FUNDS 14.1 FUNDS 14.1 Meeting the conditions to be classified as an Exempt Fund
Guidance1. If an Exempt Fund can no longer meet the relevant conditions set out in Rule 3.3.3 to be classified as an Exempt Fund, the Fund Manager of that Fund is required, under Section 112 of the FSMR, to apply for the winding up of that Fund. Alternatively, the Fund Manager may have that Fund moved to the classification of a Public Fund, which requires the satisfaction of the requirements and formalities specific to that type of Fund. An Exempt Fund may also, if it wishes to, convert to a Qualified Investor Fund provided it meets the conditions applicable to a Qualified Investor Fund in Rule 22.214.171.124. In addition to the requirements specific to Exempt Funds, such a Fund must also meet, except where otherwise provided, the other requirements that are common to all Domestic Funds, which are set out in Rules 11 and 12 of these Rules.3. Units of Exempt Funds can only be Offered by way of Private Placement and to Professional Clients, but must meet the additional criterion of a minimum subscription test of US$50,000. The definition of Professional Client is set out in Rule 126.96.36.199. Generally a firm will not be able to undertake mass marketing activities relating to Units of Exempt Funds because such marketing would not meet the Private Placement requirement, and would be likely to amount to a public offer, which can only be made in respect of a Unit of a Public Fund.
FUNDS 14.1.1(1) A Fund may be classified as an Exempt Fund only if it fulfils the criteria in Rule 3.3.3 at the inception of the Fund and on an on-going basis.(2) A Fund Manager must ensure that a Fund which is or is intended to be established and operated as an Exempt Fund meets the criteria in Rule 3.3.3 both at the inception of the Fund and on an on-going basis.(3) For the purposes of (2), where a Fund Manager makes arrangements with other Authorised Persons or Persons in other jurisdictions to Offer to issue or sell the Units of an Exempt Fund, then it must take reasonable steps to ensure that those Authorised Persons or other Persons do not Offer to issue or sell the Units in a manner that would result in a breach of the criteria in Rule 3.3.3.(4) As soon as a Fund Manager becomes aware that an Exempt Fund it manages no longer meets or is likely to not meet the criteria in Rule 3.3.3, it must immediately:(a) commence proceedings relating to the winding up of the Fund, or alternatively, take necessary steps to have the Fund registered as a Public Fund; and(b) notify the Regulator of that fact and the measures it has taken and proposes to take under (a).(5) A Fund Manager of an Exempt Fund which is subject to the valuation requirement in Rule 12.4.1(b) of these Rules must appoint either: (i) a Fund Administrator or, (ii) a Person regulated by a Financial Services Regulator, as the Person undertaking the valuation of that Fund, in each case with the assistance of independent third party valuation experts, where required.