What is a Collective Investment Fund?
Collective investment Funds ("CIF") are groups of pooled accounts held by a bank and Collective Investment Trusts (another way of calling CIFs) are groups of pooled accounts held by a trust. Asset managers or other forms of financial institutions pool together and group variety of assets from individuals and companies to create a unified portfolio. Unlike mutual funds or exchange traded funds, CIFs are unregulated, unregistered investment vehicles and closer in kind to hedge funds.
Why should you set up an Collective Investment Fund?
It helps with effective investment management because it pools together various assets from numerous accounts into one vehicle with a certain investment strategy and goal. By doing so, incorporators of an CIF reduces administrative and operational costs. Due to the reduction in cost, it also has a lower distribution cost which means it is cheaper for those vested in the fund as the running costs are significantly lower than others.
Setting up a Collective Investment Fund
This article will compare five (5) jurisdictions based in the Middle East.
The Securities and Commodities Authority (“SCA”) regulates Mainland UAE and CIFs incorporated in this economic area will need to go through an entity that is registered with the SCA. CIFs in Mainland UAE are licensed for promotion via private placement. Targeted investors can only be Qualified Investors, who have a net worth of more than USD 1,000,000 (alone, with a spouse or spousal equivalent). Subscription requirement for the fund is AED500,000.
Dubai International Financial Center (DIFC)
The Dubai Financial Services Authority (“DFSA”) regulates this financial free zone in Dubai. CIFs will need to be incorporated through an entity registered with the DFSA. Mandatory characteristics of a CIF incorporated in the DIFC is that it must be a Designated Fund or have a regulated custodian and investment manager. If the fund is offered via private placement, it must target Professional Clients and the minimum subscription is USD 50,000.
Abu Dhabi Global Market (ADGM)
The Abu Dhabi Global Market ("ADGM") is a financial free zone located in Abu Dhabi. CIFs incorporated in the ADGM will be under the regulatory supervision of the Financial Services Regulatory Authority (“FSRA”) and it will need to go through an entity registered with the FSRA. Unlike Mainland UAE and the DIFC, there are no particular requirements in required fund characteristics, targeted investor characteristics and subscription requirements.
Kingdom of Saudi Arabia (KSA)
Saudi Arabia is regulated by the Capital Market Authority (“CMA”)and CIFs are required to go through an entity registered with the regulator. The Fund is only available via private placement offer and only to Sophisticated Investors. Subscription requirement SAR 1,000,000 or more per investor.
Bahrain’s financial market is regulated by the Central Bank of Bahrain (“CBB”) and the CIF must be incorporated through a CBB registered entity. CIFs must either be an Expert Fund or an Exempt Fund and it can target Expert Investors or Exempt Investors. Subscription requirement for an Expert Fund is USD 10,000 or more and for the Exempt Fund, the requirement is USD 100,000.