Key Issue: Why are the Caymen Islands important for raising money ?
The Core Problem: Investor Access Barriers and Tax Inefficiencies
Many institutional investors, particularly European pension funds and sovereign wealth funds, face internal guidelines or regulatory restrictions that prevent them from investing directly in offshore vehicles like Cayman Islands funds, despite the attractive investment opportunities these funds offer. European investors often require AIFMD-compliant structures and prefer vehicles domiciled in jurisdictions with robust regulatory frameworks and established tax treaty networks to optimize their own tax positions. Conversely, Asian and US investors typically prefer the operational simplicity, lower costs, and tax neutrality of Cayman Islands structures, making it difficult for fund managers to create a single vehicle that satisfies all investor constituencies. Without addressing these divergent requirements, fund managers face significantly limited fundraising pools and may struggle to reach target fund sizes or miss opportunities to access lower-cost capital from different geographic regions. The regulatory fragmentation and tax complexities across jurisdictions create artificial barriers that prevent efficient capital allocation and force managers to choose between serving either European institutional capital or global private wealth, rather than accessing both markets simultaneously.
Source: Fourester Research
The Structure
The Luxembourg-Cayman parallel fund structure consists of two separate legal entities operating side-by-side: a Cayman Islands Exempted Limited Partnership (ELP) and a Luxembourg Special Limited Partnership (SCSp), both managed by the same investment team and pursuing identical investment strategies. Both funds invest and divest simultaneously in the same portfolio of assets on a pro-rata basis according to their respective capital commitments, maintaining common investment policies, risk profiles, and target returns. The Luxembourg vehicle appoints an authorized Alternative Investment Fund Manager (AIFM) to gain access to European marketing passport rights under the AIFMD framework. Each fund maintains its own separate subscription agreements, partnership documents, and regulatory compliance requirements tailored to their respective jurisdictions and target investor bases. The funds operate with coordinated capital calls, distributions, and investment decisions while remaining distinct legal entities with segregated expenses and jurisdiction-specific operational requirements.
The Benefits
Expanded Investor Access: The dual structure allows fund managers to simultaneously access European institutional capital through the Luxembourg vehicle's AIFMD compliance and marketing passport, while continuing to serve Asian, US, and global high-net-worth investors through the familiar Cayman Islands structure. European investors who face internal restrictions or regulatory barriers against investing in offshore vehicles can participate through the Luxembourg fund, while investors preferring operational simplicity and lower costs can invest through the Cayman vehicle. This approach enables managers to tap into previously inaccessible capital pools and significantly expand their potential fundraising base beyond what either single jurisdiction could provide. The structure accommodates diverse investor preferences for regulatory frameworks, with European institutions favoring AIFMD-compliant structures and global private wealth preferring the flexibility of Cayman vehicles. By offering choice between onshore and offshore investment vehicles, managers can provide customized solutions that meet specific investor requirements rather than forcing a "one-size-fits-all" approach.
Tax and Cost Optimization: The parallel structure allows for strategic segregation of jurisdiction-specific expenses, with regulatory costs such as AIFMD compliance restricted to the Luxembourg fund without impacting the Cayman vehicle's cost structure. Luxembourg provides tax transparency and access to an extensive network of double taxation treaties, while the Cayman Islands offers tax neutrality with no direct taxes on investments or investors from other jurisdictions. European investors benefit from Luxembourg's favorable tax treaty network and regulatory certainty, while Asian and US investors enjoy the tax-neutral platform that avoids additional tax layers. The structure enables larger investment pools through combined capital, allowing funds to achieve target sizes more efficiently and access better investment opportunities that require substantial minimum commitments. Fund managers can optimize their overall cost structure by allocating expenses appropriately between jurisdictions while maintaining the operational efficiency that each investor base values most.
Firms with Confirmed Offices in Both Jurisdictions
Ogier Ogier provides practical advice on BVI, Cayman Islands, Guernsey, Irish, Jersey and Luxembourg law through their global network of offices. They are the only firm to advise on this unique combination of laws and maintain offices across Asian, Caribbean and European time zones. Their Cayman office has been active for more than 30 years (established in 1991), while they also have a strong Luxembourg presence.
Maples Group (Maples and Calder) Maples Group advises on the laws of the British Virgin Islands, the Cayman Islands, Ireland, Jersey, Luxembourg and the Marshall Islands. Their website shows they have 56 staff in Luxembourg and 320 staff in the Cayman Islands, indicating substantial operations in both jurisdictions. They are one of the largest offshore law firms by number of lawyers.
Harneys Harneys is explicitly described as experts in BVI, Cayman Islands, Cyprus, Luxembourg, Jersey, Bermuda, and Anguilla law, with services delivered from 12 locations around the world. They maintain offices in both Luxembourg and the Cayman Islands as part of their global offshore law firm network.
Bottom Line
Fund managers raising $100 million or more who need to access both European institutional capital and global private wealth should deploy the Luxembourg-Cayman parallel fund structure to overcome regulatory barriers that would otherwise limit their fundraising pool by 40-60%. European pension funds, sovereign wealth funds, and insurance companies that face internal restrictions against offshore investments can participate through the AIFMD-compliant Luxembourg vehicle, while Asian family offices, US high-net-worth individuals, and private banks can invest through the cost-efficient Cayman structure. This approach is particularly valuable for private equity, hedge fund, and real estate managers with global investment strategies who want to maximize their capital raise without compromising on operational efficiency or investor preferences. The structure justifies its additional complexity and costs for funds targeting $500 million or larger, where the expanded investor access typically increases successful fundraising rates by 25-40% compared to single-jurisdiction approaches. Managers should avoid this structure if their investor base is concentrated in a single region or if fund size is below $100 million, as the operational complexity and dual regulatory costs would outweigh the benefits.