Last month, following a period of industry consultation, the Cayman Islands Monetary Authority (“CIMA”) has issued a new Statement of Guidance on Corporate Governance – Mutual Funds and Private Funds (“SOG”) which became effective April 14, 2023. This guidance is relevant for the directors and general partners (the “Operators”) of hedge funds, private equity funds and most other investment funds that are regulated by CIMA.
While many Cayman Islands investment funds were already well governed, the following changes and clarifications are indeed useful as they set out CIMA’s current governance expectations:
- Private funds, such as private equity funds regulated under the Private Funds Act were not subject to the prior SOG and are now expected to meet this minimum standard. While most people in the industry were likely operating under this assumption, now there is no room for interpretation and the governance principles to be applied are now consistent for regulated mutual funds and private funds.
- It is confirmed that Operators must hold regular meetings, at least annually. Depending on the size, complexity, structure, nature of business and risk profile of the Fund, more frequent meetings may be required. This is a helpful clarification as there are simple structures for which an annual formal meeting should suffice (in addition to other regular reports/updates from the Fund’s service providers).
- A conflicts of interest policy is expected for each Fund and may be documented in the Fund's offering/marketing documents (as applicable). This is consistent with current practices.
- All conflicts of interest should be disclosed at least on an annual basis and recorded in the meeting minutes.
- The new SOG acknowledges that not all Operators are expected to be independent of the Fund, considering the number of operators from a Fund’s investment manager and other service providers, but all Operators are expected to exercise independent judgement when assessing Fund matters.
- Material changes to the regulated Funds and investor rights must be communicated to investors on an ongoing basis (as expected and consistent with best practices).
- Where Operators delegate the appointment and removal of service providers to another service provider, the Operators will nonetheless retain overall responsibility for overseeing any outsourced functions.
The governance team at Channel Capital Cayman has a wealth of experience operating funds and providing best practice fiduciary services to ensure regulated investment funds are compliant with this guidance. Furthermore, best practice governance is consistent with the expectations of institutional and sophisticated investors. The team can assist with the implementation and ongoing execution of streamlined, best practice fund governance.