Global menu

Our global pages


Domiciling a Hedge Fund – the Cayman master/feeder: a guide for first-time managers

Domiciling a Hedge Fund – the Cayman master/feeder: a guide for first-time managers
  • United Kingdom
  • Financial services and markets regulation
  • Financial services and markets regulation - Hedge funds
  • Financial services


“Where should I establish my hedge fund?”

“The Cayman Islands” will (more often than not) feature prominently in the reply. But why is this three island chain in the western Caribbean so popular? Leaving aside the white sandy beaches, managers and investors are drawn to this jurisdiction by an efficient tax and regulatory regime, a ready supply of service providers, a trusted regulator and the islands’ common law system. With this heady combination of traits it is no wonder that the Cayman Islands continue to be a favoured destination of the first-time fund manager.

However, mangers may face difficulties when trying to accommodate different kinds of investors in a Cayman fund. Fortunately, this problem has its own ready answer: the Cayman master/feeder.

Here is how you get to get to grips with it.


Under a master/feeder framework, feeder vehicles (“Feeders”) channel investments into a single overarching fund (the “Master”). Separate feeders are created for investors from jurisdictions with specific tax or regulatory requirements. This fragmented structure allows each Feeder to satisfy the regulatory or tax needs of a single group of investors before their investments are then channelled into a common pool – the Master fund. The upshot of this arrangement is that a Master fund can take investments from tightly regulated groups of investors – the ‘US taxable’ being one example – without imposing those same restrictions on others.

Ultimately, master/feeder structures increase the number of eligible investors a fund can accommodate.

A Cayman master/feeder

Master/feeder funds can take many different legal forms. Cayman Masters are usually established as open-ended corporations, though a number of different corporate and partnership structures are available. Each Feeder is structured according to the need or preference of its investors. US taxable investors are usually channelled into US domiciled limited partnerships. Various forms of Feeder are used to accommodate the specific requirements of global investors (and the ‘US tax exempt’), but Cayman corporations remain the most popular.

Thus established, master/feeders offer tax benefits to all investors. Cayman corporations – like other offshore vehicles – are tax transparent, which means that its members will only incur tax once on distributed profit. Meanwhile, assuming the Master is structured as a corporation (as outlined above), fund managers can opt for it to be treated as a partnership for US tax reporting purposes. US taxable investors can then benefit from the tax transparency enjoyed by members of an offshore feeder.

Other options: stand-alone funds and the segregated portfolio company

Of course, there are reasons why you might not want to use a master/feeder. If your fund is just getting going or the complexity of a master/feeder is not required, fund managers can opt for a stand-alone fund model. Stand-alone funds are refreshingly simple: a single pool of investors, investing in a single investment vehicle, with a single investment strategy.


Another model commonly seen is the segregated portfolio company (“SPC”). An SPC has a single pool of investors but creates a range of portfolios following different investment strategies. Each portfolio is segregated from others within the fund and from the wider company. These subdivisions make SPCs strategically flexible and allow fund managers to offer investors greater choice within a broad umbrella structure (so-called ‘plug and play’), while still benefiting from potential economies of scale.

Why Cayman?

Whichever investment vehicle best suits your fund, the Cayman Islands boast features which set them apart from other jurisdictions:

• there are no direct taxes in Cayman and funds are immune from changes in tax law that might affect them in other jurisdictions

• the regulator – the Cayman Islands Monetary Authority (“CIMA”) – is widely lauded for its regulatory efficiency

• The requirements for a fund to file for registration are kept to a minimum:

o Offering documentation

o The administrator’s written consent

o A few additional particulars

o Signed off by a Cayman approved auditor

• This means funds can be launched on the islands within ten to twelve weeks

This light touch separates the Cayman Islands from other jurisdictions and will continue to work to the manager’s advantage during the fund’s lifetime.

How Eversheds Sutherland can help

Our team has been at the forefront of regulatory interpretation and product development for the fund management industry since the 1980s. We advise on all types of fund structures and prepare all documentation necessary to achieve a successful fund launch.