Rule - Calculation of Net Asset Values - Registered Private Funds (July 2020)

Summary

This is a CIMA Rule, issued under section 34 of the Monetary Authority Law, that sets binding requirements for how registered private funds must calculate their Net Asset Value (NAV). It applies to all Private Funds registered under section 7 of the Private Funds Law, 2020, except Alternative Investment Vehicles, and should be read together with CIMA's Rule on Contents of Marketing Material of Registered Private Funds.

The Rule requires each Fund to establish, implement and maintain a written NAV Calculation Policy that produces a NAV that is fair, reliable, complete, neutral, free from material error and verifiable. The policy must follow IFRS or the GAAP of the US, Japan, Switzerland or a Non-High Risk Jurisdiction, be consistent with the accounting basis used in the Fund's audited financial statements, and be disclosed in constitutional documents, marketing materials or other investor communications.

• Pricing and valuation: Pricing/valuation procedures and valuation frequency (at least annually).
• Publication: Publication of asset values.
• Section 16 Person: The role of the Section 16 Person.
• Price sources: Price sources and escalation procedures for exceptions.
• Internal controls: Internal controls proportionate to the Fund's size and complexity.

The Rule also addresses use of Fair Value and Pricing Models for hard-to-value assets, requiring calibration and practical usability by the Section 16 Person, and requires disclosure of any deviations from the NAV Calculation Policy (with investor disclosure and Operator agreement where the deviation could affect reported NAV). NAV must be communicated directly to investors, and the Fund's Operator(s) bear ultimate oversight responsibility, including at least annual review and approval of the NAV Calculation Policy and any Pricing Models. Breach of the Rules triggers CIMA's standard enforcement processes under its Enforcement Manual, the PFL and the MAL.

Key obligations

• Establish, implement and maintain a written NAV Calculation Policy ensuring NAV is fair, reliable, complete, neutral, free from material error and verifiable.
• Calculate NAV in accordance with IFRS or the GAAP of the US, Japan, Switzerland or a Non-High Risk Jurisdiction, consistent with the accounting principles used in the Fund's audited financial statements.
• Disclose the NAV Calculation Policy in the Fund's constitutional documents, marketing materials or other investor communications, covering pricing/valuation practices, valuation frequency, publication method, applicable accounting standards, the Section 16 Person's role, price sources/escalation procedures, and appropriate internal controls.
• Value assets regularly, at least annually.
• Value portfolio investments using Fair Value unless the applicable financial reporting framework requires otherwise.
• Where Pricing Models are used for hard-to-value assets, calibrate them by verifying inputs and testing against current market conditions, and ensure they can be practically implemented by the Section 16 Person.
• Require the Section 16 Person to apply the NAV Calculation Policy; disclose deviations from the policy in marketing materials, and where a deviation could affect reported NAV, disclose it to investors and obtain Operator agreement in advance.
• Explicitly disclose in constitutional documents/marketing materials/investor communications the inherent limitations and conflicts of the NAV Calculation Policy and any material involvement of the investment manager/advisor in pricing or NAV determination, plus resulting conflicts of interest.
• Communicate the NAV, including each investor's share of the balance or NAV per unit, directly to investors as recorded on the official register.
• Ensure the Fund's Operator(s) approve and review, at least annually, the NAV Calculation Policy and any Pricing Models.

Applies to

Private Funds registered under section 7 of the Private Funds Law, 2020 (excluding Alternative Investment Vehicles), Fund Operators, Section 16 Persons

Deadlines

• at least annually: Assets must be valued regularly, at least annually, under the NAV Calculation Policy.
• at least annually: The Fund's Operator(s) must review and approve the NAV Calculation Policy and any Pricing Models at least once a year.

Related documents

• This document is made under Monetary Authority Law (2020 Revision)