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Master-Feeder Structure in Cayman Islands

Master-Feeder Structure in Cayman Islands

A master-feeder structure in Cayman Islands is a way of bringing together funds from different types of investors. It can be particularly appealing to US companies as it allows US-taxable businessmen to invest alongside US tax-exempt and non-US entities. By combining the funds, the structure can also reduce the costs of managing the fund, making it more efficient. Our specialists have highlighted some valuable information about the master-feeder fund structure in Cayman Islands. The Cayman Islands exempted company is usually the legal entity chosen for the master fund.

How does a master-feeder structure in Cayman Islands work?

The master fund company receives investments from separate feeder funds, which act as intermediaries. US taxable companies invest in a US limited partnership feeder fund that provides tax advantages. Non-US and US tax-exempt firms invest through a separate offshore feeder fund company to avoid US tax regulations.

The feeder funds invest all their assets in the master fund, which conducts all trading activities. The feeder funds share the profits of the master fund according to their investments. Management and performance fees are typically paid at the level of the feeder funds.

Incorporation in Cayman Islands for master-feeder funds is commonly chosen due to the country’s favorable regulatory and tax environment. You can reach out to our team which specializes in investment funds when setting up a master-feeder fund structure in Cayman Islands.

Regulations for master-feeder fund structures in Cayman Islands

Master funds in master-feeder structures in Cayman Islands must register with the Cayman Islands Monetary Authority (CIMA) if the feeder fund is also registered with CIMA. These master funds must be based in the Cayman Islands, offer shares that investors can sell, have regulated feeder funds investing in them, and be designed for multiple investors.

There is an exception when the feeder fund is not registered with CIMA, in which case the master fund can also avoid registration. Please contact our specialists in Cayman Islands company formation to learn more about this type of exception.

If each legal enitity has invested more than US$100,000, the registration for master funds is similar to standard fund registrations, but with some simplifications when overlapping with filings for the offshore feeder fund.

The main registration requirements include: paying fees, filing consent letters from the auditor and administrator, submitting the certificate of incorporation or registration, filing audited accounts annually, and providing limited information about the master fund and its offering document.

Why choose Cayman Islands for master-feeder structure funds?

The main advantage of using a master-feeder structure in Cayman Islands is that it allows US taxable firms to invest in an offshore hedge fund in a tax-efficient way without affecting the tax position of other non-US or tax-exempt investors. This helps the hedge fund manager attract more funds, secure credit lines, and meet investment requirements based on the fund’s size.

Choosing the country for setting up a fund is a great idea considering the favorable tax system, legal framework, flexibility, and fast process of incorporation in Cayman Islands. Additionally, here are some statistics about the funds opened in the country:

  • There were over 12,000 mutual funds in Cayman Islands in 2022;
  • In the same year, there were 15,854 private funds in the country;
  • There were also 74 total fund administrators in 2022.

If you are interested in knowing more about the master-feeder structure in Cayman Islands or about how to open a Cayman Islands company, contact our team.