“It is the Directors’ duty to satisfy themselves that the overall structure…was consistent with Cayman Islands industry standards..” - Jones J in Weavering Macro Fixed Income Fund Limited (in Liquidation) v Stefan Peterson & Hans Ekstrom 2011

The reports in the press have covered the continual unravelling of the camera giant Olympus Corp., exposing what is alleged to be many years of  misrepresentation, dishonesty and fiscal mismanagement.  The recent admission that three of Olympus’ top executives in Japan colluded to hide losses from investors, which has resulted in the firing of its Executive Vice President over his role in covering up the losses along with the company’s former Chairman and with every indication that its auditor will also step down.

The press however, has taken particular issue that Cayman companies were utilised in the apparent well-orchestrated mismanagement and less than transparent actions of the Olympus’ directors and officers.  Perhaps forgetting that the role of the Cayman Islands companies in this saga, could easily have been filled by onshore companies in London or Delaware, with the same outcome.  After all it is less about the company, which is nothing more than an inanimate vehicle, or its location, and more about the mind and management behind the company.

Recent figures published by the Cayman Islands Monetary Authority show that the Cayman jurisdiction remains the domicile of choice for managers looking to establish new hedge funds.

This article is intended to provide a high-level overview of some of the considerations and steps involved in setting up a Cayman fund.

Structure

A Cayman hedge fund can be organised as a limited partnership, a unit trust or a company (either an exempted company or a Segregated Portfolio Company as described below).