Private Funds as a Complement or Alternative to Trusts

Estate and wealth planning is not a one-size-fits-all undertaking. While trusts have historically been the go-to solution, evolving family dynamics, tax considerations, and jurisdictional complexities have paved the way for complementary vehicles such as private funds. While this article focuses on private funds, we also provide a high-level overview of trust structures, with further detail available in our companion article at this link.

What is a Private Fund?

A private fund is a pooled investment vehicle that allows a group of investors, such as families, individuals, or institutions, to collectively manage and grow their capital. By consolidating asset ownership into a single vehicle, a private fund streamlines reporting, reduces administrative burden, and introduces investment discipline. This centralised approach enables the fund to reflect the investors’ long-term financial goals, risk appetite, and governance preferences.

Private funds are typically structured to:

• Pool investor capital into a shared investment vehicle to pursue a defined and strategic investment portfolio

• Delegate investment authority to fund operators (e.g., directors, the general partner, trustee or third party investment manager) with fiduciary responsibilities to act in the best interests of the fund

• Provide investors with participation rights, typically through interests or units that entitle them to benefit from the overall financial performance of the fund

  
  

These structures are most often organised as limited partnerships, exempted companies or segregated portfolio companies (SPCs), offering flexibility in design and operation. They can cater to a broad range of investment strategies, including but not limited to private equity, hedge, real estate, and other public market investment strategies. They can also hold a broad range of private assets.

Private funds are particularly well-suited for families with:

• Members residing in multiple jurisdictions, each with distinct tax and regulatory considerations

• A desire for centralised, professional investment management

• Complex ownership and succession planning needs

  
  

For families who may be uncomfortable with relinquishing control through a traditional trust structure, private funds offer a more familiar corporate structure. They allow for consolidated reporting, consistent asset oversight, and coordinated investment decision making, all while preserving individual and family autonomy.

How Trusts and Private Funds Work Together

Private funds can be used in combination with trust, company and foundation structures to create sophisticated, flexible, and tax-efficient wealth planning strategies. This hybrid approach brings together the protective and succession advantages. Some of the ways these structures work together include:

• Single Trust with Multiple Share Classes: A single trust may hold different share classes in a private fund, with each class linked to a specific beneficiary class or generation. This structure allows tailored distributions and investment strategies aligned with the needs and objectives of each beneficiary group.

• Multi-Trust Ownership Model: Separate trusts may each own a distinct class of shares in the same fund. This approach is ideal for families with multiple branches or cross-border residency, allowing for separate governance, distribution provisions, and tax treatment within one investment structure. A Private Trust Company (PTC) can serve as trustee to these trusts, ensuring centralised oversight and consistent decision-making.

• Mixed Ownership: Ownership of the fund can be shared between trusts and individual family members, catering to differing legal requirements or preferences regarding asset control. This structure allows for the flexibility to transition assets into trust over time or maintain a portion under direct personal ownership.

  
  

This integrated model is especially useful in managing multi-generational wealth. It offers:

• Enhanced asset protection and risk segregation

• Simplified and consolidated investment reporting

• Alignment of investment policy with family governance frameworks

• Improved tax efficiency through careful structuring

• Greater flexibility for succession planning and liquidity events

• Dynamic reporting

  
  

Private Fund Setup: What to Expect

 Establishing a private fund in the Cayman Islands involves compliance with key regulatory steps. R&H Private Fund Services (Cayman) Ltd (“RHPFS”) can guide you through this process - either directly or in collaboration with your existing legal counsel. Once established, private funds are subject to ongoing obligations, such as audited financial statements, annual filings, and maintaining appropriate valuation and asset safekeeping procedures. These regulatory requirements ensure transparency while preserving the fund’s utility as a private family vehicle.

Fund Administration Services Offered by RHPFS

RHPFS, is part of a privately owned, multi-disciplinary financial services firm with a highly personalised level of client care and an uncompromising approach to technical excellence. The core components of our fund administration include:

·        Fund accounting:

o   Qualified Cayman based team

o   Calculating the period net asset value of the fund

o   full suite accountancy services and flexible reporting

o   bank account management

o   automated market data feed

o   calculating and paying all fees and expenses

o   financial statement preparation

·        Registrar & Transfer Agency Services

o   maintaining the investor registers

o   process all capital activity and reporting and AML, CTF and CPF monitoring support throughout the audit

·        Corporate Services

o   full incorporation services

o   full suite of registered office services

o   AMLCO and MLRO appointments

RHPFS works seamlessly with clients to ensure efficient operation and reporting of their fund structures.

Private funds are an increasingly attractive solution for families seeking consolidated investment solutions with flexibility, efficiency, and global reach. Whether used in conjunction with or in place of traditional trusts, they offer a powerful framework for managing generational wealth.

For a deeper dive into the utilization of trust structures, see our companion article on Cayman Islands trusts here, prepared by our affiliates at R&H Trust & Corporate. Both RHPFS and R&H Trust & Corporate are owned and operated by Rawlinson & Hunter LLP Cayman Islands.