An exempt fund is notified, and what the regulator does not do.

A public fund is registered. The regulator reads the constitution and the prospectus before a unit is sold, asks its questions, requires changes, and the fund exists when the regulator says it does. An exempt fund is notified: the manager tells the regulator, on a form, within a stated period, that the fund exists and meets the tier's conditions, and the regulator records the notification. In both centres the notification is processed in days rather than months, and the difference from registration reads as speed. It is speed. It is also a transfer of work from the regulator to the manager, and the work does not disappear because nobody is checking it in advance. It is checked later, by people with less patience than a regulator reading a draft.

This note sets out what the regulator would have read and no longer does, the duties that move and to whom, what the administrator inherits, how the notification itself is made and kept current, the ongoing regime the tier imposes after notification, and the review that eventually tests all of it. It ends with cases as types, what each party holds, the sequence and the questions managers ask.

What the regulator would have read

On a public fund the regulator reads for four things before approval.

That the constitution carries what the rules require of the tier. The investment policy and its limits, stated so that a breach can be measured. The valuation provisions: basis, frequency, who values and who may override. The redemption and transfer terms, including any gate, side pocket or suspension. The conflicts machinery: what is a related-party dealing, who approves it, how it is reported. The powers of the manager and their limits, including borrowing, guarantees and the delegation of functions. The rights of holders, including the matters on which they vote and the thresholds.

That the prospectus says what the rules say it must say and nothing the rules forbid, in the form the rules prescribe: the risk factors, the charges, the service providers, the tax position, the conflicts, the track record in the form permitted, and the statements each tier requires.

That the service providers are appointed and eligible. The administrator, the custodian or depositary where the tier requires one, the auditor, the valuer where the asset class requires independence, each holding the licence or the standing the rules require.

That the manager holds the permission the fund needs, with the regulatory capital and the staff the permission requires, and that the fund falls within the scope of that permission rather than outside it.

On an exempt fund the regulator reads none of that in advance. Every one of the four is still required of the fund. A notified fund whose constitution lacks the investment limits, whose memorandum omits a required statement, whose custodian is ineligible or whose manager's permission does not extend to the strategy is a fund in breach from the day of notification. The deficiency is found later: by the administrator at the first net asset value, by the auditor at the first year end, by a holder's counsel at the first dispute, by a lender's counsel at the first facility, or by the regulator at a thematic review, which both centres run and which begin with a request for the file.

The duties that move

Three duties move most visibly from the regulator's desk to the manager's, and a fourth moves to the constitution.

The investor test. With no regulator reading the subscription documents, the manager's own record of each holder's classification is the only evidence that the register is lawful. The record holds the route, the criteria applied, the evidence relied on, the date, the notice given to the holder and the holder's acknowledgement. It is tested years later, when a holder complains, when a transfer is processed or when the review asks for it. A classification performed and not recorded is, at that point, a classification that was not performed.

The disclosure record. Every holder must have received the documents the tier requires, in the form the tier requires, before subscribing. The proof is the manager's file: the memorandum as issued, the version each holder received, the date it was sent, every supplement. A manager who issued three versions of the memorandum during a raise has three disclosure records to keep and a reconciliation of who received which.

The ongoing regime. The tier still requires periodic reports to holders in a prescribed form, annual audited accounts within a stated period, notification to the regulator of material changes to the fund or its providers, and in some cases annual confirmation that the fund remains within the tier's conditions. A manager who read notification as a one-time act learns otherwise at the first filing it missed.

The constitution's own load. On a public fund the rules supply much of the protective machinery directly and the regulator checks that the constitution does not cut across it. On an exempt fund the rules set a floor and the constitution carries the rest, so that a constitution which says nothing about valuation independence, about related-party approval or about the consequences of a holder's default has left those matters to the manager's discretion, and the holders have subscribed to that discretion.

By duty · by tier	Public fund	Exempt fund
Reading the constitution	The regulator, before launch	Counsel, the administrator and the manager, before notification, or nobody
Reading the memorandum	The regulator, before launch	Counsel, and the distributors in each onshore state, for their own diligence
Classifying holders	The manager, with the regulator's oversight of the process	The manager alone, evidenced by its file
Eligibility of providers	Checked at approval	Confirmed by the manager in the notification
Ongoing reports	Prescribed and supervised	Prescribed; supervised on review
Conflicts machinery	Largely in the rules	Largely in the constitution

Making the notification

The notification is a form, and the form is a set of confirmations the manager gives about the fund: its name, its form and domicile, its tier and the conditions it meets, its manager and the permission relied on, its providers and their eligibility, its investment policy in summary, and the date from which it is offered. In both centres the notification must be made within a period of the fund's launch or first offer, and the period is short. A notification made after the first offer is a late notification, and a late notification is a breach of the tier's conditions even where everything else is in order.

The notification is also kept current. A change of manager, of administrator, of custodian, of investment policy beyond the tolerance the constitution permits, of name or of tier is a change the rules require to be notified, within a period, and a fund whose notification no longer describes it is a fund the regulator's record misdescribes.

How the two centres differ in practice

The two centres built their private tiers on the same idea and drafted them differently, and the differences are the kind a manager meets in the first month rather than in a textbook.

The notification form and its timing differ: one centre's rules fix the period by reference to the fund's launch, the other's by reference to the first offer of units, and the distinction matters for a fund that is formed months before it is marketed. The confirmations the form requires differ in detail, and one centre asks for more about the providers than the other.

The ongoing reporting differs in form and in period. The annual accounts are due within a stated number of months of the year end in both, and the number is not the same. One centre requires the manager to confirm annually that the fund continues to meet the tier's conditions; the other relies on the obligation to notify changes. The periodic report to holders is prescribed in content in both and in frequency differently.

The conduct rulebook's classification criteria are aligned in substance and differ in the evidence each accepts and the period for which an assessment stands. A manager operating funds in both centres keeps two classification records for the same holder, or one record built to the stricter of the two.

The consequence for a manager is that a fund's documents cannot be moved from one centre to the other by changing the name of the regulator. The memorandum's required statements, the constitution's provisions and the notification's confirmations are read against the centre the fund sits in, by counsel admitted there.

The memorandum's required statements

Each centre's rules prescribe statements the memorandum of an exempt fund must carry and, in the case of the qualified investor tier, statements that the memorandum must carry in a prominent place. They say, in substance, that the fund is not a public fund, that it is offered only to professional clients, that the regulator has not approved the document, that the holders are expected to be able to evaluate the investment and bear its risks, and that certain protections available in the public tier do not apply. The wording is prescribed, and a memorandum that paraphrases it has not carried it.

The onshore regimes add their own. The Kingdom's regulations require a statement in the documents of a foreign fund placed privately there, in prescribed terms, and the distributor files the documents with the regulator. Qatar's bank route requires an Arabic prospectus and a subscriber acknowledgement. Kuwait's permit is granted against documents in a form the licensed person specifies. A memorandum for a regional raise carries the centre's statements and each state's, and the placement file holds the version each holder received.

The memorandum also carries what the conduct rulebook requires of any financial promotion from the centre: that it is clear, fair and not misleading, with the test applied against what a professional client would understand, and that it does not state a target return, describe a seed asset or summarise a track record in a form the rules forbid. A manager who treats the memorandum as a marketing document has written a document the regulator reads as a promotion, because it is one.

A first year, as a type

Month one: the constitution and the memorandum are final, counsel's confirmation against the tier is in the file, the providers are appointed and their eligibility recorded, and the notification is filed complete. Month two: the first approaches, each under the centre's promotion rules and each onshore state's route, with the classification and disclosure records built as each holder is admitted. Month three: first close; the administrator's register reconciles to the classification record; the lender's facility is signed with the representation that the fund meets its tier. Month six: a change of custodian, notified within the period; a supplement to the memorandum for a change in the investment policy, delivered to every holder and recorded. Month nine: the first periodic report to holders in the prescribed form. Month twelve: the year end; the auditor reads the accounts against the constitution; the accounts are due within the stated months; the annual confirmation, where the centre requires it, is filed.

The same year without the discipline: the notification filed after the first approach, a version of the memorandum sent to three holders that the file does not hold, a custodian changed and not notified, a periodic report in the manager's own form rather than the prescribed one, and accounts filed late. Each is a breach dated to the day it occurred, and the review reads them together.

The administrator inherits the most

On a public fund the administrator implements a structure the regulator has already read. On an exempt fund the administrator is often the first professional reader of the constitution, and it reads for one question: can this be run. Which valuation day, and what happens when it falls on a holiday in one of three jurisdictions. How the waterfall computes when two classes have different hurdles and a distribution in kind arrives. Whether the capital-call notice period can be met by the lender's drawdown mechanics. What the register shows when a feeder is one holder for the tier's count and forty for the reporting the feeder's investors require. A constitution drafted for speed and never read for operation produces a list of queries on appointment, each of which was cheaper to answer before the fund existed, and each of which is now a change to a document somebody has signed.

What the constitution carries when the rules do not

The private tiers set a floor and leave the protective machinery to the constitution, and a manager who wants a fund that survives a review, a dispute and an exit writes the machinery in. Eleven provisions recur.

An investment policy with measurable limits: concentration by asset, by market and by counterparty, with the tolerance within which the manager may act and the consent required beyond it.

A valuation process: who appoints the valuer, on what rotation, who instructs it, what the instruction may assume, how the number reaches the administrator, and what the manager may do with it before the net asset value is struck.

A related-party regime: the definition of a related party drawn to the conduct rulebook's own terms, the categories of dealing that need approval, the route, the threshold above which independent advice is required, and the reporting.

An allocation policy between the manager's vehicles, with the record it produces.

A borrowing and guarantee power with a cap, and a statement of what the fund may and may not secure.

A transfer regime drafted to the tier's counting rule, the placement regimes of the register's states, the lender's acknowledgement and the pre-emption for existing holders.

A provision for a holder who ceases to qualify.

A key person provision with a defined consequence.

A distribution-in-kind provision that tests each holder's capacity to receive.

A provision for extensions of the term, with the consent required and the effect on the manager's charge.

An investors' committee with a stated composition, quorum, list of reserved matters and minute-keeping duty.

None of these is required by the exempt tier's rules in the form the public tier would impose. Each is a provision the public tier's rules would have supplied or checked, and each is a gap in an exempt fund's constitution until somebody writes it. The memorandum describes them as the fund's governance; the review reads them as the manager's own choice of duties; the holders read them as what they bought.

Where the firm reads it

The structure paper on an exempt fund carries a schedule of the duties the tier leaves to the manager, with a column for the document that discharges each, the party who performs it and the date by which it is first performed. The schedule is the difference between a fund that was notified and a fund that is run to its tier. It lists the classification record and its first entry at first close; the disclosure record and the version control of the memorandum; the eleven constitutional provisions and the clause of the constitution that carries each; the providers and the evidence of their eligibility; the notification and the date; the ongoing filings with their periods; and the change-notification rule with the events that trigger it. The paper is handed to the administrator and to counsel, and each signs the rows that are its own.

The schedule is also what a buyer's counsel at exit, a lender's counsel at a facility and a regulator's reviewer all ask for, in their own words. A manager who has it answers each in a day. A manager who does not reconstructs it under a deadline, and a reconstructed record is read as reconstructed.

Four cases, as types

A manager notifies an exempt fund whose memorandum was adapted from a public fund's prospectus and still promises a depositary with oversight duties over the fund's assets and cash flows. The tier does not require one and none was appointed; the custodian that was appointed holds the securities and does nothing else. The promise is a representation the register relied on. It surfaces at the first holder inquiry about who is verifying that the assets exist, which arrives after a portfolio company's accounts are restated, and the manager cannot answer the inquiry with a document. The cure is a supplement correcting the memorandum, a disclosure to the regulator, and a conversation with every holder about what it thought it had subscribed to.

A manager notifies a fund and treats the regulator's silence as confirmation that the documents comply. The memorandum omits the conflicts disclosure the tier requires about the manager's other vehicles and the allocation policy between them. The omission is harmless for two years, during which the manager allocates three assets between the new fund and its predecessor. The thematic review reads the omission as a breach from the day of notification, and the three allocation decisions are reviewed in that light, with the predecessor fund's holders asking why the new fund received the best of the three.

A manager runs a raise through three versions of the memorandum, each reflecting a negotiation with a later investor, and keeps only the last. A holder admitted on the first version disputes a term that changed in the second, a change to the manager's share of gain. The file cannot show what that holder received; the holder's own copy shows the first version; the dispute is decided on it, and the manager's share is calculated for that holder on terms it thought it had replaced.

A manager notifies a fund with a constitution counsel has confirmed against the tier in writing, a memorandum the onshore distributors have read for their own diligence and found complete, providers whose eligibility is stated in the notification, and a classification and disclosure record built into the subscription process so that no holder is admitted without both. The change of custodian in month six is notified within the period; the supplement in month seven is delivered to every holder and recorded; the accounts are filed within the stated months. The review, when it comes, is a request for a file that exists, and it ends with a letter.

What each party holds

The manager holds the notification and its currency, the classification record, the disclosure record, the ongoing filings and the decision to appoint providers the tier accepts.

Counsel holds the confirmation that the constitution and the memorandum meet the tier's requirements, in writing, before notification, and the reading of every later change against the notification rules.

The administrator holds the operational reading of the constitution, the count, the net asset value and the periodic reports, and is the first party to find what the regulator did not read.

The auditor holds the year-end reading of the accounts against the constitution and the tier's reporting rules.

The regulator holds the record of the notification and the review.

The holders hold the memorandum they received and the constitution they subscribed to, and their counsel reads both for what the tier required and the manager supplied.

The people it needs

Notification is the right choice for most private-markets vehicles in either centre. It is chosen well when the manager understands what it has taken on and resources it before the form is filed. The resourcing is a compliance function that owns the schedule of moved duties and reports on it to the board; an administrator engaged before the documents are final rather than after, so that its operational reading shapes the constitution; counsel retained for the life of the fund rather than for its formation, because the change-notification rule and the periodic filings are duties for the life of the fund; and an auditor whose engagement letter covers the tier's reporting requirements and not only the accounts. A manager that has the four has the regulator's work done by people it pays; a manager that has none of them has the regulator's work undone.

The sequence

1. Counsel drafts the constitution and the memorandum to the tier's rules and confirms compliance in writing.
2. The administrator walks one year of the fund's operation through the draft constitution and returns its queries before the documents are final.
3. Providers are appointed and their eligibility under the tier confirmed.
4. The classification and disclosure records are built into the subscription process.
5. The notification is made, complete, within the period, before the first offer.
6. The tier's ongoing requirements are diarised from the date of notification.
7. Every later change to the fund is read against the notification rules and notified within the period.

Questions a manager asks

Does notification mean the regulator has accepted the fund. It means the regulator has recorded that the manager says the fund meets the tier's conditions, and nothing more. Acceptance is not given and is not implied, and the review tests the manager's confirmations against the facts as they were on the day of notification and on every day since. A manager who describes the fund to holders as "approved" or "regulated" in a sense the tier does not carry has made a statement the promotion rules read.

Can the fund start taking subscriptions before the notification is processed. The rules fix when the notification must be made relative to the launch or the first offer, and an offer before that point is a breach of the tier's conditions. The safe reading is that the notification precedes the first approach, and that the file shows the date of each.

What if the memorandum changes during the raise. Each version is a disclosure record, and each holder's file shows the version it received and the date. A material change after a holder has subscribed is a supplement the rules may require to be delivered to that holder and, in some cases, notified to the regulator. A change that affects the terms on which an earlier holder subscribed is also a matter for the most-favoured-nation clause, if the holder has one.

Who checks the providers' eligibility. The manager, in the notification, and the review afterwards. An ineligible provider is a breach of the tier's conditions from the date of appointment, and a provider whose licence lapses during the life of the fund is a breach from the date of lapse, so the manager's diary carries the providers' licence renewals beside its own.

Is the exempt tier lighter on conflicts. The rules set a floor and the constitution carries the machinery. A manager with several vehicles, an affiliated developer, an affiliated administrator or its own balance sheet in the portfolio has the same conflicts it would have in a public fund, and has to build the identification, approval and reporting route itself, because the tier does not build it for the manager.

What does a thematic review ask for. The notification and its attachments; the constitution and every version of the memorandum and every supplement; the classification and disclosure records for every holder; the administrator's register and count on each day of the period; the transfer records with each transferee's classification and route; the periodic reports and the accounts; the conflicts register and the approvals; and the manager's own compliance monitoring for the period. The request is for the period under review, which may be the whole life of the fund.

Terms used

Notification: the manager's filing that an exempt fund exists and meets the tier's conditions, recorded by the regulator without prior approval.

Registration: the regulator's approval of a public fund's constitution and prospectus before launch.

Classification record: the manager's file evidencing each holder's status under the conduct rulebook.

Disclosure record: the file evidencing which documents each holder received, in which version, on which date.

Eligible provider: an administrator, custodian, auditor or valuer holding the licence or standing the tier's rules require.

Thematic review: the regulator's examination of a class of funds or managers against the rules, beginning with a request for the file.

Supplement: an addition to the memorandum issued during or after the raise to reflect a change.

What to read

The centre's funds rules on the exempt tier: its conditions, its notification procedure, its ongoing requirements and its provisions on changes; the conduct rulebook on classification and disclosure; the constitution and the memorandum against both; the administration agreement's service schedule. On this site, the funds rooms for each centre under the restricted reading and the vehicles room under Structures.