Central Bank of Bahrain's new CIU regulatory framework achieves early success

Three 'Exempt' CIUs, the first of their kind in Bahrain, have been registered with the CBB within three weeks since the new CIU rules came into effect from 1 June 2007. The new rules provide for the full range of investment funds, from the lower risk funds aimed at retail investors to the higher risk alternative investment vehicles.

The new 'Exempt' CIUs are sponsored by Global Investment House, National Bank of Kuwait (NBK) and Naeem Holding Company for Investments.

Global's Global Real Estate Ijara Fund is a close-ended Islamic real estate fund, NBK's NBK Institutional Access GCC Equity Fund is a conventional, open-ended private equity fund; while the Naeem MENA Growth Fund is a conventional open-ended fund which will invest in listed equities.

"The new registrations are consistent with our expectations with regard to market appetite for investment funds targeting very high net worth individuals or institutional investors,"

said Mr. Mohammed Ayman Al Tajer, Director, Financial Institutions Supervision, at the CBB.

"The new rules differentiate between the various categories of investors and provide appropriate levels of protection or exemptions."

Highlights of the provisions for various categories of CIUs are as follows:

i)Retail CIU, which may be marketed to anyone, are subject to various requirements aimed at investor protection, such as restrictions on types of assets that may be held in the CIU and various limits on concentration risks;

ii)Expert CIU, which are subject to a minimum US$10,000 investment rule, may only be sold to expert investors with financial assets of US$100,000 or more to invest. Expert CIU are also regulated, but may fully invest in a wider range of assets (including real estate and commodities), and are subject to fewer risk concentration requirements; and

iii)Exempt CIU are subject only to certain requirements since these may only be sold to a restricted investor base (those able to make a minimum investment of US$100,000, and with at least US$1 million in financial assets. The Exempt CIU allow for hedge funds and other higher risk alternative investment vehicles.

"The creation of the new 'Exempt' category, for the first time in Bahrain and the region, will be the catalyst for the development of locally domiciled instruments totally different from plain vanilla products," said Mr. Al Tajer.

"We see this as a big growth market given the growing demand for regionally-focused investments, particularly from high net worth individuals and regional institutions, who are becoming increasingly sophisticated in their understanding of the financial risks arising from these new types of transactions."

The CIU regulatory framework also provides for overseas domiciled CIU (whether retail or expert), to avoid supervisory duplication. Those overseas schemes that qualify are only required to register with the CBB, prior to being marketed in Bahrain.