When a Cayman Islands private fund submits its Fund Annual Return, one of the required documents is the Operator Declaration — a signed statement from the fund's directors, general partner, or trustees confirming compliance with specific provisions of the Private Funds Act.
Most operators sign this declaration as a matter of course. Fewer take the time to understand what they are actually certifying — and what the underlying operational requirements are that give the declaration its substance. This post breaks down each of the three sections in plain English.
What Is the Operator Declaration?
The Operator Declaration is a formal written statement submitted to CIMA alongside the FAR each year. It must be signed by one or more of the fund's operators — defined as directors (for companies), general partners (for partnerships), or trustees (for unit trusts).
By signing, the operator is confirming that the fund has complied with the requirements of:
- Section 16 — Valuation of fund assets
- Section 17 — Safekeeping of fund assets
- Section 18 — Cash monitoring
These are not aspirational commitments. They are statutory requirements under the Private Funds Act (as revised), and the declaration is a representation to a regulatory authority. Signing it carelessly — without actually having implemented the underlying policies and procedures — creates significant personal liability for the individuals signing.
Section 16: Valuation
Section 16 requires every private fund to have appropriate and consistent procedures for the valuation of its assets.
CIMA has elaborated on this requirement through its Valuation Rules for Private Funds (the "Valuation Rules"), which set out in detail what a compliant valuation framework looks like. The key requirements are:
Independence. The valuation function must be independent from the portfolio management function. For most funds, this means either appointing an independent third-party valuation agent or establishing documented internal controls that create a clear separation between the team making investment decisions and the team producing valuations.
Consistency. The valuation methodology must be applied consistently from period to period. Changing methodology between periods without documented justification — even if the new methodology is more accurate — can itself be a breach.
Frequency. Valuations must be performed at least annually, though the Valuation Rules also require valuations in connection with subscriptions and redemptions (for funds that have such features), and more frequently where the nature of the investments demands it.
Documentation. The fund must maintain a written valuation policy describing its methodology, the basis for valuation of each asset class, and the governance process for approving and reviewing valuations.
What the operator is certifying in Section 16 is that all of this has been done — that a written policy exists, that it has been applied consistently, and that the valuations produced are based on appropriate and well-documented methodologies.
Section 17: Safekeeping of Assets
Section 17 requires every private fund to have appropriate arrangements for the safekeeping of its assets and for title verification.
CIMA's Safekeeping Rules set out what this means in practice:
Custody arrangements. The fund must appoint one or more custodians, prime brokers, or other safekeeping agents to hold its assets, unless an exemption applies. The fund must maintain appropriate documentation of the custody arrangements, including legal agreements.
Title verification. The fund must have procedures to verify that it actually holds legal or beneficial title to the assets it reports as owned. For private market assets such as private equity investments, real estate, or private credit, this is a meaningful ongoing obligation — not just a one-time check at acquisition.
Segregation. Fund assets must be appropriately segregated from the assets of the fund's service providers, including custodians. The fund's documentation must reflect this segregation.
An important clarification: CIMA has confirmed that standard prime brokerage arrangements — where a custodian holds client assets in a commingled omnibus account alongside other clients' assets — are not prohibited by Section 17, provided the underlying legal documentation correctly reflects the fund's beneficial ownership.
Section 18: Cash Monitoring
Section 18 requires every private fund to have appropriate policies and procedures for monitoring its cash flows, having regard to its investment strategy and the types of investments it holds.
This is sometimes the least understood of the three requirements. It does not mean that the fund must appoint a separate cash monitoring agent in all cases (though some funds do). It means that:
The fund must track cash movements. All subscriptions, capital calls, distributions, and investment-related cash flows must be monitored to ensure they are received and made in accordance with the fund's constitutional documents and investor agreements.
Controls must be documented. The cash monitoring policy must be written down and must describe the procedures the fund uses to reconcile its cash positions, identify unexpected movements, and escalate issues.
The monitoring must be appropriate to the strategy. A private equity fund making quarterly capital calls has different cash monitoring needs than a credit fund making monthly distributions. CIMA expects the policy to reflect the actual nature of the fund's cash flows.
What Happens If the Policies Don't Exist?
Signing the Operator Declaration when no valuation policy exists, no custody documentation is in place, or no cash monitoring procedures have been established is a serious matter. It means the declaration is false — the operator is representing to CIMA that requirements have been met when they have not.
CIMA has the power to inspect the policies and procedures referenced in the declaration. Fund operators should treat the annual declaration not just as a filing exercise but as a prompt to confirm that the underlying governance framework is genuinely in place and up to date.
Building the Declaration Into Your FAR Process
The most effective approach is to treat the Section 16, 17, and 18 review as a formal governance exercise that happens in the weeks before the FAR is due — not a box to tick at the point of submission. This means:
- Reviewing and re-approving the valuation, safekeeping, and cash monitoring policies annually
- Confirming that the policies reflect any changes in the fund's investment strategy or asset mix during the year
- Verifying that the policies have actually been applied during the relevant reporting period
- Documenting the review process so that evidence is available if CIMA enquires
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All blog posts are for informational purposes only and do not constitute legal, regulatory, or compliance advice. Fund operators should always confirm current requirements with CIMA or their legal and regulatory advisors.