7.1. Application

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

7.2. General management duties

(a) A Fund Manager must:

1. (i) manage the Fund including the Fund's property in accordance with the Fund's Constitution and its most recent Offering Materials;
2. (ii) perform the functions conferred on it by the Fund's Constitution and by or under these Rules;
3. (iii) comply with any conditions or restrictions imposed by the AFSA including those on its Licence or in respect of the Fund; and
4. (iv) comply with any requirements or limitations imposed under these Rules including any limits relating to financial interests it or any of its associates may hold in a Fund, for which it acts as the appointed Fund Manager.

(b) In exercising its powers and carrying out its duties, a Fund Manager must:

1. (i) act honestly; and
2. (ii) exercise the degree of care and diligence that a reasonable person would exercise if he were in the Fund Manager's position; and
3. (iii) act in the best interests of the Unitholders and, if there is a conflict between the Unitholders' interests and its own interests, give priority to the Unitholders' interests; and
4. (iv) treat the Unitholders who hold interests of the same class equally and Unitholders who hold interests of different classes fairly; and
5. (v) not improperly make use of information acquired through being the Fund Manager in order to:

(A) gain an advantage for itself or another person; or

(B) cause detriment to the Unitholders in the Fund; and

1. (vi) ensure that the Fund's property is clearly identified as Fund property and held separately from the property of the Fund Manager and the property of any other Fund it manages; and
2. (vii) in the case of a Non-Exempt Fund, report to the AFSA any breach of these Rules or relevant provisions of any other law administered by the AFSA, or of any Rules made under those laws, that:

(A) relates to the Non-Exempt Fund; and

(B) has had, or is likely to have, a materially adverse effect on the interests of nitholders; as soon as practicable after it becomes aware of the breach;

1. (vii) in the case of a Non-Exempt Fund, report to the AFSA any breach of any other laws or requirements that apply to that Fund Manager in any other jurisdiction, that:

(A) relates to the Non-Exempt Fund; and

(B) has had, or is likely to have, a materially adverse effect on the interests of Unitholders; as soon as practicable after it becomes aware of the breach;

1. (viii) comply with any other duty or obligation as may be prescribed by or under these Rules or any other law administered by the AFSA; and
2. (ix) carry out or comply with any other duty, not inconsistent with any enactment or rule of law in the AIFC, that is conferred on the Fund Manager by the Fund's Constitution.

(c) Every officer, employee or agent of the Fund Manager must:

1. (i) not make improper use of information acquired through being such an officer, employee or agent of the Fund Manager in order to:

(A) gain an advantage for himself or another person; or

(B) cause detriment to Unitholders in the Fund;

1. (ii) not make improper use of his position as such an officer, employee or agent to gain, directly or indirectly, an advantage for himself or for any other person or to cause detriment to the Unitholders in the Fund;
2. (iii) comply with any other duty or obligation as may be prescribed by or under these Rules or any other law administered by the AFSA; and
3. (iv) carry out or comply with any other duty, not inconsistent with any enactment or rule of law in the AIFC that is conferred on him or her by the Fund's Constitution.

(d) A Fund Manager must take reasonable steps to ensure that its officers, employees and agents comply with their obligations referred to above.

7.2-1 Director

7.3. Duties in relation to Fund property

(a) A Fund Manager must make decisions as to the constituents of the Fund's property that are in accordance with the Fund's Constitution and investment objectives and policy stated in the Fund's Offering Materials.

(b) A Fund Manager must take all steps and execute, or procure the execution of, all documents to ensure that transactions relating to the Fund's property are properly entered into for the account of the relevant Fund or sub‐fund.

(c) The Fund Manager is responsible to the Unitholders for ensuring the safekeeping of the Fund's property in accordance with these Rules.

(d) Subject to Rule (e), and without removing the generality of the obligation under (c), the Fund Manager must delegate the Regulated Activity of Providing Custody in relation to the Fund's property to a service provider who is an Eligible Custodian in accordance with Rule 8.2.

7.4. Use of prime brokers

(a) A Fund Manager may only grant to a prime broker authority to combine the assets of a Fund with any other assets held by or available to the prime broker as collateral for any financing activities to be undertaken by the prime broker where, and so long as the Fund's Offering Materials include:

1. (i) the identity and profile of the prime broker, including where it is located and how it is regulated;
2. (ii) the services provided by the prime broker to the Fund and the nature and extent to which the prime broker has the power and authority to commingle the assets of the Fund with any other assets held by or available to the prime broker as collateral for any financing activities undertaken by the prime broker; and
3. (iii) a prominent warning to alert prospective Unitholders to the fact that the prime broker has the power and authority to use as collateral the assets of the Fund in conjunction with any other assets held by or available to the prime broker and where the prime broker uses the Fund's assets as collateral pursuant to the above power, the Unitholders may lose all the assets of the Fund in the event of the insolvency of the prime broker.

(b) Any Person appointed as a prime broker to a Fund must qualify as an Eligible Custodian.

7.5. Risk management

(a) A Fund Manager must ensure that the risks inherent in the operation of a Fund are adequately managed, with due regard to the nature of the strategies and investment process employed by the Fund Manager and the role of Administrators and Eligible Custodians and where appointed, prime brokers.

(b) The Fund Manager must, to the extent proportionate given the nature of the Fund and the nature and scale of the Fund Manager, ensure functional and hierarchical separation and independence between:

1. (i) the risk management functions (Fund valuation and asset pricing); and
2. (ii) the portfolio management functions (the investment management process).

(c) Where the Fund Manager is unable to demonstrate adequate separation and independence in accordance with (b), the AFSA may require the Fund Manager to appoint an independent, suitably competent and experienced Administrator to perform the functions specified in (b)(i).

7.6. Conflicts of interest

(a) The Fund Manager must take reasonable steps to ensure that any dealing in relation to a Fund does not give rise to a conflict of interest.

(b) Where a conflict of interest arises, whether in dealings with Associates or otherwise, the Fund Manager must disclose to Unitholders the nature of the conflict and how the conflict will be managed.

7.7. Transactions between a Fund and its Fund Manager and the Fund Manager's Associates or other Funds managed by the Fund Manager

1. (a) A Fund Manager must ensure that a Fund does not enter into a transaction with the Fund Manager, any Associate of a Fund Manager or any other Fund managed by the Fund or any of its Associates (each, a "Related Person Transaction") unless it is in accordance with the requirements in this Rule 7.7.
2. (b) A Fund Manager must ensure that any Related Person Transaction is on terms at least as favourable to the Fund as any comparable arrangement on normal commercial terms negotiated at arm's length with an independent third party.
3. (c) The Fund Manager must provide written notice to Unitholders before a Fund enters into any Related Person Transaction.
4. (d) The Fund Manager must obtain the approval of a majority of independent Unitholders of a Fund prior to the implementation of a Related Person Transaction or series of Related Person Transactions which involve the acquisition, disposal or commitment of asset of the Fund in excess of 5 per cent. of the net assets of the Fund. For these purposes, the "independent Unitholders" of a Fund exclude the Fund Manager, any Associate of a Fund Manager and any other Fund managed by the Fund or any of its Associates.
5. (e) The Fund Manager must include a brief summary of any Related Person Transaction in the relevant Fund's next published interim or annual report, including the total value of the transaction, its nature and the identity of the persons with whom such transaction was made. Where no such transactions take place during the financial year covered by an annual report, an appropriate negative statement to that effect must be made in the Fund's annual report.

7.8. Best execution and fair allocation

A Fund Manager's systems and controls must include policies and procedures which are designed to ensure that:

• (a) when executing or procuring execution of trades for or on behalf of the Fund, the transactions are executed:
• (i) as soon as reasonably practicable after a decision to effect a transaction has been made; and
• (ii) on the best terms available at the time of dealing;
• (b) where the Fund Manager undertakes investment transactions for or on behalf of a Fund which it operates and one or more other Clients, there is timely and fair allocation of trades to the Fund and each other Client; and
• (c) trading of the Fund's investment portfolio is not excessive in light of its investment objective and policy.

7.9. Maintenance of records

• (a) A Fund Manager must make and retain accounting and other records that are necessary to enable it to comply with these Rules in respect of each Fund for which it is the Fund Manager and to demonstrate at any time that such compliance has been achieved.
• (b) A Fund Manager must make the records referred to in (a) available for inspection by the AFSA free of charge at all times during ordinary office hours and must supply a copy of the records or any part of them to the AFSA on request.

7.10. Unitholder register

(a) A Fund Manager must ensure that in respect of each Fund of which it is the Fund Manager, a register of Unitholders is maintained which contains:

1. (i) the name and address of each Unitholder; and
2. (ii) the number of Units including fractions of a Unit of each class held by each Unitholder; and
3. (iii) the date on which the Unitholder was registered in the register for the Units standing in his name.

(b) The Fund Manager must take all reasonable steps and exercise all due diligence to ensure that the Unitholder register is kept complete and up to date.

(c) The Fund Manager must make the Unitholder register in electronic or hard copy form available for inspection by Unitholders during normal business hours at the Fund Manager's place of business in the AIFC or otherwise in a designated location in the AIFC that has been notified to Unitholders.

7.11. Ability to delegate or outsource

• (a) A Fund Manager may, subject to any restriction in the relevant Fund's Constitution or any applicable agreement between the Fund Manager and the Fund and any provisions of these Rules, delegate or outsource any of its Regulated Activities or delegate or outsource any of its other functions to another Person, which may be located in or outside the AIFC.
• (b) Delegation or outsourcing by a Fund Manager does not relieve the Fund Manager from any of its obligations in respect of a Fund.
• (c) A Fund Manager may only delegate or outsource a Regulated Activity on prior written notification to the AFSA at least 30 days before the outsourcing or delegation is scheduled to take effect (the "specified date"). The outsourcing or delegation may only proceed if the Fund Manager does not receive an objection by the AFSA to the delegation or outsourcing prior to the specified date.
• (d) When delegating or outsourcing, a Fund Manager must carry out due diligence on a proposed service provider prior to effecting a delegation or outsourcing and conclude on reasonable grounds that proposed service provider is suitable to perform the relevant functions.

7.12. Requirements for delegation or outsourcing

• (a) Any delegation or outsourcing by a Fund Manager must be made on the basis of a written agreement with the relevant service provider.
• (b) If a Fund Manager delegates any activity or outsources any function to a service provider, it must take reasonable steps to ensure that it implements and maintains systems and controls to monitor the relevant service provider.
• (c) A Fund Manager which has delegated or outsourced any functions, must review at least every six months the carrying out of the relevant activities or functions by the relevant service provider.
• (d) If a Fund Manager discovers any non‐compliance in respect of a delegation or outsourcing agreement, the Fund Manager must take immediate action to remedy the matter and, where the non-compliance is material, notify the AFSA promptly.

7.13. Contents of delegation or outsourcing agreement

(a) A Fund Manager must ensure that any delegation or outsourcing agreement:

1. (i) sets out the functions or activities and service standards that will be applied to the carrying out of such functions or activities;
2. (ii) provides that the service provider cannot in turn delegate any activities delegated to it, or outsource any functions outsourced to it;
3. (iii) requires the service provider to maintain records to show and explain transactions in relation to each activity or function performed in relation to the Fund and to enable the Fund to prepare accounts in compliance with these Rules and any other applicable law; and
4. (iv) requires the service provider to:

(A) retain the records for at least six years from the date to which they relate; and

(B) keep the records, at all reasonable times, open to inspection by the Fund Manager, the Fund's auditor and the AFSA; and

(C) ensure that the records are, if requested by the AFSA, capable of reproduction within a reasonable period not exceeding 3 days in hard copy and in English.

(b) A Fund Manager must ensure that a delegation or outsourcing agreement contains an undertaking by the relevant service provider to comply with any Rules applicable to the activity and to disclose to the AFSA and to the Fund Manager any material information that it would disclose to its Financial Services Regulator, if relevant, in relation to the conduct of the delegated or outsourced activity.

(c) A Fund Manager must maintain records of all agreements, and any instructions given to a service provider under the terms of a delegation or outsourcing agreement, for at least six years.

7.14. Permissible fees, charges, levies and expenses

• (a) A Fund Manager must not make any charge or levy in connection with the issue or sale of Units of a Fund except in accordance with the Fund's Constitution and Offering Materials.
• (b) A preliminary or redemption charge must not be made by the Fund Manager unless it is permitted by the Fund's Constitution and it is expressed either as a fixed amount or calculated as a percentage of the price of a Unit.
• (c) Any preliminary charge must not exceed the amount or rate stated in the current Offering Materials in respect of any class of Units.
• (d) No payment may be made, or benefit given, to the Fund Manager out of the Fund's property, whether by way of remuneration for its services, reimbursement of expenses or otherwise, unless it is permitted by the Fund's Constitution and the Fund's Offering Materials specify how it will be calculated, accrued, when it will be paid and the maximum and current rates or amount of such remuneration.
• (e) A Fund Manager must give not less than 90 days' written notice to Unitholders of a Fund of any proposed increase in its remuneration, reimbursement of expenses or otherwise in respect of that Fund.
• (f) A Fund Manager must not introduce a new category of remuneration for its services or make any increase in the current rate or amount of its remuneration in respect of a Fund unless it has given not less than 90 days' written notice of that introduction or increase and of the date of its commencement to the Unitholders of that Fund and the Unitholders approve such new category or increase by such majority as is provided for in the Fund's Constitution.

7.15. Reimbursement of remuneration and expenses

• (a) A Fund Manager must take reasonable steps to ensure that any payment to any custodian or administrator of a Fund, whether by way of remuneration, reimbursement of expenses or otherwise, is consistent with the disclosure in the Fund's Offering Materials regarding how that payment will be calculated, accrued, when it will be paid and the maximum and current rates or amount of such remuneration.

7.16. Promotional payments, performance fees and set up costs

• (a) No promotional payment, performance fee or benefit may be made out of or given at the expense of a Fund to its Fund Manager unless it is permitted by the Fund's Constitution and specified in the Fund's Offering Materials.
• (b) Costs of the registration, exemption and incorporation of a Fund and of its initial offer or issue of Units, including Units in respect of a sub‐fund, may be amortised over a period not exceeding five years.

7.17. Allocation of payments to capital or income

• (a) A Fund Manager may determine that all or any part of any permitted payments, charges and expenses of the Fund may be treated as a capital expense or income expense and allocated to the capital account or income account of the Fund respectively.
• (b) The Fund Manager must ensure that any determination in (a) is permitted by the relevant Fund's Constitution and specified in its Offering Materials in sufficient detail for a Unitholder or a prospective Unitholder to make an informed decision in relation to the allocation of such charges and expenses to be paid from the capital property or the income property as the case may be.