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.
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.