Regulatory Policy - Exemption from Valuation Requirement for a Private Fund (September 2020)

Summary

This is a CIMA regulatory policy, dated September 2020, explaining how the Authority will exercise its discretion under section 16(7) of the Private Funds Law to exempt a registered private fund from the statutory valuation requirements in section 16. It applies to Cayman Islands registered private funds and their operators/administrators, and sets out that exemptions (absolute or conditional) will only be granted in exceptional circumstances.

• Court-frozen assets
• Mutual legal assistance repatriation
• Funds that have not launched
• Funds unable to value due to bankruptcy or enforcement action
• Funds in compulsory liquidation

The policy describes the criteria CIMA will use to assess exemption requests, the conditions a fund must satisfy before applying, and the factors CIMA will weigh in deciding whether to grant an exemption.

• Pre-application conditions: Consistency with constitutive documents, investor notification, waiver of audit exemption rights, use of an independent qualified valuer after the exemption period.
• Factors CIMA weighs: Good standing, absence of litigation, AML/CFT compliance, no prejudice to investors or creditors.
• Required documentation: Affidavits, amended constitutive documents, official reports, written confirmations must accompany an application.
• Fee: CIMA's standard application fee is payable on submission.

This is a policy/guidance document rather than a standalone legal instrument -- it does not itself impose new statutory duties beyond section 16 of the Private Funds Law, but funds seeking a valuation exemption must follow the process and conditions it describes.

Key obligations

• A private fund seeking a valuation exemption must ensure the request is consistent with the fund's constitutive documents.
• The fund operator must communicate its intention to apply for a valuation exemption to all investors before applying.
• The fund's constitutive documents must be amended to impose absolute restrictions on new investors and on changes to existing investors' interests during the exemption period.
• The fund must acknowledge it waives its right to seek an exemption from the annual audit requirement under section 13(6) of the Law.
• The valuation performed immediately after the exemption period, and the valuation underlying subsequent audited financial statements, must be carried out by an appropriately qualified independent third party.
• Applications for exemption must be accompanied by an explanation of the fund's inability to complete the valuation, associated material risks, and evidence that investors were notified.
• Applications relying on section 6.3 criteria must include amended constitutive documents and an affidavit from the fund operator confirming the specified conditions.
• Funds that have not launched but do not wish to be deregistered must submit an operator affidavit explaining the reasons and confirming no capital commitments have been accepted.
• Funds that have not launched and wish to be deregistered must submit an operator affidavit and written confirmation from the administrator/registrar/transfer agent that no capital commitments have been accepted.
• Funds unable to complete a valuation due to bankruptcy, enforcement action or compulsory liquidation must submit official reports from the relevant authority in lieu of a valuation.
• An applicant fund's operator must provide written confirmation that the exemption will not contravene the fund's constitutive documents or marketing materials, or prejudice investors or creditors.
• The prescribed application fee under the Monetary Authority Law must be paid upon submission of an exemption application.
• A fund applying for exemption for two consecutive valuation periods may be required to provide additional information from its operator or administrator explaining its continued inability to value.

Applies to

registered private funds, private fund operators, private fund administrators