The Capital Market Authority (CMA) established pursuant to the Capital Market Law (Royal Decree 80/98) (CMAL) is responsible for regulating the issuance and offering of all securities in Oman. The term “securities” is defined by the CMAL to include shares and bonds issued by joint stock companies, bonds issued by the government and its public authorities, treasury bonds and deeds and any other securities negotiable in the Muscat Securities Market (MSM). The CMA and the MSM have been active over the years resulting in the listing of a number of public joint stock companies and investment funds established for investment in securities.

Whilst the CMA allows for the establishment of funds to invest in stocks, bonds and other types of securities as noted above, it has not traditionally approved or authorised the establishment of what may be termed as Alternative Investment Funds (AIF) i.e. funds investing in classes of assets other than those defined as securities being trading on the MSM, such as real estate, private equity and commodities.

However, in more recent times the CMA through Decision No. E/2/2019 has provided for the establishment of real estate investment trusts (REITs) and has also approved privately owned private equity infrastructure funds. Such REITs and infrastructure funds are listed on the Third Market on which the REIT units and funds units although listed are not traded.

Regulatory Regime

Article 209 of the Executive Regulations (Decision No 1/2009) (Executive Regulations) issued by the CMA provides that investment funds may be established as open-ended (with variable capital which may be increased or redeemed) or as closed-ended (with fixed capital which is only redeemable after expiry of the fund).

In Oman, all investment funds, whether open or closed, are governed by the CMAL and the Executive Regulations issued by the CMA. For the purposes of REITs, the CMA has issued separate regulations (CMA Decision No E/2/2019) (REIT Regulations).

Whilst there is no provision in the Executive Regulations which expressly prohibits funds from investing in any specific type of non-traditional assets, funds established pursuant to the CMAL, with the approval of the CMA, will only be permitted to invest in a class of assets which may come within the definition of securities or what may otherwise be provided for by the CMAL or Executive Regulations i.e. REITs.

Investment funds, including AIFs, established in Oman must comply with the Executive Regulations and their own articles of association, being the sources of legal authority governing operation of a fund. In accordance with the Executive Regulations ownership of the fund’s assets must be registered in the name of the fund.

The Executive Regulations and the REIT Regulations respectively provide various terms and conditions which regulate the activities of investment funds including conditions relating to borrowings by funds and the nature and quantum of investments that funds can make. For instance, Article 222 of the Executive Regulations requires that at least 75% of a fund’s capital should be invested to achieve the main investment objective(s). By way of another example, Article 115 of the REIT Regulations provides that a REIT should not invest more than 25% of the total value of its assets outside Oman (unless otherwise specifically permitted by the CMA).

Key Parties Involved

The following are key parties involved in investment funds in Oman:

Sponsor: Article 221 of the Executive Regulations provides that the share of the sponsor of a fund shall not be less than 5% of the capital (which should not be less than OMR 2 million). The sponsor shall not sell or redeem its shares except after three years from the date of closure of subscription.

Investment Manager: Article 213 of the Executive Regulations and Article 70 of the REIT Regulations provide that any person wishing to establish a fund should appoint a company licensed by the CMA to be the investment manager for the fund. The investment manager performs various functions for the fund including, primarily, managing the portfolio of the fund and taking all investment decisions. Article 125 of the Executive Regulations provides that a company acting as an investment manager should have paid-up capital and shareholder equity of at least OMR 200,000.

Management Body of Fund: Article 244 of the Executive Regulations provides that a fund should be managed and supervised by a management body elected by the members in accordance with the articles of association. Members of the management body are liable to the investors and the CMA for failure to supervise and oversee the investment manager and other service providers.

Custodian / Trustee: Article 267 of the Executive Regulations and Article 82 of the REIT Regulations respectively provide that an investment fund must have a custodian and a REIT must have a trustee. The custodian/trustee must be independent of the investment manager and be licensed by the CMA to provide custodial services. Article 267 of the Executive Regulations provides that the assets of a fund should be placed with a custodian whose principal place of business is in Oman. However, in order to facilitate transactions abroad the custodian may appoint a sub-custodian to keep some or all of the assets outside Oman. The custodian or sub-custodian are required to undertake due diligence in maintaining the assets of the fund and protecting the interests of the fund. They will be liable for any loss to the fund’s assets resulting from any omission or wrongful act by them or their respective employees, directors or managers.

External Auditor: Article 273 of the Executive Regulations provides that the management body of a fund should appoint an external auditor from amongst the audit firms accredited by the CMA. The external auditor of the fund cannot also serve as an external auditor of the investment manager. Article 276 of the Executive Regulations provides that the external auditor should be appointed for one financial year and can act as the external auditor for up to four consecutive years. Thereafter it can be reappointed after the expiry of a cooling-off period of two years.

Compliance Officer: Article 73 of the REIT Regulations provides that the investment manager should ensure that its compliance officer has essential knowledge of Islamic Shari’a principles or Islamic finance.

Key Trends in Oman

We have seen examples where locally established AIFs have used subsidiaries for investment purposes. Such subsidiaries are typically utilised as special purpose vehicles in order to hold assets for the benefit of the fund or as sector-specific investment vehicles such as infrastructure funds or real estate investment funds (REITs).

Based on our experience, most of the promotors/sponsors of AIFs are from the GCC, however, this does not exclude the participation of non-GCC investors. Government funds and pension funds are the main investors in Omani established funds. The investments made by the funds are mostly in Oman yet there has been a move towards expanding the scope of such investments to include investment opportunities in the larger MENA area, India and Pakistan.

The key trend is towards REITs as they enable foreign investors to gain investment exposure to real estate in Oman.

For further information, contact Zarrar Mir, Associate, zarrar.mir@amjoman.com