LEGAL PERSPECTIVE: Collective Investment Undertakings (CIU) in Bahrain by Dr AbdelGadir Warsama, Legal Counsel

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Dr AbdelGadir Warsama, Legal Counsel

Bahrain is a host of many mutual funds, which makes a good lucrative investment opportunity for you and all. The first overseas mutual funds started and marketed in Bahrain in the 80s. The first Bahrain domiciled scheme was launched in 84. The first Collective Investments Schemes rules were issued in 92 by CBB. The rules are for authorization, registration and supervision of mutual funds domiciled or offered for marketing in Bahrain.

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This business is growing very fast and very encouraging. In 2021, number of mutual funds are 1701 funds of which 74 funds are Bahrain domiciled and Sharia compliant funds are 90. This shows, the net asset value (NAV) of the funds totaled 10.122 billion dollars in 2021. Almost 5.786 billion dollars, invested in locally incorporated funds of which 1.100 billion dollars in Sharia compliant funds.

Collective investment undertakings (CIU), are defined, as undertakings the sole object is collective investment of capital raised from the public or through private placement, including investments by the operator, in financial instruments and other assets and which operates on the basis of risk-spreading as appropriate and the holdings of which may be re-purchased or redeemed out of those undertakings assets as appropriate.

For the purposes of this, holdings mean the unit of measurement of the beneficial interest of participants in a CIU, by whatever name it is called including units and, in the case of investment trusts or companies, in the form of shares or units. Each holding represents a right to the assets of the CIU. The definition recognizes both open-ended funds and closed-ended funds, unit trusts, investment trusts, mutual funds, SICAV (French apprevaition means Investment Company with variable capital) and collective investment schemes are all examples of CIUs. CIUs may be constituted under contract as common funds managed by management companies, trust law as unit trusts, or under statute as investment companies. Closed-ended funds are CIUs with a limited number of holdings. Where the fund vehicle is a company, holdings can take the form of shares. New holdings are rarely issued after the fund is launched and are not normally redeemable until the fund is liquidated. Typically, an investor can acquire or dispose of holdings in a closed-ended fund by buying or selling them on a secondary market, from a market intermediary or another investor, rather than by dealing with the CIU itself.

Bahrain domiciled CIUs, are defined, as undertakings where the legal form of the CIU is established under the laws of the Kingdom of Bahrain, and CIU documents and contracts are governed by the Laws of Bahrain, unless otherwise agreed with CBB. Bahrain domiciled CIUs may be constituted either as common CIUs, established by contracts, trusts established under the Financial Trusts Law, or a corporates established under the Company Law. The Bahrain domiciled CIUs are classified as retail CIUs, expert CIUs or exempt CIUs as defined by CBB and each Bahrain domiciled CIU must have its separate legal vehicle. In this context, Private Investment Units (PIU) will be discussed later.

However, we strongly believe, this gives a well regulated investment opportunity for potential investors including yourself.

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