Regulatory Policy – Exemption from Valuation Requirement for a Private Fund

Summary

This is a CIMA Regulatory Policy, dated September 2020, explaining how the Authority will decide whether to grant a private fund an exemption from the valuation requirements set out in section 16 of the Private Funds Law. It does not change the underlying legal requirement that private funds obtain valuations of their assets; rather it sets out the criteria, process and documentation CIMA will use when a fund asks to be excused from that requirement, either wholly (absolute exemption) or in part/for certain requirements (conditional exemption). The policy applies to private funds registered under the Private Funds Law and their operators.

Scope of Exemptions

• Absolute exemption: Limited to two narrow scenarios: court-frozen assets, or repatriation under a Mutual Legal Assistance Treaty.
• Conditional exemption: Available for specific situations such as an unlaunched fund, a fund unable to value assets due to bankruptcy or enforcement action, or a fund in compulsory liquidation.

Any exemption granted, absolute or conditional, is capped at a period not exceeding one year, and CIMA retains full discretion to refuse an exemption even where the stated criteria appear to be met.

Conditional Exemption Requirements

• Preconditions before applying: Funds seeking a conditional exemption under section 6.3 must meet several preconditions before applying, including amending constitutive documents, notifying investors, and waiving the right to an audit exemption.
• Supporting documents: Applicants must submit specific supporting documents (affidavits, amended constitutive documents, third-party confirmations) depending on the basis for the request.

CIMA will also assess the fund's overall regulatory good standing, litigation status and AML/CFT compliance before approving any exemption, and an application fee prescribed under the Monetary Authority Law is payable on submission.

Key obligations

• A private fund seeking a conditional exemption must ensure the request is consistent with its constitutive documents and that the fund operator has communicated the intention to apply for an exemption to all investors.
• The fund's constitutive documents must be amended to impose absolute restrictions on new investors joining and on existing investors increasing, decreasing or modifying their investment interests during the exemption period.
• The fund must acknowledge it waives its right to request an exemption from the annual audit requirement under section 13(6) of the Law as a condition of the valuation exemption.
• The valuation performed immediately after the exemption period, and the valuation underlying subsequent audited financial statements, must be performed by an appropriately professionally qualified independent third party.
• An application for a valuation exemption must include an explanation of the reason for inability to complete the valuation, associated material risks, and evidence that investors were notified of the exemption request.
• Depending on the basis for the exemption request, the fund/operator must submit specified supporting documents (e.g., amended constitutive documents, operator affidavits, administrator/registrar/transfer agent confirmations, or official reports from relevant authorities).
• An operator must provide written confirmation that the exemption will not contravene the fund's constitutive documents or marketing materials, or prejudice investors or creditors.
• The prescribed application fee under the Monetary Authority Law must be paid upon submission of the exemption application.
• Where a fund applies for exemption for two consecutive valuation periods, it may need to provide additional information to CIMA detailing the reasons for its continued inability to complete a valuation.

Applies to

private funds, fund operators, fund administrators