CIR 3 CIR 3 Specialist Classes of Funds
CIR 3.1 CIR 3.1 Specialist Funds
CIR 3.1.1 CIR 3.1.1(1) Pursuant to Article 17 of the Law, a Domestic Fund that falls within one or more of the criteria specified in Rules CIR 3.1.2 to CIR 3.1.13 is hereby prescribed to be a
Domestic Fundof that specialist class or classes.(2) Pursuant to Article 18(1)(c) of the Law, a Foreign Fundthat falls within one or more of the criteria specified in Rules CIR 3.1.2–CIR 3.1.13 is hereby prescribed to be a Foreign Fundof that specialist class or classes for the purposes of:(a) marketing of the Unitsof that Fundin or from the DIFC; or(b) determining whether a Domestic Fundinvesting in such a Fundcontinues to meet any criteria or other requirements applicable to that Domestic Fund.
A Fund is an Investment Token Fund if its main purpose is investing in Investment Tokens.Derived from DFSA RMI314/2021 (Made 30th June 2021). [VER32/10-21]
CIR 3.1.1 Guidance1. A
Domestic Fundmay attract more than one definition of a specialist class of Funds. For example, a Domestic Fundmay be an Islamic Hedge Fund, Islamic Private Equity Fundor an Islamic REIT. However, due to the definition of Private Equity Fund, a Fund cannot be both a Private Equity Fund and a Venture Capital Fund.2. Article 50(1) of the Law contains the prohibition against the Offerof Unitsof Foreign Funds(i.e. marketing of Unitsof Foreign Funds) in or from the DIFC. Article 54(1) of the Law provides the limited circumstances in which an Authorised Firmmay market Unitsof a Foreign Fund. An Authorised Firm may, under Article 54(1)(a), (b) or (c) of the Law, offer Units of a Foreign Fund if the conditions of the relevant paragraph are met. For example, under Article 54 (1)(c), the offer is required to be by private placement to Professional Clients who invest at least US$ 50,000. Such marketing activities are also subject to additional requirements that are prescribed in this module — see CIR chapter 15. An Authorised Firmmarketing Unitsof a Foreign Fundshould take reasonable steps to ensure that the Fundmeets the applicable requirements including the relevant criteria for being a specialist class of Fund.
CIR 3.1.2 CIR 3.1.2
Fundis an Islamic Fundif its entire operations are conducted, or held out as being conducted, in accordance with Shari'a.
CIR 3.1.2 Guidance
IFR module contains the additional requirements that apply to a
Domestic Fundby virtue of it being an Islamic Fund.
Fund of Funds
CIR 3.1.3 CIR 3.1.3
Fundis a Fund of Fundsif it restricts its investment activities to investing in Unitsor Debenturesof only two or more other Funds.
CIR 3.1.3 Guidance
Fund of Fundsdoes not cease to be a Fund of Fundsmerely because it holds some investments in cash or transferable securities to meet its on-going obligations such as for redemption purposes.
CIR 3.1.4 CIR 3.1.4
Fundis a Feeder Fundif it is dedicated to investing in the Unitsor Debenturesof a single other Fund( Master Fund).
CIR 3.1.4 Guidance1. A
Domestic Feeder Fundmay have as its Master Funda Foreign Fund.2. A Sub-Fundof an Umbrella Fundis not a Feeder Fund.
CIR 3.1.5 CIR 3.1.5
Fundis a Master Fundif it issues its Unitsor Debenturesonly to other Fundswhich are dedicated to investing in that Master Fund.
CIR 3.1.5 Guidance
Domestic Master Fundmay have Foreign Fundsas its Feeder Funds.
Private Equity Fund
Fundis a Private Equity Fundif it:(a) invests in unlisted companies, by means of Shares, convertible debt or other instruments carrying equity participation rights or reward; or(b) participates in management buy-outs or buy-ins,
and does not meet the criteria in CIR Rule 3.1.13 to be a Venture Capital Fund.
CIR 3.1.7 CIR 3.1.7
Fundis a Property Fundif its main purpose is investment in Real Propertyand in Securitiesissued by Bodies Corporatewhose main activities are investing in, dealing in, developing or redeveloping Real Property.
CIR 3.1.7 Guidance
1. Whether an arrangement, particularly if it is a closed-ended company which invests in
Real Property, is a Fundor a commercial company is not always an easy question to answer. The following guidance is intended to help answer this question. The examples are indicative only and not exhaustive. If a property company is in doubt as to whether it is an investment company or a commercial company, it may seek further clarification from the DFSA.
2. Please also refer to the Guidance under CIR Rule 2.1.10 for the general distinction between
Collective Investment Fundsand other commercial arrangements.Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18].
3. Applying the indicators under CIR Rule 2.1.10, the
DFSAconsiders the following type of closed-ended property companies to be commercial companies, rather than investment companies:a. a property developer or a property construction company which is in the business of developing and constructing (i.e. creating) the property;b. a real estate company which operates a business of selling or leasing real estate for its customers;c. a property management or maintenance company – which generates profits through fees charged for those services; andd. a property valuation service provider – which is a property related service provider.
4. In contrast, there are certain types of closed-ended companies which directly or indirectly invest in
Real Propertyand therefore are clearly investment companies. For example a company which:a. raises capital from investors to invest in real estate, on the basis that the real estate will be selected or bought and sold on the basis of specified criteria, and profits generated are distributed as specified; orb. invests in Securities (such as shares, debentures or units) of other real estate companies or property developers to generate profits through returns on such investments.Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18].
Real Estate Investment Trust (REIT)
CIR 3.1.8 CIR 3.1.8
Fundis a Real Estate Investment Trust(REIT) only if it meets the criteria in CIR Rule 13.5.1(2).
CIR 3.1.8 Guidance
REITsare a subset of Property Funds. A REITcan be a Public Fund, Exempt Fundor a Qualified Investor Fund(see Rule 13.5.1). As REITsare a subset of Property Funds, they must comply with applicable Rules in section 13.4 for Property Funds, as well as Rules in section 13.5 for REITs.
CIR 3.1.9(1) A
Fundis a Hedge Fundif it is a Fundwhich has some or all of the following characteristics:(a) it has a broad mandate giving its Fund Managerflexibility to shift strategy;(b) it is aimed at achieving absolute returns rather than returns relative to the market;(c) it employs some or all of the following techniques:(i) the pursuit of absolute returns or "alpha" rather than measuring their investment performance relative to the market;(ii) the use of short selling;(iii) the use of Derivativesfor investment purposes;(iv) the use of economic or debt leverage as well as leverage embedded in financial instruments such as Derivatives;(v) the acquisition of distressed debt with a view to its realisation at a profit; or(vi) the acquisition of "high yield" debt Securities.(2) A Fundis a Fund of Hedge Fundsif it is dedicated to investing in a number of Hedge Fundsor Sub-Fundsof one or more Hedge Fundsthat meet the criteria in (1).
CIR 3.1.10 CIR 3.1.10
Fundis an Umbrella Fundif the contributions of the Unitholdersin the Fundand the profits or income out of which payments are to be made to them are pooled separately in a number of Sub-Fundsconstituting separate parts of the Fund Property.
CIR 3.1.10 Guidance1. An
Umbrella Fundmay be constituted as a Protected Cell Company.2. Unitholdersof an Umbrella Fundare entitled to exchange rights they have in one Sub-Fundfor rights in another Sub-Fundof the same Umbrella Fund— see Article 11(2) of the Law.3. A Sub-Fundof an Umbrella Fundis not a Feeder Fundor any other form of a discrete Fund.
Money Market Fund
CIR 3.1.11 CIR 3.1.11
Fundis a Money Market Fundif the Fund'sinvestment objectives are to preserve the capital of the Fundand provide daily liquidity, while achieving returns that are in line with money market rates.[Added] RM158/2015 (Made 9th December 2015). [VER19/02-16]
CIR 3.1.11 Guidance1. Money market rates are interest rates on instruments that are normally traded on the money market, such as treasury bills, certificates of deposit and commercial paper.2. A
Fundmay fall within the definition of a Money Market Fundeven if it:(a) is not described or marketed as such a Fund; or(b) has objectives additional to those specified in the definition, provided that they are not inconsistent with the investment objectives in the definition.3. Money market funds in other jurisdictions are structured as either variable net asset value Funds (VNAV Funds) or stable net asset value Funds (SNAV Funds). A VNAV Fund values its assets on a mark to market basis, allowing for changes in the value of Units. A SNAV Fund aims to maintain an unchanged face value (e.g. $1 per Unit).4. The combined practical effect of the valuation requirements in Rule 8.4.1 and the requirements for pricing of Units in Rule 8.5.1 prevents a Money Market Fundbeing established as a SNAV Fund in the DIFC. The DFSAwould generally not waive those requirements to allow such a Fund to be established due to the additional systemic risks and risks to investors that a SNAV Fund can present.[Added] RM158/2015 (Made 9th December 2015). [VER19/02-16]
Exchange Traded Fund ("ETF")
CIR 3.1.12 CIR 3.1.12(1) A
Fundis an Exchange Traded Fund("ETF") if it:(a) is constituted as an Open-ended Public Fund;(b) has its Unitsavailable for trading throughout the day on an exchange that meets the criteria in (2); and(c) has at least one market maker (Authorised Participant) who:(i) purchases and redeems "creation Units" of the Fundfrom the Fund Manager; and(ii) is prepared to buy and sell Unitsof the Fundthroughout the day on the relevant exchange.(2) An exchange meets the requirement in (1)(b) if it is:(a) operated by an Authorised Market Institution;(b) regulated by a Financial Services Regulatorin a jurisdiction that is a signatory to the IOSCO Multilateral Memorandum of Understanding for sharing information; or(c) regulated by a Financial Services Regulatorin a jurisdiction which has entered into a bilateral memorandum of understanding with the DFSAfor sharing information.Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]
CIR 3.1.12 Guidance1. CIR Rule 13.9.1 prohibits the use of the term
Exchange Traded Fundor ETFunless a Fundmeets the criteria in CIR Rule 3.1.12. A similar prohibition applies to Foreign Fundsthat offer Unitsin or from the DIFC—see CIR Rules 15.1.5(c) and 15.1.6(1)(c).2. ETFs are different to other exchange traded Open-ended Funds. ETFsgenerally do not sell or redeem their Unitsto and from retail investors directly at net asset value (NAV). Instead, an Authorised Participant ("AP") (i.e. a market maker appointed by the ETF Fund Manager) buys and redeems ETF Units, called creation Units, directly from the ETF Fund Manager. Generally, an AP that purchases a creation Unitof an ETFdeposits with the ETF Fund Managera 'purchase basket' of certain securities and cash and/or other assets identified by the ETF Managerthat day, and then receives the creation Unitin return for those assets. The basket generally reflects a pro-rata portion of the ETF's underlying holdings. After purchasing a creation Unit, the AP may hold or sell some or all of the Unitin the basket on the relevant exchange.3. The redemption process is the reverse of the purchase process. The AP redeems the creation Unit from the ETF, in exchange for a 'redemption basket' of securities and/or cash and other assets (or all cash) received from the Fund Manager. The AP also offers to buy and sell ETF Units on the relevant exchange, where retail investors can buy and sell ETF Units at a price close to NAV.4. See further Guidance about ETFs under CIR Rule 13.9.6.Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]
Venture Capital Fund
CIR 3.1.13 CIR 3.1.13A Fund is a Venture Capital Fund if it is an Exempt Fund or a Qualified Investor Fund and its investment objective is to invest:(a) at least 90% of its committed capital in unlisted business ventures that have been incorporated for no more than ten years at the time of the Fund’s initial investment in each business; and(b) by means of Shares, convertible debt or other instruments carrying equity participation rights or reward that are directly issued by the unlisted business ventures.Derived from DFSA RMI279/2020 (Made 28th October 2020). [VER29/11-20]
CIR 3.1.13 Guidance1. A Venture Capital Fund is expected to finance small to medium sized businesses which are in the early stages of business development and growth. Some business ventures would be using innovative technologies or new ways of doing business. However, where an established large-scale business spins off subsidiaries to expand existing businesses and operations, this would not be considered to be a start-up or small to medium sized business in which a Venture Capital Fund should invest.2. The term “committed capital” refers to the total amount that Unitholders have agreed to contribute to the Venture Capital Fund.3. A business venture is “unlisted” if it does not have securities admitted to an official list of securities of an exchange, or admitted to trading on a MTF or an OTF.4. The type of investments referred to in CIR Rule 3.1.13(b) include Warrants which confer rights to acquire unissued Shares or Units in an unlisted business venture. However, Warrants over unissued Debentures do not confer equity participation rights and are not included. Structured Products can also be used if the contractual rights confer on the Venture Capital Fund the right to participate in profits and assets of the business venture, in which the Fund invests.5. A Venture Capital Fund may also invest in a business venture using tokens that give the Fund rights attaching or analogous to holding Shares or Units, i.e. equity participation rights in the profits and assets of the venture, with or without governance rights. However, a right to receive utility tokens or payment tokens issued by a business venture, for example, operating in the distributed ledger or similar technology sector, which does not provide such rights, will not be an equity participation right referred to in CIR Rule 3.1.13(b). The DFSA may consider, on a case-by-case basis, any new arrangements relating to tokens as a means of investing in a venture operating in distributed ledger or similar technology sector, to assess whether those tokens meet the criteria in CIR Rule 3.1.13(b).Derived from DFSA RMI279/2020 (Made 28th October 2020). [VER29/11-20]
Investment Token Funds