Bahrain Investment Undertakings
Bahrain Investment Undertakings
In Bahrain there are two types of investment undertakings:
- Collective Investment Undertaking (“CIU”)
- Private Investment Undertaking (“PIU”)
CIUs are more heavily regulated; subject to tight restrictions on their investment policies; and the entities to whom such funds can be offered are limited. Retail and expert CIUs must operate on the principle of risk spreading and must maintain and implement investment and risk management policies aimed at prudent risk control. Derivative transactions and lending/borrowing are subject to various conditions and approvals. Exempt CIUs are more lightly regulated, but are still subject to restrictions in relation to risk profile and the ability to lend/borrow.
PIUs must comply with certain operational requirements, for example, the fund administrator must be a CBB licensee, but are subject to limited regulation, mainly in respect of reporting requirements. Such funds are not restricted in their investment policies. PIUs may only be offered to ‘high net worth investors’ considered able to understand the risks involved. They must inject at least US$3 million for their initial investment and must hold financial assets above US$25 million.
Collective Investment Undertakings (CUIs)
There are 3 categories of CIUs:
1. Retail: aimed at smaller unsophisticated investors.
2. Expert: the minimum investment for each investor must not be less than US$10,000 and the net worth of each investor must not be less than US$100,000.
3. Exempt: the minimum investment for each investor is not less than US$100,000 and the minimum net worth for each investor not less than US$1 million.
A CIU must have an Operator. The Operator of a CIU is the person undertaking the functions of establishing, operating, including full oversight of the corporate governance on the CIU, and ultimately liquidating the CIU. If the Operator is not a CBB licensee, then it has to meet the following requirements:
(i) Is duly authorised to operate similar CIUs in its home jurisdiction;
(ii) Is supervised by an overseas regulatory authority acceptable to the CBB;
(iii) Has a sound track record and/or experienced management team;
(iv) Is financially sound according to its home regulatory requirements; and
(v) Is a reputable financial institution.
The CIU also must have a Fund Manager (A Fund Manager is a person mandated to allocate and/or manage financial instruments and any other assets held by a CIU). Fund Managers must hold an appropriate license or equivalent from the CBB or from a regulatory authority acceptable to the CBB and permitting the entity to manage financial instruments and any other assets held by a CIU.
*There will shortly also be available limited partnerships and segregated portfolio structures.
Private Investment Undertakings (PIUs)
The PIU needs to have a Fund Operator. A CBB licensed asset manager or bank can be a Fund Operator. A foreign licensed entity can also act as the Fund Operator, subject to holding an appropriate license in a jurisdiction approved by the CBB. The Operator replaces the Asset or Fund Manager needed in a CIU structure. The Operator is the main responsible party of the PIU structure.
The PIU needs to have a Fund Administrator, Registrar and Custodian. Such services can only be provided by a Bahrain company with the appropriate CBB licenses.
The Bahrain licensed Fund Administrator/Custodian of the PIU can be authorised to act as the Fund Operator.
To create a CIU an application has to be made to the CBB. The completed application form along with the following draft documents must be prepared by a law firm. The form and documents need to be submitted to the CBB. This may be submitted by the promoter or Crestbridge may be appointed to coordinate the process on behalf of the promoter. The documents required are:
1. Prospectus: Private Placement Memorandum (“PPM”).
2. Management agreement
3. Administration agreement
4. Investment advisory agreement
5. Custody agreement
6. Placement agreement
7. Sharia advisory agreement, if applicable
8. CIU representative agreement (if Crestbridge is appointed to coordinate the process)9.
9. Subscription agreement
10. Memorandum and Articles of association for the Fund company
11. Certified and valid passport copies and CVs for the Directors of the Fund company
12. CVs of individuals at the Fund Manager
13. A board resolution of the Operator approving the application and seeking the CBB approval
14. If the Operator is outside Bahrain, an acceptably worded undertaking to the CBB
15. Proof of processing the payment of the CBB fees
16. If the Operator is located outside Bahrain, a “no objection” letter from its regulator
17. Latest audited financial statement of the Operator along with a copy of its license and its articles and memorandum of association.
A similar application has to be made to CBB. However the documents required are significantly fewer:
1. Private Offering Document (“POD”)
2. Draft Memorandum and Articles of Association
3. Certified and valid passport copies and CVs of the Directors
4. A board resolution of the Operator approving the application to seek registration of the PIU.
Certain other agreements will probably be necessary for internal administration and corporate governance purposes:
1. Fund Operator agreement
2. Fund Management agreement (optional)
3. Subscription agreement
4. Fund administration and registrar agreement
5. Custody agreement
6. Company Secretarial services agreement, including the registered address
7. The Directors roles and responsibilities
Crestbridge can coordinate the setup process and represent the promoter in front of the CBB for filing the application. Fees are available on request.
Crestbridge’s fee does not include the legal fees for preparing all the above documentation.
Crestbridge can act as Administrator, Registrar, Custodian and Company Secretary. We need information about the fund to allow us to estimate our fees. The information needed is directly related to the workload and responsibilities (e.g. size of the Fund, reporting requirements, number of investments, number of investors, the turnover of the investments and the investors, if there would be any consolidation requirements besides, the investments valuations method).
There are other expenses (registration, audit etc.) which are generally paid by the fund itself.
The above lists identify the documents required. The major work for establishing a fund is drafting the offering document. In the case of a CIU this is the Private Placement Memorandum (“PPM”) and in the case of a PIU this is a Private Offering Document (“POD”).
For a CIU the PPM this is normally drafted by lawyers. Of course it needs input from the promoter for the “business” and “financial” elements. Quotes can be obtained from a Bahraini law firm experienced with drafting fund documentation. Crestbridge’s role would be to act as coordinator to ensure that the process of submission to the CBB goes smoothly.
For a PIU Crestbridge is able assist with drafting the POD.
In either case it is necessary to form a Bahraini company.
For more information please contact us.