On 9 July 2025, the Capital Market Authority (the “CMA”) has announced a series of significant regulatory enhancements aimed at furthering the development of the Kingdom’s investment fund industry. These amendments, effective on the 21st of July 2025 affect the Investment Funds Regulations and the Real Estate Investment Funds Regulations.
Select Key Highlights:
Broadened Distribution Channels
Fund managers are now permitted to distribute units of private and public funds via licensed Investment Fund Distributions Platforms and Electronic Money Institutions licensed by the Saudi Central Bank (“SAMA”) – including through websites and mobile applications. This development is expected to open up digital and fintech-enabled distribution, increasing investor access and reducing reliance on traditional intermediaries.
Historically, foreign funds could only be distributed in the Kingdom through a Capital Market Institution licensed to conduct managing investments and operating funds or dealing activities. Under the new regulations, foreign funds may also be distributed through Capital Market Institutions licensed to carry out managing investments activities. This development simplifies market entry by providing foreign funds manager a wider selection of placement agents in the Kingdom.
Fund Manager Fees
Historically, fees paid by an investment fund were required to be on arm’s length terms and not exceed the limits set out in the fund’s terms and conditions. Under the latest amendments, the CMA now has the authority to review the fees charged by a fund manager and impose a cap that it deems appropriate, with the aim of preventing excessive charges. Additionally, the new regulations include an explicit provision prohibiting a removed fund manager from charging fees as of the date on which the CMA issues its removal decision, thereby limiting the ability to impose management fee tails. The regulations also introduce a clear restriction on charging management fees during the liquidation phase of a fund, starting from the commencement of the liquidation procedure. These changes are expected to enhance investor protection and promote fee transparency, particularly in scenarios involving contentious removals or fund liquidations. As a result, fund managers must now reassess their fee structures to ensure they are reasonable, transparent, and fully compliant with CMA requirements.
Fund Manager Withdrawal by the Fund Manager
The amended regulations include explicit provisions allowing a fund manager to withdraw from managing a fund. However, such withdrawal is subject to the approval of the unitholders, the CMA and appointing a replacement fund manager to manage the fund. These amendments provide a clear exit mechanism for fund managers but also introduce procedural obligations that may delay withdrawal, requiring early planning and stakeholder coordination.
Enhanced Access to Debt Instruments
Under the previous regulations, a public fund could invest in debt instruments pursuant to a private placement provided that the debt instruments are issued by a listed company, are rated, and guaranteed by the government. Pursuant to the updated regulations a public fund can now invest in debt instruments offered by way of a private placement only without the need for such instruments to be issued by a listed company, rated and guaranteed by the Kingdom. This change significantly broadens the investable universe for public funds, enabling access to private credit markets and alternative fixed income strategies.
Fundraising for Private Funds
Retail clients participation in private funds is now capped at 50% of total cash subscriptions. Transfers of units must not result in retail investors exceeding this threshold. This ensures that private funds remain institutionally anchored, aligning with their intended risk profile. Fund managers must now monitor investor composition closely and may need to adjust fundraising strategies to attract qualified and institutional clients.
Diversification Requirements for Public Money Market Funds
The CMA amendments included diversification requirements for money market funds limiting (a) the exposure to a particular debt instrument issued by a single issuer to 10% of the fund’s net asset value and (b) overall exposure to a single issuer is now capped at 25% of the fund’s net asset value. These amendments aim to enhance risk management and liquidity protection in money market funds, reducing concentration risk. As a result, fund managers may be expected to adjust portfolio construction and monitor exposures more closely.
Real Estate Development Funds
The previous regulations generally contemplated that a real estate development fund must appoint a developer (although there were no explicit restrictions on appointing more than one developer). The amended regulations explicitly allow real estate development funds to appoint multiple developers, thereby providing greater operational flexibility and allowing fund managers to diversify development risk across multiple projects or developers. It also facilitates specialist developer engagement for different asset classes.
REITs listed on Nomu
To enhance investment opportunities for REITs listed on the parallel market (Nomu), the amended regulations now allow such REITs to be established with an initial objective of investing in real estate development projects, without being subject to the investment ratios and asset restrictions that apply to REITs listed on the main market (Tadawul).
By way of comparison, a REIT listed on Tadawul must, from inception, invest at least 75% of its total asset value in income-generating assets and is prohibited from investing in white land. Furthermore, such REITs may not allocate more than 25% of their total asset size to real estate development and renovation projects.
These restrictions do not apply to REITs listed on Nomu at the time of their establishment, thereby enabling the creation of REITs that are entirely dedicated to real estate development during their initial phase. However, once the development project is completed, a REIT listed on Nomu must ensure compliance with the asset diversification requirements applicable to Tadawul-listed REITs. Specifically, the REIT must ensure that its overall exposure to development projects does not exceed 25% of the fund’s total asset size.
This change enables the creation of development-focused REITs, supporting early-stage real estate projects. It offers a new fundraising vehicle for developers, while ensuring eventual compliance with income-generating asset requirements.
REIT Reporting Requirements
REITs are now required to include in their quarterly reports detailed information on any properties acquired during the fund’s term, including a physical description of the property, relevant financial data, risk factors, and other commercial information. In addition, for any real estate development projects undertaken by the REIT, the fund manager must ensure that the quarterly reports include a business plan approved by the developer. The proposed changes enhance transparency and investor confidence, particularly in development-heavy REITs. Fund managers must now strengthen reporting systems and coordinate closely with developers to meet disclosure obligations.
Market Context:
These reforms reflect the CMA’s commitment to modernizing Saudi Arabia’s asset management sector and positioning it as a regional investment hub. Following a year-long consultation process (June 2024, October 2024, February 2025), the amendments are timely, especially as AUM for Capital Market Institutions reached SAR 700 billion by end-2024, with annual growth exceeding 25%.
These changes collectively promote digital distribution and fintech integration, enabling broader and more efficient access to investment products. They also reinforce fee discipline and investor protection by introducing oversight mechanisms and clearer fee limitations. Additionally, the amendments facilitate greater access to private markets, allowing public funds to diversify into previously restricted asset classes. The institutionalization of private funds is further supported by limiting retail investor dominance, ensuring alignment with the intended investor profile. Finally, the reforms introduce greater flexibility in real estate fund structuring, particularly for development-focused REITs and multi-developer strategies.
