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Bahrain has a thriving funds industry established since the 1980’s, with the first Bahrain domiciled fund being launched in the Kingdom in 1984. Formal regulations governing funds were introduced in 1992 providing the spur for the development of a thriving fund sector towards Bahrain’s dominance today as the Gulf’s regional funds centre.  Key updates in Bahrain’s funds regime have been the streamlining and authorization of commercial registration processes for mutual funds and the creation in 2004 of a new corporate special purpose vehicle better suited to mutual funds than the corporate vehicles previously available.

Bahrain is home to more than 2,483 (as at April 2008) registered funds. Of these, 108 are Bahrain domiciled schemes, and 43 are Islamic funds. Total assets under management rose by nearly 73% during 2007 to over US$15 billion, demonstrating Bahrain’s regional dominance as a funds centre (CBB, May 2008). Of the total assets of the fund industry, assets of foreign funds registered in Bahrain for sale rose 75% to US$11.1 billion in 2007, compared with US$6.3 billion in 2006.  The number of such funds totalled 2,360 in 2007, compared with 2,102 the previous year (CBB, May 2008).

As a result of the rapid changes currently taking place in the Middle East, the region presents significant opportunities for asset management firms and is experiencing significant growth in the mass affluent category, in addition to the more established institutional/high net worth market.  Many international asset managers have opted for Bahrain when basing their operations in the Middle East.

There is a growing trend for investors to invest in regional asset classes due to developments in the regional markets.  The increase in private and institutional wealth has been matched by an increased sophistication in customer needs and types of investment vehicles as more personal wealth remains and is invested in the region.  This includes private equity funds which have increased by 62% per year over the past four years (CBB, May 2008). Bahrain has become the preferred destination for Islamic funds - the Islamic fund industry grew by 78.5% to US$1.3 billion, invested through 87 funds, compared with US$750 million and 80 funds in 2006 (CBB, May 2008).  It is now a big driver for growth in the Kingdom for shari’a compliant investments, with recent statistics indicating that half of all Muslim investors would put money in Islamic products when they are available if they offer the same or better returns and service standards than conventional products.

Regulation
In May 2007 the Central Bank of Bahrain (CBB) issued a new regulatory framework to govern Collective Investment Undertakings (CIU’s) with a key objective of widening the range of schemes permitted.  The new rules, effective from June 2007, provide for the full range of investment funds, catering to various categories of investors.

The new framework updates regulatory instruments governing mutual funds, to target professional investors by providing a more diversified range of CIU’s including hedge funds, derivatives and alternative investment vehicles and by allowing single asset class holdings to be domiciled and offered in Bahrain, broadening the range of products available.

The new framework allows for the authorization of two types of CIU:-

I. Retail CIUs, which may be sold to anyone but are subject to stringent requirements aimed at investor protection, such as restrictions on types of assets held in the CIU and various limits on concentration risks.

II. Expert CIUs, subject to a minimum US$10,000 investment rule, and which may only be sold to expert investors (as verified by the institution selling the CIU, and defined in the rules – one criterion being the investor must have financial assets of US$100,000 or more to invest).  Expert CIUs are also regulated, but may fully invest in a wider range of assets (including real estate and commodities), and are subject to fewer risk concentration requirements.

III. A third category, ‘Exempt CIU’, subject only to certain requirements as this category may only be sold to a restricted investor base (those with a minimum investment of US$100,000, and with at least US$1 million in financial assets, and subject to verification by institution selling the product that the investor fully understands the risks involved). Exempt CIU rules give the freedom to establish hedge funds and other higher risk alternative investment vehicles to be domiciled in Bahrain.