The New Cayman Law Imposed Further Valuation Requirements for Cayman Private Funds

The Cayman Islands Government introduced the Private Funds Law, 2020 and the Private Funds (Savings and Transitional Provisions) Regulations, 2020 (together as the “New Cayman Law”) in February 2020. One of the key highlights of the New Cayman Law is the mandatory enhancements over the independency and consistency of the valuation process in relation to the assets of private funds.

The operator of the private funds shall be responsible for compliance with the New Cayman Law.

Effective Period of the New Cayman Law

A transitional period of 6 months was granted, implying that the private funds should be fully aware of the latest code arrangements and have prepared adequate compliance mechanisms in order to comply with the New Cayman Law by no later than 7th August 2020. The degree of compliance to the New Cayman Law will most probably be assessed from the financial year of 2020 onwards.

Valuation Requirements under the New Cayman Law

Under the New Cayman Law, private funds, which cover the majority of the closed-ended funds, are obligated to follow proper and consistent procedures to perform valuations on its assets.

In any case, the valuation of assets is required to be conducted at least annually. It shall be carried out at a rate that is appropriate and necessary to timely reflect the material changes on the fair value of the subject asset.

The Cayman Law explicitly stated that the appraisal should be performed by one of the followings:

1. An independent third party that is professionally qualified to conduct valuations in a non-high-risk jurisdiction;
   
   
2. The manager or operator of the private funds provided that:
   
   (a) The valuation function is independent from the management function of the funds; or
   
   (b) Potential conflicts of interest are appropriately addressed and disclosed to the investors of the private funds;
   
   
3. An administrator appointed by the private funds.

How AVISTA Can Help

One of the key takeaways of the New Cayman Law is the great emphasis on the independence and professoinalism of the valuation of assets, in order to provide the investors with a true and fair view of the value of the funds. Privates funds are required to conduct valuation of the assets at least annually with a rigorous and consistent approach in accordance with the rules and guidelines set forth in the Monetary Authority Law (2020 Revision).

As one of the leading independent professional valuation firms, AVISTA is experienced in valuing different types of equity investments and financial instruments with complex structure for financial reporting purpose. Our valuation experts are ready to advise you on how the assets in the funds can be valued for compiling your upcoming audited accounts under the new requirements in a cost effective manner.

For further information or enquiries regarding the potential valuation impact of the New Cayman Law to you, please feel free to contact us.

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