CMA sets Sh1m as minimum alternative fund investment

Investors will need a minimum of Sh1 million to participate in the alternative investment funds under new rules published by the Capital markets Authority (CMA).

The new alternative funds will allow investors to put money into assets classes such as debt funds, equity and equity linked investments, hedge funds, infrastructure funds and SME funds, which are normally not covered by the existing collective investment schemes.

The alternative investment fund (AIF) targets sophisticated investors with higher risk appetite, while also diversifying the asset classes available for investors in the country.

Each fund will be required to maintain a minimum capital of Sh10 million and is limited to just 20 investors at any one time.

“The AIF shall not accept from an investor, an investment of value less than Sh1 million,” read the draft regulations that were published on Tuesday by Treasury CS Ukur Yatani.

“The fund manager, where applicable, shall have a continuing interest in the AIF of not less than 2.5 percent of the scheme property or Sh1 million, whichever is lower, in the form of investment in the AIF and such interest shall not be through the waiver of management fees.”

Pooled funds have become popular among retail investors, allowing initial capital of as low as Sh5,000, with top-ups allowed and withdrawal within a few days should one need their money back.

Most collective investment schemes primarily invest in equity and fixed incomes funds, wealth funds, dollar funds and mutual funds, with capital spread across different securities to mitigate risk.

High risk appetite and a need for higher returns has however pushed some investors into unregulated products and fund managers—both local and offshore—risking their money.

This has partly informed the need for the CMA to introduce the rules governing AIFs.