6.1. Application

This chapter applies to all Domestic Fund Managers in respect of all Funds managed by those Fund Managers.

6.2. General requirements

(a) Every Fund, except a Corporate Treasury Centre Fund, must have:

1. (i) a written Constitution which complies with these Rules and, if the Fund is a NonExempt Fund, contains the contents specified in Schedule 1; and
2. (ii) a purpose that is reasonably capable of being successfully carried into effect; and
3. (iii) in the case of an open‐ended Non-Exempt Fund, single pricing for the purposes of redemption and re‐issue or sale of Units in the Fund where the price of a Unit is calculated by reference to the NAV of the property of the Fund to which the Units relate and in accordance with these Rules.

(b) Any provision in the Constitution of a Fund is void in so far as it would have the effect of exempting the Fund or the Fund Manager from liability for any failure to discharge their obligations under these Rules, the FSFR or any other rules made under the FSFR.

Guidance

For the avoidance of doubt, single pricing for these purposes means that the buying and selling prices for Units in a Fund are the same (that is, there is no spread between the buy and sell prices). This is in contrast with dual-priced Funds that offer different buy and sell prices.

6.3. Name of the Fund

(a) The Fund Manager must ensure that the name of a Non-Exempt Fund or any sub‐fund or class of units in a Non-Exempt Fund or its sub-funds, is not:

1. (i) undesirable, misleading or in conflict with the name of another Fund or another sub‐fund or class of units in the Fund or sub‐fund; and
2. (ii) substantially similar to the name of another Fund in the AIFC or elsewhere; or
3. (iii) is in the opinion of the AFSA likely to mislead or offend the public.

(b) Before using as part of or in connection with the name of a Non-Exempt Fund, sub‐fund or class of units in a Non-Exempt Fund the words "guaranteed", "protected" or any other words with a similar meaning implying a degree of security in relation to the capital or income, the Fund Manager must demonstrate to the satisfaction of the AFSA that:

1. (i) the guarantor has the authority and resources to honour the terms of the guarantee; and
2. (ii) all the terms of the guarantee and the credentials of the guarantor are clearly set out in detail in the Offering Materials for the Fund and that any exclusions such as force majeure are highlighted.

6.4. Spread of risk

A Fund Manager must take reasonable steps to ensure that a Fund provides a spread of risk that is consistent with the investment objectives and policy of the Fund as stated in its Constitution or most recently published Offering Materials.

6.5. Breach of investment policy

On becoming aware of any breach of the investment objectives or policy of a Fund, a Fund Manager must immediately inform the Unitholders and, in the case of a Non-Exempt Fund, the AFSA of the magnitude of the breach, the cause of the breach, and the proposed method of rectification. The Fund Manager must take action, at its own expense, to rectify that breach except in circumstances where it decides doing so would not be in the best interests of Unitholders, in which case the action must be taken as soon as such circumstances cease to apply.

6.6. Investment in other Funds

A Fund may invest in Units of another collective investment vehicle if expressly permitted to do so by, and in accordance with any limits contained in, the Fund's investment policy.

6.7. Investment in Derivatives

A Fund may invest in Derivatives if expressly permitted to do so by, and in accordance with any limits contained in, the Fund's investment policy. If not so permitted, a Fund may only use Derivatives for the purposes of efficient portfolio management. If a Fund utilises Derivatives for any purposes, then the Fund Manager's systems and controls must include adequate risk management processes which enable it to monitor and measure as frequently as appropriate the risk of the Derivative positions and their contribution to the overall risk profile of the Fund.

6.8. Securities lending and borrowing

A Fund may lend or borrow Securities if expressly permitted to do so by, and in accordance with any limits contained in, the Fund's investment policy.

6.9. Borrowing

A Fund may borrow money for investment or other purposes if expressly permitted to do so by, and in accordance with any limits contained in, the Fund's investment policy. In the event that any limit on borrowing by the Fund is exceeded, the Fund Manager must immediately inform the Unitholders and, in the case of a Non-Exempt Fund, the AFSA of the magnitude of the breach, the cause of the breach, and the proposed method of rectification. The Fund Manager must use its best endeavours to reduce, as soon as reasonably possible, the excess borrowings, whether by liquidating assets to repay borrowings or otherwise, to the extent practicable without having a material adverse effect on the Fund or investors as a whole.

6.10. Specific rules regarding investment in Real Property by Non-Exempt Funds and Real Estate Investment Trusts

• (a) A Non-Exempt Fund or Real Estate Investment Trust may invest in Real Property if expressly permitted to do so by, and in accordance with any limits contained in, the Fund's investment policy.
• (b) Before a Non-Exempt Fund or Real Estate Investment Trust invests in any piece of Real Property or prior to disposing of a piece of Real Property, the relevant Fund Manager must appoint an independent professional Valuer with relevant expertise to ensure that the relevant Real Property is expertly valued.
• (c) The Fund Manager must ensure that the Valuer procures the proper valuation of all Real Property held by the Non-Exempt Fund or Real Estate Investment Trust, on the basis of a full valuation with physical inspection including, where the Real Property is or includes a building, an internal inspection at least once a year.
• (d) If any event occurs which may on reasonable grounds have a material effect on the valuation of the relevant property the Fund Manager must consult with the Valuer with a view to arranging a fresh valuation before any Units in the Non-Exempt Fund or Real Estate Investment Trust are issued or redeemed after the date of the event.
• (e) The Fund Manager must require that any valuation by the Valuer is on the basis of a 'open market value' of the relevant Real Property consistent with an authoritative text such as the current edition of the Royal Institute of Chartered Surveyors' Appraisal and Valuation Standards ("Red Book") or similar practitioners text used by surveyors.

6.11. Rules relating to Real Estate Investment Trusts

(a) A Fund Manager, or any other Person making an Offer of a Unit of a Fund or otherwise marketing a Fund, must not include the term "Real Estate Investment Trust" or "REIT" or refer to a Fund or otherwise hold out a Fund as being a Real Estate Investment Trust or a REIT, unless it is a Fund which complies with Rule 2.4(b)(iv).

(b) If at any time during its operation of the Real Estate Investment Trust, the requirements in Rule 2.4(b)(iv) are not met, the Fund Manager must immediately notify the AFSA of the failure to meet the requirements in these Rules, and of what measures have been or will be taken to remedy the breach. If the breach is not remedied within six months, the Fund will cease to meet the criteria of being a Real Estate Investment Trust. The Fund Manager shall notify Unitholders promptly:

1. (i) of it becoming aware that the Fund is reasonably likely to cease to qualify as a Real Estate Investment Trust (such notice to include the expected date of such cessation); and
2. (ii) on the date of such cessation.

(c) The Fund Manager of a Real Estate Investment Trust is responsible for appointing a Property Manager for the Real Estate Investment Trust and such Property Manager shall either be a:

1. (i) a third party that is permitted under law or regulation (where applicable) to provide Real Estate Management and Servicing Activities; or
2. (ii) a subsidiary of the Fund Manager, which has been established for the purpose of carrying on Real Estate Management and Servicing Activities.

(d) The Fund Manager of a Real Estate Investment Trust must ensure that it distributes to the Unitholders each year an amount equal to not less than 80% of its audited annual net income.

(e) The Fund Manager of a Real Estate Investment Trust must determine if any:

1. (i) revaluation surplus credited to income, or
2. (ii) gains on disposal of Real Property, shall form part of the annual net income for distribution to Unitholders.

(f) A Real Estate Investment Trust may only use leverage or borrow:

1. (i) in aggregate, up to a maximum of 60% of its NAV (as determined at the time of drawdown of funds); and
2. (ii) for investment purposes or to meet its short-term working capital.

(g) A Real Estate Investment Trust is permitted to own, and its Fund Manager is permitted to establish, special purpose vehicles for the purpose of holding Real Property, provided that a Real Estate Investment Trust must own directly or indirectly not less than 60% of the shares, and be entitled to exercise directly or indirectly at least 60% of the voting rights, of any such special purpose vehicle.

(h) Where a Real Estate Investment Trust holds any Real Property via one or more special purpose vehicles, the Fund Manager must ensure that each special purpose vehicle distributes to the Fund all of the Fund's proportionate share of the special purpose vehicle's net income to the maximum extent permitted by the laws and regulations of the jurisdiction where the special purpose vehicle is established.

1. (i) A Fund Manager of a Real Estate Investment Trust that is an Exempt Fund shall be permitted to accept non-cash consideration for the purchase of Units in the Real Estate Investment Trust, subject to complying with Rule 6.11(l). Non-cash consideration for the purchase of Units is not permitted in Real Estate Investment Trusts that are NonExempt Funds.

(j)  Real Estate Investment Trusts can only invest in property under development full completion of construction of which is guaranteed by a relevant state authority or institution or acceptable by the AFSA guarantee issued by a credible bank. The total contract value of the property under development must not exceed 10% of the NAV of the Fund property of the REIT.

(l) A Fund Manager of a Real Estate Investment Trust must include in the Fund’s Offering Materials:

1. (i) a detailed description of how the Fund intends to acquire and hold its investments in Real Properties (including the maximum number of special purpose vehicles through which Real Properties may be held);
2. (ii) the maximum percentage of the Real Estate Investment Trust's assets (by reference to the Real Estate Investment Trust's NAV) that may be deployed for the purposes of property refurbishment, retrofitting and renovation, or a statement that no such activities are permitted; and
3. (iii) (where applicable under Rule 6.11(i)), a statement that the Fund Manager may accept non-cash consideration for the purchase of units in the Real Estate Investment Trust and a description of the lock-up period (if any) applicable to Units acquired for non-cash consideration.

6.12. Rules relating to Private Equity Funds

A Fund Manager, or any other Person making an Offer of a Unit of a Fund or otherwise marketing a Fund, must not include the term "Private Equity Fund" or refer to a Fund or otherwise hold out a Fund as being a Private Equity Fund unless it is a Fund which complies with Rule 2.4(b)(ii).

6.13. Rules relating to Venture Capital Funds

A Fund Manager, or any other Person making an Offer of a Unit of a Fund or otherwise marketing a Fund, must not include the term "Venture Capital Fund" or refer to a Fund or otherwise hold out a Fund as being a Venture Capital unless it is a Fund which complies with Rule 2.4(b)(iii).

6.14 Rules relating to a Single Family Office Fund

A Fund Manager of a Single Family Office Fund must include in the Fund’s Constitution a statement containing the following:

(i) the name of the common ancestor of the Single Family, the details of the identities of the family members to be served by the Single Family Office, either directly or by way of Family Entities or Family Fiduciary Structures, and proof of their common ancestry;

(ii) a short explanation of the source of wealth of the family members served by the Single Family Office;

(iii) the details of the due diligence that has been conducted to verify the Source of Funds that is funding the Single Family Office.

(iv) the details of who controls the Single Family Office;

(v) the details of the Ultimate Beneficial Owner of the Single Family Office;

(vi) the details of Family Clients to be served by the Single Family Office;

(vii) the details of any family members that are Politically Exposed Persons;

(viii) confirmation that the Single Family meets minimum investable assets under management requirement.

6.15. Rules relating to Credit Funds

6.16. Rules relating to ETFs

(a)     A Fund Manager, or any other Person making an Offer of a Unit of a Fund or otherwise marketing a Fund, must not include the term "Exchange Traded Fund" (or “ETF”) or refer to a Fund or otherwise hold out a Fund as being an Exchange Traded Fund or ETF, unless it is a Fund which complies with Rule 2.4-1(j).

(b)     A Fund Manager of an ETF must take reasonable steps to ensure that any Authorised Participant it appoints has adequate systems and controls to ensure that the Units of the ETF are traded on-market at a price that does not significantly vary from the most recent NAV of the ETF, or the iNAV of the ETF, if available.

(c)     A Fund Manager of an ETF must ensure that the investment objective and strategy of the Fund is to track the performance of an index or benchmark specified in its Offering Materials.

(d)     A Fund Manager of an ETF may use an index or other benchmark for the purposes referred to in (c) only if it is provided by a Price Information Provider that meets the requirements in Schedule 5.

(e)      In (d), a Price Information Provider is a price reporting agency or an index or benchmark provider which constructs, compiles, assesses or reports, on a regular and systematic basis, prices of Investments, rates, indices, commodities or figures, which are made available to users, including a Fund Manager.

(f)       The Fund Manager of an ETF must treat an arrangement between the Fund  Manager and a Related Party to use an index or benchmark provided by the Related Party as a Related Party Transaction.

(g)     A Fund Manager of an ETF must take reasonable steps to ensure that the Fund’s Offering Materials and marketing materials describe the type of ETF in a way that is clear and not misleading to enable investors and potential investors to understand the type of ETF, and its characteristics.

6.17. Rules relating to Money Market Funds

(a)     A Fund Manager of a Money Market Fund must ensure that the Fund’s investment strategy is consistent with the investment objectives of such a Fund as set out in Rule 2.4-1(k).

(b)     Without limiting (a), the Fund Manager of a Money Market Fund must ensure that:

(i)     at least 90% of the NAV of the Fund Property is invested in Deposits or Debentures that are of high quality, as determined by the Fund Manager in accordance with Rule 6.17(d);

(ii)    at least 10% of the NAV of the Fund Property consists of cash in accounts that permit the cash to be withdrawn immediately on demand;

(iii)  subject to (e), Deposits with, or Debentures issued by, a single entity do not exceed 10% of the NAV of the Fund Property;

(iv)  the Fund invests only in Deposits or Debentures:

(A) with a residual maturity until the legal redemption date of not more than two years; and

(B) where the time remaining until the next interest rate reset date is not more than 397 days;

(v)   the Fund Property has a weighted average maturity of not more than 6 months;

(vi)  the Fund Property has a weighted average life of not more than 12 months;

(vii) the Fund does not invest in Financial Instruments other than Deposits or Debentures, except for:

(A) Units in other Money Market Funds that have investment objectives and strategies consistent with those of the Fund; or

(B) Derivatives that are used solely to hedge against foreign exchange rate risk; and

(viii)            the borrowings of the Fund do not, at any time, exceed 10% of the NAV of the Fund Property.

(c)     In (b):

(i)     (a) the NAV of Fund Property, means the value of Fund Property at the most recent valuation under Rule 10.6;

(ii)    the “weighted average maturity” of Fund Property, means the average length of time to maturity of all the Financial Instruments held as Fund Property, weighted to reflect the relative holdings in each Financial Instrument, where the maturity of a floating rate  instrument is the time remaining until the next interest rate reset; and

(iii)  the “weighted average life” of Fund Property, means the weighted average of the remaining life of each Financial Instrument held as Fund Property, where the remaining life of a Financial Instrument is the time until the due date for repayment of the principal.

(d)     To determine whether a Deposit or Debenture is of high quality for the purposes of Rule 6.17(b)(i), a Fund Manager of a Money Market Fund must carry out  due diligence to an adequate standard on the Deposit or Debenture, taking into account the following factors:

(i)     the credit quality of the Issuer, and any guarantor, of the Investment;

(ii)    the nature and quality of the asset class represented by the Investment;

(iii)  the liquidity of the Investment; and

(iv)  any other risks associated with the Investment or the market in which it is traded.

(e)     For 6.17 (b)(iii):

(i)     the 10% single entity limit does not apply if the issuing entity is a government or government agency, or if the issue is government-guaranteed; and

(ii)    Deposits with, or Debentures issued by a bank may exceed 10% (up to a maximum of 20%) of the NAV of the Fund Property.