2.1. Prohibition on establishment, promotion and marketing of Collective Investment Schemes

1. (a) Any Collective Investment Scheme established, promoted or marketed in the AIFC must comply with these Rules.
2. (b) A Collective Investment Scheme may only be established, promoted or marketed in the AIFC by a Person which is:
3. (i) a Domestic Fund Manager;
4. (ii) a Foreign Fund Manager; or
5. (iii) another Centre Participant.

2.2. Exempt Funds and Non-Exempt Funds

1. (a) An Exempt Fund is a Collective Investment Scheme the Units of which are Offered in the AIFC only by way of a private placement:
2. (i) to Persons who are Professional Clients; and
3. (ii) in minimum subscription amounts of US$ 50,000.
4. (b) A Non-Exempt Fund is any Collective Investment Scheme:
5. (i) the Units of which are Offered in the AIFC; and
6. (ii) which is not an Exempt Fund.

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2.4. Specialist Funds

(a) A Fund (whether a Non-Exempt Fund or an Exempt Fund) may be a Specialist Fund.

(b) The following types of Funds are Specialist Funds:

1. (i) an Islamic Investment Fund, which is a Fund whose entire operations are conducted, or held out as being conducted, in a Shari’ah compliant manner;
2. (ii) a Private Equity Fund, which is an Exempt Fund that:

(A) is closed-ended (unless otherwise approved by the AFSA); and

(B) primarily invests in unlisted businesses, by means of shares, convertible debt or other equity-related investments;

1. (iii) a Venture Capital Fund, which is an Exempt Fund and a Domestic Fund that:

(A) primarily invests in the equity share capital of unlisted businesses which are at an early stage of development;

(B) is closed-ended; and

(C) limits total subscriptions to an amount not to exceed US$100 million (or currency equivalent) or a higher amount approved by the AFSA.

1. (iv) a Real Estate Investment Trust (or REIT), which is a Fund which:

(A) invests at least 80% of its assets in investments in income-generating Real Property, with the remainder invested in cash or other securities;

(B) derives at least 50% of its net income from the rental of Real Property; and

(C) distributes to the Unitholders [each year] at least 80% of its audited annual net income; and

1. (v) any other Fund which complies with any specific rules or guidelines that may be published by the AFSA from time to time regarding the requirements for specific types of Specialist Funds. Guidance IFR contains the additional requirements that apply to a Domestic Fund by virtue of it being an Islamic Investment Fund.

(c) A Fund which does not comply with any requirements applicable to specific types of Specialist Funds may not describe itself as a Specialist Fund.

Guidance

IFR contains the additional requirements that apply to a Domestic Fund by virtue of it being an Islamic Investment Fund. (c) A Fund which does not comply with any requirements applicable to specific types of Specialist Funds may not describe itself as a Specialist Fund.

2.4-1. Other Specialist Funds

The following types of Funds are considered as other Specialist Funds for purposes of CIS 2.4.(b)(v):

(a)       Umbrella Fund, which is a Fund where:

1. (i)        may be formed as a Protected Cell Company (PCC) and must be an Open-ended Fund if formed as a PCC.
2. (ii)       contributions of Unitholders in the Fund and the profits or income out of which payments are to be made to the Unitholders are pooled separately in a number of Sub-Funds constituting separate parts of the Fund Property; and
3. (iii)      a Fund Manager of an Umbrella Fund must ensure that none of its Sub-Funds invests in another of its Sub-Funds.

Guidance:

1.        An Umbrella Fund may be constituted as a Protected Cell Company and/or Investment Company; and

2.        Unitholders of an Umbrella Fund are entitled to exchange rights they have in one Sub-Fund for rights in another Sub-Fund of the same Umbrella Fund; and

3.        A Sub-Fund of an Umbrella Fund is not a feeder fund (a Fund dedicated to investing in the Units or Debentures of a single other fund – master fund) or any other form of a discrete Fund; and

4.        A Protected Cell Company (PCC) is a form of Investment Company which needs to be registered as a PCC under the Companies Regulations. An Umbrella Fund using the PCC structure has the benefit of legal segregation of Fund Property forming part of each individual cell. Accordingly, Fund Property of one cell of a PCC is not available to pay any obligations arising in relation to another cell of that PCC.

2.        It is not mandatory for an Umbrella Fund to be constituted as a PCC. Instead, such Funds may be formed as a conventional Investment Company or Limited Partnership. However, the legal segregation available to each cell of a PCC is not available to Sub-Funds of Umbrella Funds not formed as a PCC.

(b)       A Fund of Funds, which is a Fund where:

1. (i)        A Fund Manager of a Fund of Funds may not invest in:
2. (A)       another Fund of Funds; and
3. (B)       a Feeder Fund; and
4. (B)       any Fund which is dedicated to investment in a number of Funds; and
5. (D)      any Fund which is dedicated to investment in a single Fund or in a single investment trusts; and
6. (E)       any Sub-Fund of an Umbrella Fund or Sub-Fund of any other Fund which is equivalent to a Fund within (A) to (E); and
7. (ii)       not more than 25% in value of the Fund Property is to consist of Units in any other Fund; and
8. (iii)      for the purposes of (i) and (ii), each Sub-Fund of an Umbrella Fund and of an equivalent Fund is to be treated as if it were a separate Fund.

Guidance: A Fund of Funds does not cease to be a Fund of Funds merely because it holds some investments in cash or transferable securities to meet its on-going obligations such as for redemption purposes.

(c)       A Feeder Fund, which is a Fund where:

1. (i)        a Fund Manager of a Feeder Fund must ensure that the Fund Property of a Feeder Fund, except where otherwise provided in CIS, only consists of:
2. (A)       Units or Debentures of a single Master Fund; or
3. (B)       in the case of a Feeder Fund which is a Public Fund, Units or Debentures of an eligible Master Fund;
4. (ii)       a Master Fund is eligible for the purposes of (i)(B) only if:
5. (A)       the borrowing of the Master Fund does not exceed 200% of the net asset value of the Master Fund or the market value of the Units of the Master Fund at the mid-value share price; and
6. (B)       the Units in or Debentures of the Master Fund are regularly Offered for purchase and sale by at least three market makers who are recognised or registered as members of an Authorised Market Institution or an exchange regulated by a Financial Services Regulator; and
7. (C)      the Feeder Fund owns not more than 20% of the Units (or of any class of Units in or of the Debentures or of any class of Debentures) of the Master Fund; and
8. (D)      the Master Fund has no limits on its duration;
9. (iii)      a Fund Manager of a Feeder Fund must also ensure that the Feeder Fund invests in a Master Fund only if:
10. (A)       the Fund Manager of the Master Fund is regulated by a Financial Services Regulator; and
11. (B)       the Master Fund is itself registered or authorised by a Financial Services Regulator and is itself subject to independent oversight; and
12. (C)      the investment objectives of the Master Fund have been disclosed in detail in the Prospectus of the Feeder Fund;
13. (D)      it has made available to prospective Unitholders in the Feeder Fund copies of the Prospectus and the last audited annual reports and accounts of the Master Fund; and
14. (E)       the Fund Manager of the Master Fund has waived any initial charges which it is otherwise entitled to make in relation to the acquisition of Units in its Fund;
15. (iv)      Where the Feeder Fund invests in a Master Fund managed by the same Fund Manager or by an associated or related company, the Fund Manager of the Feeder Fund must ensure that the Master Fund in which the investment is being made does not charge subscription or redemption fees on account of the investment; and commission or rebates received by the Fund Manager of the Feeder Fund, by virtue of the investment into the Master Fund, must be paid into the property of the Feeder Fund;
16. (v)       a Fund Manager of a Feeder Fund must ensure that the Fund’s Prospectus discloses:
17. (A)       a prominent risk warning to alert prospective Unitholders to the fact that they will be subject to higher fees arising from the layered investment structure;
18. (B)       the fees arising at the level of:
19. (1)       the Feeder Fund itself; and
20. (2)       if applicable, the Master Fund of the Feeder Fund; and
21. (3)       if applicable, any underlying Funds into which the Master Fund invests, to the extent known.

Guidance:

1.        A Domestic Feeder Fund may have as its Master Fund a Foreign Fund.

2.        A Sub-Fund of an Umbrella Fund is not a Feeder Fund.

(d)       A Master Fund, which is a Fund which issues its Units or Debentures only to other Funds which are dedicated to investing in that Master Fund.

Guidance: A Domestic Master Fund may have Foreign Funds as its Feeder Funds.

(e)        An ESG Fund, which is a Fund where:

(i)     its main investment focus incorporates ESG factors; and

(ii)    at least 70 % of net asset value of the Fund Property is invested in accordance with the investment strategy.

2.5. Secondary transactions and excluded Offers

A Person does not market a Collective Investment Scheme in the AIFC for the purposes of these Rules by Offering to sell or transfer a Unit that is owned by that Person if the Offer to sell or transfer is capable of acceptance only by the Person to whom that Offer is made.

Guidance

Rule 2.5 is intended to exclude personal sales or transfers of Units from being subject to the requirements in CIS relating to the marketing of Collective Investment Schemes. As a result, an offer to sell Units that is made by a Unitholder to a sole other Person will not be caught by the rules on requirements (for example, the seller is not required to be a Domestic Fund Manager, Foreign Fund Manager or Centre Participant in accordance with Rule 2.1 merely in order to sell the Units that it owns). However, depending on the nature of the transaction, the seller may be subject to the rules in financial promotion and may need to be licensed for another Regulated Activity, such as Dealing in Investments as Principal.

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