Chapter 3 sets out the SCA rules for investment funds: how a local fund is approved, licensed and reports, the separate regimes for private equity, venture capital, partnership, cash, exchange-traded and real estate funds, and how assets contributed in kind are valued. It carries about 15 of the 100 exam questions, and much of it turns on figures that look alike but belong to different fund types.
This chapter moves from the general to the specific. It opens with the 2023 Investment Funds Regulation (Resolution No. 01/Chairman of 2023), which applies to every local fund: who may found one, why initial approval is not a licence, what the offering document and KIID must do, and how a fund reports once it is running. It then turns to fund types that have their own decisions, each built around a short list of limits. It closes with the rules for shares contributed in kind. Learn each rule together with the fund it belongs to, because the same percentages and periods reappear in more than one place with a different meaning.
Article 4 of the 2023 regulation allows three routes. The usual one is a fund management firm holding the Authority's licence. A firm licensed for family investment management can set up a family fund, owned wholly by family members as the Authority defines them. Self-managed funds require two founders or more, individuals or companies. Together the founders subscribe at least AED 5 million, and they cannot dispose of those units for six months or more after foundation. A corporate founder must be established in the UAE, run a financial, banking or insurance business whose main activity matches the fund's, hold a minimum capital of AED 20 million, and show net profits from that activity over the two financial years before it applies. A natural person founder meets the approved employee standards, without the professional licensing tests or CPD.
Approval comes in stages. The Authority decides on initial approval within ten working days for a public fund and five for a private fund, and a refusal must come with reasons. Initial approval is not a licence. On that basis alone the fund may only prepare, for example by taking premises, opening bank accounts and hiring approved employees; any act that carries on its business is void, and announcements, promotion and subscriptions wait for final approval. The offering document and its summary, the KIID, are prepared and signed by the fund manager, or by a self-managed fund's founders, who answer for their accuracy. Either Arabic or English is acceptable, and promises, guarantees and misleading statements are banned. The cost of preparing these documents and of promoting public fund units stays with the manager or founders for good.
Articles 14 and 15 bind all local funds, public or private, listed or not, for as long as they exist. A fund publishes a semi-annual financial report no later than 45 days after the half-year ends, and an annual one no later than three months after the year ends, each audited by an independent external auditor and prepared under IFRS, with a Sharia supervision opinion where required. An annual performance report explains material changes, related party transactions in the fund's units, any breach of investment restrictions with the steps taken to correct it, and how the service providers performed. Public funds add a semi-annual performance report. Reports appear in Arabic and English, with copies to the Authority and, for listed units, the market. The first financial year runs six to 18 months from licensing; later years run 12 months.
Articles 31 and 32 keep a private fund private. It is barred from all public advertising media, whether audio, video or written, so a broad public campaign is ruled out at every stage. Promotional material sent to unit holders must identify the fund as private, carry the required disclaimer, and go in copy to the Authority. Units may be transferred to someone who already holds units, or to a professional investor or market counterparty where the transfer's nominal value is AED 180,000 or more. Family funds go further: their units may not be sold or pledged to anyone outside the family, or to a company that family members do not wholly own, and the AED 180,000 route does not override that restriction.
Three 2017 decisions cover these funds. A private equity fund's incorporation agreement must state whether investment management is to be outsourced, and set terms such as borrowing limits, duration, distributions and liquidation. The general partner works out NAV and unit price quarterly, at fair value, and values in more depth at least yearly from the investee companies' audited accounts. A venture capital fund holds at least 70% of its assets in qualifying venture investments. Two separate 30% ceilings apply: one to other investments a public fund could make, one to total lending to unlisted companies it invests in. From AED 180 million of managed assets it needs a Risk Management Officer and a full IFRS annual report. In a partnership fund, general partners are fully liable, jointly if there are several; limited partners only up to their capital share.
The cash fund rules in Decision No. (52/R.T) of 2016 are built around liquidity. A cash fund must hold 90% or more of its assets in cash instruments that are highly liquid, and the weighted average maturity of its portfolio may not go above 120 days. These are two separate tests, so passing one does not excuse failing the other. Debt instruments need a rating of at least BBB+ or an equivalent from a recognised agency, and no more than 10% of net assets may go into the debt of a single issuer. Borrowing is banned except to meet redemptions, and even then it is capped at 10% of NAV. Where an asset has no market price, the fund values it at fair value.
The ETF rules, Decision No. (49/R.T) of 2016, require a name that does not confuse or mislead and a listing on at least one UAE market, though the index components need not be UAE listed. The index needs a defined and known objective, a reasonable fit with the market or sector it represents, movement in line with component prices and weights, and adequately liquid components. The ETF may hold every component or a sample that achieves a specified correlation, and the manager must deliver at least the correlation that the investment policy and prospectus state. The authorised agent quotes bids and offers within the prospectus spread, the safe custodian confirms ownership transfers before redemption, the administrative services company reviews daily NAV and the intraday indicative value, and the manager coordinates them all.
The real estate rules in Decision No. (6/RT) of 2019 set a cluster of percentages that are easy to swap. At least 75% of total assets must be in real estate held for development, sale, management or leasing, and real estate must produce at least 90% of total revenue. A public fund must pay out 80% or more of the annual net profit it achieves. Borrowing may not exceed 50% of total asset value, and ownership of a real estate services company, together with its subsidiaries, is capped at 20% of total assets. A usufructuary right qualifies only with at least seven years still to run. Real estate assets are valued at least every six months from the appraiser's reports, although the management company or board can delay a valuation for acceptable reasons once it has told the SCA.
Decision No. 63/R.T of 2019 covers units issued against assets contributed in kind. The assets must be consistent with the prospectus and investment policy, able to be liquidated, and free of legal disputes and third-party rights. Two evaluators each give a fair value and the lower one is used, asset by asset. Each needs a UAE valuation licence or approval, five years of valuation experience with three in that asset type, and full independence; the fund's own auditor and financial adviser are excluded. For unlisted shares, or shares with no current price or active market, both evaluators must be Authority-licensed financial advisers. The report reaches the Authority first. The manager checks suitability, keeps unit value within asset value and retains records for ten years. Evaluation and transfer costs fall first on the manager or founders.
A short revision checklist written by Bourse Prep from the syllabus and from our verified question bank. Use it to check yourself after studying the chapter. It does not replace the official workbook. Unfamiliar term? See the UAE FRR glossary.
The figures in this chapter that the exam material states, each with the rule it belongs to. Learn the figure and its owner together. Test yourself on them in Rules Lab.
| What | Figure | Context |
|---|---|---|
| Founders' combined subscription, self-managed fund | AED 5 million | minimum, counted across all founders together |
| Capital of a corporate founder | AED 20 million | minimum, with two financial years of net profits from its main activity |
| Founder units locked in | 6 months | at least, from the date of foundation |
| Initial approval decision | 10 working days (public), 5 working days (private) | from receipt of the application |
| Final approval evidence | 30 days | after subscriptions close, or subscribers are repaid |
| Start of the investment policy | 12 months | at most, counted from licensing |
| Local fund financial reports | 45 days and 3 months | after the half-year end and the year end |
| Private fund unit transfer | AED 180,000 | minimum nominal value for a new professional investor or market counterparty |
| Venture capital core allocation | 70% of assets | with separate 30% caps on other investments and on lending to investees |
| Venture capital Risk Management Officer | AED 180 million | of managed assets or more |
| Cash fund liquidity | 90% of assets | minimum in highly liquid cash instruments |
| Cash fund weighted average maturity | 120 days | maximum for the whole portfolio |
| Real estate allocation | 75% of total assets | minimum in real estate, with 90% of revenue from real estate |
| Real estate fund borrowing | 50% of total asset value | maximum |
| Public real estate fund distribution | 80% of annual net profit | minimum paid to unitholders each year |
Places where the syllabus draws a line between two rules that sound alike. They are not predictions about any exam.
The offering document and the KIID may be written in Arabic or in English, so one language is enough. The fund's periodic reports are different: they must come out in both languages, Arabic and English. When a rule about language comes up, first identify which document it concerns, because the answer switches between 'either' and 'both' depending on the document.
AED 5 million is the minimum that a self-managed fund's founders put into the fund, counted across all of them together, not per founder. AED 20 million is the capital a company must hold itself before it can be a founder, alongside the activity test and two years of net profits. One is money going into the fund; the other is the founder's own balance sheet.
The same digits appear in two unrelated rules. AED 180,000 is the minimum nominal value when private fund units pass to a professional investor or market counterparty who is not already a holder. AED 180 million of managed assets is the point at which a venture capital fund needs a Risk Management Officer and a full annual report under IFRS.
The local fund deadlines each run from a different event. Initial approval runs from receipt of the application. The 30 days for the auditor's certificate run from the close of subscriptions. The licensing certificate follows within five days of the evidence and fee. The 12 months to start investing run from licensing, not initial approval, and the six-month founder lock-up runs from foundation.
The cost of preparing the offering document, and of marketing and promoting a public fund's units, comes from the manager's or founders' own resources and is never reimbursed. In-kind valuation and ownership or usufruct transfer costs are likewise paid first by the manager or founders, but once the fund exists they can be charged to the fund as foundation expenses, or treated as the auditor considers appropriate. If the subscription fails, they stay with the manager or founders unless the asset providers agreed to carry all or part of them.
Each fund type values on its own timetable. A private equity fund calculates NAV every three months and adds a fuller valuation at least once a year. A real estate fund values its property at least every six months from appraiser reports. An ETF's administrative services company reviews NAV each day and the indicative value during trading. A cash fund uses fair value where no market price exists.
Study tools for the rules in this chapter: side-by-side comparisons, decision paths and procedures. More are collected in Rules Lab.
| Cash investment fund | Real estate investment fund | |
|---|---|---|
| Core asset test | 90% or more of assets in highly liquid cash instruments | 75% or more of total assets in real estate |
| Second test | Portfolio weighted average maturity of 120 days or less | 90% or more of total revenue from real estate |
| Borrowing | Only to meet redemptions, capped at 10% of NAV | Capped at 50% of total asset value |
| Concentration limit | Debt of one issuer capped at 10% of net assets | Real estate services company and subsidiaries capped at 20% of total assets |
| Valuation | Fair value where there is no market price | At least every six months, from the appraiser's reports |
| Quality or term floor | Debt rated BBB+ or equivalent at minimum | Usufructuary rights with seven or more years left |
An investor offers shares, rather than cash, in return for fund units.
The units allocated must not be worth more than the accepted value at the time of allocation.
The learning objectives for this element, as the CISI UAE Financial Rules and Regulations syllabus, Version 4.2, effective 10 September 2023 lists them. Every question in our bank is mapped to one of them.
Chapter 3 rewards exact recall of which figure belongs to which fund. Filter practice to this chapter in Bourse Prep, where the bank holds 103 questions across 13 learning objectives, and work through one fund type at a time before mixing them. Some items ask you to apply a limit to a fund's figures, such as a percentage of assets or a maturity cap, so check the base and the starting event each time. When you miss one, note which neighbouring rule you used instead.
15 questions from all eight chapters. The answer is only revealed once you have committed to one.
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