As a result of an extensive benchmarking process against established fund regimes in Luxembourg, Cayman Islands and Ireland, the Dubai Financial Services Authority (the DFSA) has recently implemented a new Qualified Investor Fund (QIF) regime, the purpose of which is to provide a less regulated, lower cost alternative to the existing Exempt Funds regime. The new regime is specifically targeted at sophisticated investors such as high net worth individuals and family offices.

QIF Qualification Requirements
In order to qualify as a QIF, a Domestic Fund must satisfy the following conditions at its inception and on an on-going basis. It is the Fund Manager’s obligation to ensure that any other firms to whom it issues or sell units also comply with these conditions:

1. 50 or fewer unitholders;
2. units offered only by way of private placement;
3. unitholders who meet the Professional Client criteria; and
4. a minimum subscription amount of US$500,000. This is significantly lower than the US$1 million minimum subscription amount proposed by the DFSA in its consultation paper earlier this year.

Professional Client Classification
A Professional Client is defined as a person which either (i) has net assets of at least US$500,000 (calculated in accordance with DFSA Conduct of Business rules) or (ii) has, in the previous two years, been an employee of a DFSA regulated firm and appears, on reasonable grounds to the firm, to have sufficient experience and understanding of financial markets, products or transactions and any associated risks or (iii) has not elected to be treated as a Retail Client in accordance with DFSA Conduct of Business rules.

Fund Managers of QIFs are exempt from many of the detailed requirements applicable to Public Funds and Exempt Funds. However, they are still required to comply with the general obligations applicable to Fund Managers which are set out in the Collective Investment Rules and the GEN Module. For example, a Fund Manager of a QIF is required to observe high standards of integrity and fair dealing, apply due skill, care and diligence in managing the Fund and have adequate systems and controls in place to ensure that the QIF is effectively managed, taking into account the nature, scale and complexity of the QIF’s operations, its investment objectives and the needs of its investors.

With the exception of Property Funds and Private Equity Funds, the Fund Manager will still be required to register legal title to the fund property with an Eligible Custodian. If the Fund Manager of a QIF holds fund property on its own account, it must have in place effective arrangements which ensure that the property is not available to creditors in the event of the insolvency of the Fund Manager.

QIF Regulatory Exemptions
As a consequence of the higher minimum subscription amount and Professional Client requirements, QIFs benefit from a fast track (i.e. two business day) authorisation process, lighter regulatory treatment (such as limited prospectus disclosure requirements and more flexibility with regard to appointment of fund custodians) and a number of exemptions, such as:

1. there is no obligation to make mandatory statements or disclosures in the fund’s constitution; 
2. the majority of the operational requirements under the Collective Investment Rules do not apply to QIFs, for example, best execution principles and requirement relating to the maintenance of a register and unitholder meetings do not apply;
3. there is no requirement to file interim reports, only annual reports;
4. there are no strict valuation periods; the Fund Manager is only expected to value fund property at appropriate intervals;
5. there are exemptions from a number of investment restrictions, for example, a QIF is entitled to invest in a fund of funds, which is not the case for all types of DIFC funds; and
6. in respect of Islamic QIFs, there is no obligation to appoint a Shari’ah Board and obtain Shari’ah Board approval of the fund’s constitutional and offering documentation, although the Fund Manager is still required to ensure that the QIF is not in breach of its Shari’ah requirements.