Segregated portfolio companies – from a fund governance perspective
DMS Governance is pleased to share the recent article published by Vumi Dube and James Kattan in Hedgeweek.
As of 31 March 2018, there were 933 segregated portfolio companies (SPCs) out of 10,500 entities registered as mutual funds with the Cayman Islands Monetary Authority. While this represents about 9 per cent of the list of registered mutual funds, it is worth noting that as of the same date there were many more segregated portfolios (SPs) linked to these SPCs.
The ability of each SP to follow a different strategy and to attract different investors from other SPs within the same SPC presents an opportunity for a more economic structure, one that minimizes formation and operational costs compared with a traditional single entity for each strategy. Furthermore, SPCs incorporated in the Cayman Islands as exempted companies are versatile in nature, usually used for the formation of umbrella funds and setting up of fund platforms. They can also employed for master feeder structures.
SPCs do, however, present directors with certain challenges. For example, an SP does not constitute a separate legal entity from its SPC. To this point, an article by a legal firm, Ogier, further explained that since an SP is not a separate legal entity, distinct from the SPC or from any other SP, the general case law stipulating that a company may not purchase shares in itself applies so that an SP is not able to invest into another SP of the same SPC. Another challenge is that SPC structures have not yet been tested in Cayman Islands courts.