The Capital Markets Law and investment funds: part one
Chapter VIII of the Kuwaiti Capital Market Law (CML)'s executive regulations deals with investment funds: their formation and the offering of units for subscription. Also covered are the marketing and offering of units of overseas funds, fund operation, corporate governance and fund liquidation. Chapter VIII spans 75 Articles of the executive regulations (293–368). This briefing will address just the first 15, leaving the remainder to be dealt with subsequently.
The definition of an investment fund (Article 293) has the same concepts as are familiar to a European eye: the collective investment vehicle, and common investment in a diversified portfolio of investments managed by an investment manager. Article 294 makes a familiar distinction between open-ended and closed investment funds. But then the rest of the chapter tends to treat the two as essentially the same and there is (as elsewhere) an excessive reliance on further rules, forms and procedures to be approved in due course by the Capital Markets Authority (CMA).
The formation of the investment fund requires a CMA licence at the outset and the sponsor must be duly authorised as an investment manager under Chapter V. The articles of association of the investment fund (satisfying the specific requirements of Article 306) must then be submitted for approval along with the units offering circular and "any other documents that may be required by the CMA". Approval will follow 30 days after everything required has been submitted.
Offering of units may be by means of either a special offer for subscription (to private placement or sophisticated investors or from the Kuwait Government, Central Bank of Kuwait or Kuwait Stock Exchange) or by an offer to the public. In many other jurisdictions, special (or professional) offers are subject to less burdensome disclosure and other approval requirements than public offers. In the case of Chapter VIII, it is the other way round: public offers will be subject "to any additional conditions and restrictions that may be imposed" by the CMA.
The overarching level of disclosure (Article 308) for investment fund offer documents has been noted before. But (although this is not mentioned) the requirements of Chapter IX (Offering Circulars for Company Securities) will also need to be met. The respective boundaries of Chapters VIII and IX are never made clear in fact and this will inevitably lead to further confusion in due course – something to which we will return in subsequent briefings.
Anthony J Coleby