricing structure is long gone for equity based strategies. The 1.5×20 fee structure has grown in popularity due to pressure from the institutional investment community resulting from underperformance in recent years.
We anticipate that you will find hurdle rates incorporated into the incentive fee structure, wherein a manager must outperform a stated rate of return (e.g., 10-year bond) before the incentive can be taken.
Institutional Investor Perspective
More than 75% of respondents would consider increasing or beginning pursuing opportunities through liquid alternative products.
Liquid alternative mutual funds took off like wildfire from 2012-2014 as the number of new funds grew and AUM ballooned. However, for investors looking to gain access to certain strategies, the daily liquidity requirements for a liquid alternative mutual fund often prohibit certain securities and asset classes being included in the fund. These strategies are only accessible in a traditional commingled hedge fund structure.
More than half of the respondents felt it was important to meet personnel beyond the senior management team during operational due diligence (“ODD”) visits.
Post-Madoff, the role of ODD has grown dramatically. Whether investors are assigning the responsibility internally or outsource it to an ODD firm, managers must make sure their firms are of institutional quality from the front-middle-back office, legal/compliance, and infrastructure perspectives to win allocations.
(Click images to enlarge)
HEDGE FUND INVESTORS
What’s New and What’s Changed
Will the hedge fund industry continue to grow in assets or will there be consolidation among managers?
What is the biggest challenge facing managers today?
Where are fees heading over the next couple of years?
CALLING ALL REGULATORS
Active and Recently Retired Regulators Prepare You for What’s Next
Insider Dealing: Post-Newman, do you believe congressional action to codify “insider trading” would be beneficial?
Cybersecurity and cyber-related crime: Which elements of a cybersecurity program do you find the most difficult to implement?
Other policy and regulatory developments: Which of the following developments do you identify as the potential biggest threat to the hedge fund industry (Related to politics and regulations)?
THE EVOLVING BUSINESS MODEL FOR HEDGE FUNDS
Looking at the Future Model of Sustaining, Growing and Innovating
Is the commingled hedge fund an endangered species (and the 2 and 20 fee structure along with it)?
Which investor group(s) represents the most advantageous path for your goals in raising capital?
Should you increase or start pursuing the opportunity through liquid alternative products?
INSTITUTIONAL INVESTOR PERSPECTIVE
The Future Partnership with Managers
Who do you expect to win the U.S. Presidential election?
Demands for portfolio and operational transparency have increased dramatically over the last few years. How has your organization reacted to those demands?
Who are the most important people to meet during an operational due diligence visit?
Have you had Basel III-related conversations with your prime brokers?
Is your CCO function outsourced to a third-party compliance consultant?
Are You a Going Concern?
The rules of US Generally Accepted Accounting Principles (GAAP) are no longer silent on management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and what management should disclose in their financial statements.
In August 2014 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-15, titled Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which provides guidance about management’s responsibilities in this regard.
Guidance has been issued to reduce diversity in timing and content of footnote disclosures. Management need to consider this guidance to produce US GAAP-compliant financial statements.
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Article on FASB’s Accounting Standards Update (ASU) No. 2015-09
EisnerAmper Cayman Ltd. has posted an article with Captive Insight (www.captiveinsight.ky) and Captive Review (see article here) about the latest FASB ASU No. 2015-09.
Preparers of financial statements need to be aware of the additional disclosure requirements introduced by ASU No. 2015-09, as well as consider the time impact and increased level of detail on reserving and claims data to be compiled in order to enable preparation of financial statements that comply with accounting principles generally accepted in the United States of America (U.S. GAAP).
The article published in Captive Insight can be downloaded through the link below.
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PKF Cayman, one of the premier accounting and business advisory firms in the Cayman Islands, has enjoyed strong growth since its inception in October 2007. The firm serves many clients that require global support for audit, tax and consulting services. In particular, the firm has a wealth of experience auditing offshore vehicles – in particular hedge funds and captive insurance companies – and is committed to providing clients with a responsive, knowledgeable and professional service. Delivery of this commitment has helped the firm achieve significant growth in Grand Cayman.
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