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  • CIR 12 CIR 12 Requirements Specific to Exempt Funds

    • CIR 12.1 CIR 12.1 Meeting the conditions to be Classified as an Exempt Fund

      • CIR 12.1 Guidance

        1. Article 16(2) of the Law provides that a Domestic Fund may be constituted as an Exempt Fund only if it satisfies all of the conditions in Article 16(4). Article 16(4) provides that an Exempt Fund must:
        a. have its Units offered to persons only by way of a Private Placement;
        b. have only Unitholders each of whom meets the criteria to be classified as a Professional Client; and
        c. have a minimum subscription of at least US$50,000 for a person to become a Unitholder in the Fund,
        and not satisfy the conditions in Article 16(5) to be a Qualified Investor Fund.
        2. Under Article 26(1) of the Law, an Exempt Fund is required to have one of the permitted forms, i.e. an Investment Company, Investment Partnership or an Investment Trust. However, certain types of Exempt Funds which belong to a specialist class of Funds may be permitted to use only some and not all the permitted forms. See CIR Part 6 for those variations.
        3. If an Exempt Fund can no longer meet the relevant conditions to be classified as an Exempt Fund, the Fund Manager of that Fund is required, under Article 34(3), to apply for the winding up of that Fund. Alternatively, the Fund Manager may have that Fund moved to the classification of a Public Fund, which requires the satisfaction of the requirements and formalities specific to that type of Fund. An Exempt Fund may also, if it wishes to, convert to a Qualified Investor Fund provided it meets the conditions applicable to a Qualified Investor Fund in Article 16(5) of the Law.
        4. In addition to the requirements specific to Exempt Funds, such a Fund must also meet, except where otherwise provided, the other requirements that are common to all Domestic Funds, which are set out in CIR Part 4 of this module.
        5. Units of Exempt Funds can only be Offered by way of Private Placement and to Professional Clients, but must meet the additional criterion of a minimum subscription test of US$50,000. The definition of Professional Client is set out in Rule 1.3.1.
        6. Generally a firm will not be able to undertake mass marketing activities relating to Units of Exempt Funds because such marketing would not meet the Private Placement requirement, and would be likely to amount to a public offer, which can only be made in respect of a Unit of a Public Fund.
        7. A Fund Manager of an Exempt Fund, which is structured as an Open-ended Fund, is required to comply with the requirements relating to adequate systems and controls to manage, among others, the liquidity risk. See CIR Rule 8.6A.1.
        Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
        [Amended] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]
        [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

      • CIR 12.1.1 CIR 12.1.1

        (1) A Fund may be classified as an Exempt Fund only if it fulfils the criteria in Article 16(4) of the Law at the inception of the Fund and on an on-going basis.
        (2) A Fund Manager must ensure that a Fund which is or is intended to be established and operated as an Exempt Fund meets the criteria in Article 16(4) both at the inception of the Fund and on an on-going basis.
        (3) For the purposes of (2), where a Fund Manager makes arrangements with other Authorised Firms or Persons in other jurisdictions to Offer to issue or sell the Units of an Exempt Fund, then it must take reasonable steps to ensure that those Authorised Firms or other Persons do not Offer to issue or sell the Units in a manner that would result in a breach of the criteria in Article 16(4).
        (4) As soon as a Fund Manager becomes aware that an Exempt Fund it manages no longer meets or is likely to not meet the criteria in Article 16(4) of the Law, it must immediately:
        (a) commence proceedings relating to the winding up of the Fund, or alternatively, take necessary steps to have the Fund registered as a Public Fund; and
        (b) notify the DFSA of that fact and the measures it has taken and proposes to take under (a).
        (5) A Fund Manager of an Exempt Fund which is subject to the valuation requirement in CIR Rule 8.4.1(1) must appoint a Fund Administrator or a Person regulated by a Financial Services Regulator as the Person undertaking the valuation of that Fund.
        Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
        [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

        • CIR 12.1.2

          A Fund Manager of an Exempt Fund, when notifying the DFSA pursuant to Article 34 of the Law, must also include:

          (a) a general description of the Fund including the nature of its investments and the intended size of the Fund in monetary terms;
          (b) if it is a Hedge Fund which has appointed a prime broker pursuant to CIR Rule 13.6.3:
          (i) the details relating to the identity of the prime broker and its Regulator; and
          (ii) a legal certification that all the requirements in CIR Rule 13.6.3 relating to the use of prime brokers have been fully complied with by the Fund Manager;
          (c) if it is an External Fund, the name of the jurisdiction in which the Fund is established or domiciled; and
          (d) if it is an External Fund Manager, the name of the jurisdiction in which that Fund Manager is domiciled, and the details of the Appointed Fund Administrator or Trustee to that Fund for the purposes of CIR Rule 6.1.3.
          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

    • CIR 12.2 CIR 12.2 Exempt Fund Prospectus

      • CIR 12.2 Guidance

        The disclosure requirements relating to a Prospectus that apply to an Exempt Fund are different from the Prospectus disclosure required for Public Funds. As Prospectus disclosure is a matter closely linked to the marketing of Units of Funds, Prospectus requirements relating to the relevant types of Funds are set out in CIR chapter 14.

        Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]