backOn 7 October 2025, the Capital Market Authority (CMA) of Saudi Arabia issued the Draft Instructions of Simplified Investment Funds and proposed amendments to the Glossary of Defined Terms Used in The Regulations and Rules of The Capital Market Authority (the “Glossary”) for public consultation. This initiative is part of the CMA’s broader strategy to enhance the attractiveness of the asset management sector in the Kingdom by introducing a more flexible and cost-efficient framework for investment funds. According to the CMA’s announcement, the draft draws inspiration from global practices, particularly the Limited Partnership (LP/GP) model, and aims to meet the evolving needs of institutional investors through streamlined regulatory requirements and greater contractual freedom.
Key Highlights of the Draft Instructions
- Flexibility in Fund Structuring: The draft introduces a framework that allows fund managers and investors to agree on bespoke terms governing fund operations, including termination and liquidation provisions, unit class characteristics, reporting obligations, and unitholder meeting procedures. These terms may override those set out in the existing Investment Funds Regulations (the “IFR”), offering managers the ability to negotiate management fee tails and other commercial terms.
- Reduced Documentation Requirements: The CMA has significantly simplified the submission process. Fund managers are now required to submit only a written notification and offering documents. Operational documents such as compliance monitoring programs have been dropped, although the CMA retains the right to request additional materials.
- Streamlined Approval Timeline: The draft appears to remove the 15-business-day CMA review period currently applicable under the IFR, allowing for more agile fund launches. Managers must notify the CMA prior to the proposed launch date, but no formal approval timeline is specified.
- Eligibility and Licensing: These funds may be offered to non-resident foreign investors, the Government of Saudi Arabia, government entities, and public legal entities, provided the fund manager holds an Offshore Securities Business License. Alternatively, such funds may be offered to institutional investors by managers holding a license to manage investments and operate funds or to manage investments.
- Custodian Requirement Waived for SPEs: Where the fund is established as a Special Purpose Entity (SPE), the requirement to appoint a custodian is waived. While this reduces administrative burden and cost, fund managers should carefully assess the overall transactional implications of using an SPE structure.
- Investment Restrictions: These funds are not permitted to invest in real estate unless the fund manager holds an Offshore Securities Business License.
- Unit Classes and Rights: The draft codifies existing market practice by explicitly allowing the issuance of different classes of units with varying rights. However, the extent to which these rights can differ remains to be tested in practice.
- Unitholder Governance: The draft allows for customized terms relating to unitholder meetings, including quorum thresholds, notification requirements, and approval mechanisms for amendments to the fund’s terms and conditions. These do not need to follow the prescriptive rules under the IFR.
- Uncertainty Around Form Requirements: While the draft does not explicitly require a fund’s term and conditions to follow the format prescribed under Annex 11 of the IFR, the definition of “Terms and Conditions” in the Glossary suggests that the existing format may still apply.
Our View
The CMA’s draft instructions represent a welcome and strategic step toward modernizing the regulatory landscape for investment funds in Saudi Arabia. By introducing a more flexible framework tailored to institutional investors, the CMA is aligning the Kingdom’s asset management sector with global best practices and expanding its appeal to international capital.
We expect that these instructions will continue to evolve and eventually be consolidated with the Investment Funds Regulations (IFR) and potentially the Real Estate Investment Funds Regulations (REIFR). This integration will be key to ensuring consistency across fund types and further enhancing the Kingdom’s position as a regional and global financial hub.