1.1 What are the most common types of private equity transactions in your jurisdiction? What is the current state of the market for these transactions? Have you seen any changes in the types of private equity transactions being implemented in the last two to three years?
As the pre-eminent offshore jurisdiction for private equity fund formation, private equity structures are established in the Cayman Islands to accommodate a broad range of fund structures and transactions, which commonly reflect the trends developed in the US, Europe and Asia. While private equity fund establishment for acquisition purposes and co-investment opportunities are most common, Cayman Islands structures are becoming increasingly popular for buy-outs and secondary transactions. Driven by strong performance and resulting investor demand in the current market, we are seeing new and bespoke products offered by fund managers, including funds of one, managed accounts and direct and co-investment opportunities.
1.2 What are the most significant factors or developments encouraging or inhibiting private equity transactions in your jurisdiction?
The Cayman Islands continues to be the leading offshore domicile for private equity funds due to the global distribution appeal of Cayman Islands vehicles, their ease of use, speed to market and low cost. The Cayman Islands' tax neutral status ensures the fund vehicle itself does not create an additional layer of tax, creating efficiencies in raising funds from a potentially global investor base. The Cayman Islands is a well-regulated, co-operative and transparent jurisdiction and continues to refine its laws and regulatory standards to respond and adapt to international standards. This has been most recently demonstrated by the update to the Cayman Islands Exempted Limited Partnership Law in 2014, the enactment of the Limited Liability Companies Law in 2016, the recent implementation of a beneficial ownership register regime and an update to the anti-money laundering regime as it relates to private equity.
2 Structuring Matters
2.1 What are the most common acquisition structures adopted for private equity transactions in your jurisdiction? Have new structures increasingly developed (e.g. minority investments)?
While a Cayman Islands private equity fund can also be structured as a company or a trust, the majority of Cayman Islands private equity funds are established as partnerships. A private equity acquisition structure that has become increasingly popular with US and international investment managers in managing their global investments is a structure referred to as the "Cayman Ireland Investment Platform" ("CIIP"). The CIIP structure comprises a Cayman Islands fund, typically an exempted limited partnership ("ELP"), which holds an Irish investment company, which holds underlying investments. The Irish company will generally be established to fall within either the beneficial Irish section 110 tax regime (a "Section 110 Company") or the Irish holding companies tax regime (an "Irish Holding Company"). Depending on the choice of Irish company, the ELP will fund the company by way of subscribing for a loan note or for share capital. The Irish company uses the proceeds to acquire investments and returns the investment proceeds to the ELP as and when required, which are in turn distributed to investors.
2.2 What are the main drivers for these acquisition structures?
The CIIP structure combines the investor familiarity, sophistication and flexibility of Cayman Islands funds, with the significant economic advantages of an Irish investment company that may benefit from in excess of 70 double taxation treaties and certain EU laws than can reduce or eliminate tax on the underlying investments.
2.3 How is the equity commonly structured in private equity transactions in your jurisdiction (including institutional, management and carried interests)?
As the majority of Cayman Islands private equity funds are structured as ELPs, investors subscribe for an equity interest in the ELP in the form of a limited partnership interest. Management will typically participate in the performance of the ELP as a carried interest partner either directly or through a separate vehicle.
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Previously published in the International Legal Comparative Guide
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