CAYLUX Fund Finance briefing

Author:Mr James Heinicke
Profession:Ogier
 
FREE EXCERPT

The Cayman Islands and Luxembourg are two of the world's leading investment funds jurisdictions and as fund structures become more bespoke it is increasingly common to see fund structures that include Cayman and Luxembourg fund vehicles.

Those lending to funds formed in Cayman and/or Luxembourg may wonder why investment managers use these jurisdictions. In this briefing we summarise why they are used and explain one way in which investment managers are using Cayman and Luxembourg fund vehicles together.

Advantages of Cayman funds

Cayman is well-known as an offshore jurisdiction at the forefront of the investment funds industry.

Cayman's tax neutral regime (there are no personal, corporate income or capital gains taxes in Cayman) provides a tax efficient platform to pool investor capital. US and international sponsors and investors are familiar with Cayman investment fund products. Cayman has a sophisticated fund ecosystem, including many experienced and efficient service providers who support the Cayman investment funds industry. Close proximity to the US and US time zones. Cayman is a British Overseas Territory and has a stable political and economic environment. Advantages of Luxembourg funds

Luxembourg has historically been Europe's preferred jurisdiction for fund sponsors seeking to access European capital.

Luxembourg is Europe's largest and the world's second largest fund domicile. Luxembourg funds provide US (non-EU) sponsors with a gateway to Europe and access to the European passport for marketing purposes, allowing them to attract European investors. Sponsor-friendly limited partnership laws, which provide comprehensive functionality comparable to those available in Cayman and other fund jurisdictions. Luxembourg offers a flexible and innovative toolbox of investment solutions that provides a wide range of corporate structuring and product options to investment managers. Luxembourg is a founding member of the European Union and enjoys economic, political, social and fiscal stability, making it one of the few countries to receive an AAA rating from every major ratings agencies. The use of Cayman/Luxembourg parallel funds

Parallel funds co-invest and divest in the same assets as the main fund at the same time and on the same terms, usually on a pro-rata basis based on their commitments.

While Cayman fund vehicles are used to pool capital of US tax exempt investors and international investors, there is a growing trend...

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