Abstract. This article considers the Exempt Fund of the Astana International Financial Centre (AIFC Exempt Fund) not only as an instrument for generating income on units and achieving tax efficiency, but above all as a legal form for institutionalising an investment project. It shows that, for a unitholder, the value of this structure lies in a regulated collective investment scheme, segregated fund property, a professional fund manager, documented disclosure, limited liability, valuation rules, conflict-of-interest management, the potential transferability of the investment position and a broader investment infrastructure.

Introduction

In recent years, we as a law firm have increasingly encountered requests to structure funds in the Astana International Financial Centre (AIFC). Some applicants initially see an AIFC fund primarily as a source of tax benefits and passive income on units. However, an AIFC fund is considerably more than that. It is a legal form for professional investment that gives investors a wider set of instruments, more flexible structuring solutions, a clearer asset management system and a more reliable institutional framework for implementing an investment project.

This article is about precisely that. It is not about a fund as a tax wrapper. It is not about a fund as an attractive label for raising money. And it is not about a fund as a way to promise a fixed return to an investor. It is about a fund as a legal mechanism that enables an investment project to be transformed into a regulated, documented and managed structure.

When people speak about an AIFC Exempt Fund, the discussion often begins with a simple question: what return will the unitholder receive? This is an understandable question. An investor does not come into a fund for the aesthetics of the legal structure. The investor comes for an economic result. But if we stop there, we see only the surface layer. Return is the result. The tax regime is a condition. The fund is the form in which investment relations are organised. In many cases, that form is no less important than the expected return itself.

A fund not as a privilege, but as investment infrastructure

An Exempt Fund in the AIFC should not be understood as a simple tax add-on to a project. Tax efficiency may be an important argument in favour of choosing the AIFC, but it does not exhaust the substance of the fund structure. If an applicant sees only the tax element, it risks missing the main point: the fund creates an independent legal perimeter within which the rights of unitholders, the powers of the fund manager, the regime of fund property, the disclosure procedure, valuation rules, the cost structure, conflict management and exit mechanisms are determined.

In other words, a fund is needed not only to pay less tax or distribute income. It is needed so that an investment project ceases to be a set of bilateral promises and becomes a system. In this system, every element has its place: the unitholder receives a unit, the fund manager receives powers and duties, the fund property is segregated from the property of the manager, and the offering materials become the main source of information for the investment decision.

In this sense, an AIFC fund gives both the applicant and the investor what ordinary project structures often lack: institutional discipline. A project may be commercially interesting but legally unpackaged. It may be clear to the initiator but opaque to the investor. It may be economically attractive but weak in terms of governance, reporting and exit. The fund form is precisely what allows such a project to be translated into the language of professional investment.

Legal nature of an Exempt Fund

An Exempt Fund is a type of collective investment scheme. In AIFC terminology, this is not a free commercial label, but a specific legal category. Units of such a fund are offered in the AIFC by private placement, only to Professional Clients, with a minimum initial subscription of fifty thousand US dollars. [1]

This characteristic is important. An Exempt Fund is not a retail product designed for an inexperienced investor. It proceeds from the assumption that the unitholder is a Professional Client who is able to assess risks, read documents, engage advisers and make an investment decision without retail paternalism. Therefore, the regime of an Exempt Fund is lighter than that of a Non-Exempt Fund, but this does not mean that there is no legal structure.

A balance emerges here. On the one hand, the investor is not promised complete regulatory guardianship. On the other hand, the investor is offered not an informal investment arrangement, but a fund form subject to AIFC rules. This balance is particularly important for professional investors, family offices, entrepreneurs, venture investors, participants in real estate projects, private capital, portfolio strategies and other persons who need flexibility but do not need legal uncertainty.

A unit as a measure of participation

A unit in an Exempt Fund is not merely a label for a share in expected profit. It is the measure of the unitholder’s participation in the fund structure. Through the unit, the scope of economic rights, class of participation, order of income distribution, transfer restrictions, redemption rights, exit procedure and participation in liquidation value are determined.

In a conventional investment transaction, an investor often receives one of two things: either a contractual claim or corporate participation. In the first case, the investor is a creditor. In the second, the investor is a shareholder or participant. The fund offers a third form. The unitholder does not necessarily become a direct participant in the project company and does not necessarily reduce its rights to a claim for repayment of debt. The unitholder enters a regulated collective investment scheme in which its position is defined by the fund documents.

This is especially important when a project involves several investors. In a simple contractual model, each new investor complicates the structure. Separate agreements, rights, priorities, exits, assignments, restrictions and information rights need to be negotiated. In a fund, these issues can be built in advance into the fund constitution, offering materials, classes of units and the unitholder register.

The unitholder register has independent significance. It records who the unitholder is, how many units the unitholder holds, to which class they belong and from what date they were registered. This is not a clerical formality. Where a right is recorded, it is easier to protect. Where a right exists only in correspondence, a presentation or an oral understanding, the dispute almost inevitably becomes a dispute about memory.

Limited liability as a boundary of risk

One of the key advantages of a fund for a unitholder is that the unitholder’s risk obtains a legal boundary. The fund constitution must provide that a unitholder is not liable for the debts of the fund, unless otherwise provided by applicable law, and that after paying the price of the units the unitholder has no further obligation to make payments in respect of those units. [1]

This does not mean a capital guarantee. A fund does not eliminate investment risk. An asset may decline in value. A borrower may breach its obligations. A project may fail to achieve the planned return. The market may change. But the risk of losing the invested amount is one thing; the risk of unexpectedly becoming liable for project debts, obligations of the manager, creditor claims or expenses not envisaged at entry is another.

That is why limited liability is important not only as a legal formula, but also as an investment principle. The unitholder must understand the limit of its participation. A professional investor may accept high risk if that risk is described. But the investor is entitled to expect that the risk will not be expanded retroactively.

Segregation of fund property

The next advantage relates to the regime of fund property. The fund structure proceeds from the principle that fund property must be segregated from the property of the fund manager, from the property of other funds and from the own assets of the persons servicing the fund. In applicable cases, the AIFC rules provide for the use of an Eligible Custodian or another prescribed asset safekeeping structure. [1]

This sounds technical, but the meaning is very simple: the assets of unitholders should not dissolve into someone else’s property. In an ordinary project structure, the problem of asset commingling is often discovered when a conflict has already arisen. At first the project develops, the parties trust each other and documents appear secondary. Then losses, delays or disputes arise. Only then does it become clear that funds were used differently, assets were registered elsewhere, expenses were passed through the wrong person, and the boundary between the project and its initiator is blurred.

The fund form does not make assets invulnerable. But it requires in advance answers to questions that are often postponed in an ordinary structure: what constitutes fund property, who manages it, who holds it, how it is accounted for, from what source expenses are paid, what transactions are permitted and who monitors compliance with the investment policy.

The professional manager as the centre of responsibility

The fund manager is the central figure of the fund structure. The manager does not merely gather investors and dispose of money. Managing a collective investment scheme is a Regulated Activity. Therefore, the manager must have an organisational structure, internal control procedures, a risk management policy, a conflict-of-interest management policy, a valuation policy, compliance procedures and other documents corresponding to the nature and scale of its activity. [2]

For the unitholder, this means that the project receives not only an initiator, but also a professional management function. In an ordinary investment model, the initiator may simultaneously be the owner of the idea, the recipient of funds, the project operator, the person determining expenses and the de facto controller of information. In a fund, these roles can be separated or at least documented.

This does not guarantee error-free management. But a professional fund manager acts within rules, documents and regulatory expectations. The manager must manage assets not as its own money, but as fund property intended to achieve the investment objectives of the fund in the interests of unitholders.

Offering materials as an instrument of trust

The offering materials are one of the principal documents of the fund. They allow a prospective unitholder to understand what the unitholder is entering into. They should disclose the investment objective, strategy, asset classes, material risks, expenses, manager’s remuneration, valuation procedure, conditions for transfer and redemption of units, information about the fund manager, custodian, fund administrator, auditor, investment adviser, delegation of functions, conflicts of interest and other material circumstances.

The AFSA template of offering materials for an Exempt Fund proceeds from the idea that those materials should enable a prospective investor to make an informed and balanced decision. This is the right logic. The investor must understand not only the promised return, but also the architecture of risk. [3]

In this sense, offering materials are not an advertising document, but a legal test of the maturity of the project. If a project cannot clearly describe its strategy, assets, risks, expenses, valuation, exit and conflicts of interest, it is not yet ready for the fund form. A fund should not mask uncertainty. It should reveal it.

A fund as a way to attract and pool investors

One practical reason why applicants turn to the AIFC is the need to pool several investors in one clear structure. This may be real estate, private capital, a venture portfolio, a credit strategy, an infrastructure project, a securities portfolio or another investment idea. If each investor enters directly, the structure quickly becomes cumbersome. Separate agreements, different entry dates, different amounts, different expectations, different information rights and different exit scenarios appear.

A fund allows this participation to be centralised. Instead of numerous fragmented relationships, investors enter one collective investment scheme. Their rights are expressed through units. The economics may differ by classes of units. Management is carried out by the fund manager. The fund documents set the general procedure. This is especially important if the project involves not a one-off fundraise, but several rounds, the subsequent admission of new investors or the creation of a repeatable investment platform.

The fund structure thus gives the applicant not only the ability to raise capital, but the ability to do so in an orderly manner. Not every new investor should have to rewrite the whole structure. Not every change should become individual negotiations with all participants. If prepared properly, the fund becomes a platform, not merely a transaction.

Classes of units and adjustment of project economics

An Exempt Fund allows the use of classes of units. This is an important instrument because investors are not always identical. Someone enters earlier and assumes greater risk. Someone enters later and pays a higher price. Someone expects current income. Someone is focused on capital growth. Someone is the sponsor, an anchor investor or a management party.

The fund form allows these differences to be reflected legally. One class of units may have a priority in income distribution. Another may participate in capital appreciation. A third may have special voting rights or, conversely, be non-voting. Different redemption, transfer, distribution, liquidation waterfall and expense participation arrangements are possible.

The difference between unitholders is not itself a problem. The problem arises when the difference exists in fact but is not legally documented. Classes of units allow the parties not to pretend that all investors are in the same position when commercially this is not the case. But they require clear disclosure in the fund constitution and offering materials. [1]

Management of conflicts of interest

Conflicts of interest in funds arise almost inevitably. The fund manager may be connected with the sponsor. The sponsor may be connected with the seller of the asset. The adviser may be connected with the initiator’s group. The project company may procure services from an affiliated person. The fund may provide financing to a related borrower. This is not always prohibited and not always wrong. But it always requires attention.

The AIFC rules provide requirements for identifying, preventing, managing and disclosing conflicts of interest. In prescribed cases, material related party transactions are subject to a special regime, including approval by independent unitholders. [1]

For the unitholder, this is one of the most practical advantages of a fund. In an ordinary structure, a conflict of interest may be hidden behind a general reference to a group of companies or relations of trust. In a fund, the conflict must be named. And a named conflict is already in the legal field. It can be assessed, disclosed, limited or submitted for approval.

Expenses and real return

Passive income on units cannot be assessed separately from expenses. This is a simple but frequently forgotten truth. The remuneration of the fund manager, expenses of the fund administrator, custodian, auditor, valuer, legal advisers, investment adviser, banks, brokers, exchange, registrars and other service providers may materially affect the unitholder’s net result.

The fund structure does not eliminate expenses. On the contrary, a good fund honestly shows that expenses exist. The advantage is that such expenses must be provided for in the fund documents and disclosed to unitholders. The investor must understand what return is being shown: gross or net, before expenses or after expenses, before tax or after tax, before commissions or after commissions.

Therefore, an AIFC fund gives not merely the possibility of receiving income. It gives the possibility of calculating income correctly. These are different things. In investment, mistakes often arise not because return was absent, but because the investor looked at return without expenses, liquidity, taxes, currency risk, valuation and time to exit.

Valuation of assets and unit value

Another important element is valuation. The unitholder must understand how the value of a unit is determined, how the assets of the fund are valued, how net asset value is calculated, how illiquid assets are accounted for and according to what methodology investors may enter or exit.

AFSA identifies the valuation policy as one of the documents expected from a fund manager carrying on the activity of managing a collective investment scheme. [2]

This is especially important for real estate funds, private equity funds, venture funds, credit strategies and other assets for which there is no daily market price. If an asset is traded on a market, a valuation dispute is simpler. If an asset is illiquid, valuation methodology becomes part of unitholder protection. It does not eliminate disagreement, but it sets the rules of the conversation.

Without a valuation policy, the value of a unit can easily become the manager’s opinion. With a valuation policy, it becomes a legally and methodologically grounded amount that can be reviewed, discussed and challenged within the framework of the fund documents.

Transfer of units and the possibility of exit

A unit may be a more convenient form of investment position than an individual contractual claim or a direct interest in a project company. Subject to applicable restrictions, a unit may be transferred in accordance with the fund constitution, offering materials and AIFC rules.

This does not mean automatic liquidity. A fund is not required to create a market where no market exists. A buyer may not be found. The price may be lower than expected. Transfer may be limited by the status of a Professional Client, private placement, the fund’s internal documents or the rules of a trading venue. But the legal possibility of transferring a unit remains important.

AFSA has referred to the possibility of admitting units of Exempt Funds to trading on AIFC Authorised Investment Exchanges. For a unitholder, this may mean a clearer secondary-market infrastructure, greater visibility of the instrument and potentially a more convenient exit channel. [4]

It is important not to exaggerate here. An exchange channel does not guarantee a buyer. But it may increase the institutional character of the instrument. And in investments, institutional character is often a condition of trust.

A fund as a scaling instrument

For the initiator of a project, an AIFC fund may be not only a means of raising initial capital, but also a scaling instrument. A well-structured fund may be used for several investment rounds, creating a portfolio of assets, onboarding anchor investors, attracting Professional Clients, building the fund manager’s track record and subsequently launching new fund products.

This is qualitatively different from a one-off transaction. A one-off transaction closes one project. A fund platform can create a repeatable model. If the fund manager demonstrates the ability to form a strategy, administer assets, disclose information, manage risks, calculate unit value and ensure exit, it creates not only one fund but also reputation.

For the unitholder, this also matters. The unitholder enters not simply a commercial idea. The unitholder enters infrastructure that may develop, attract new investors, expand the portfolio, build a management history and become more understandable to the market.

A fund as an instrument of reliability, but not a guarantee

Sometimes an AIFC fund is perceived as a more reliable structure. This is correct if reliability is understood not as a guarantee of return, but as predictability of rules. A fund does not guarantee that an asset will increase in value. It does not guarantee that a borrower will perform its obligations. It does not guarantee that the market will be favourable. It does not guarantee that the unitholder will be able to exit at the desired time and at the desired price.

But a fund can provide another kind of reliability: documented rights, segregated property, professional management, a unitholder register, disclosure of information, expense rules, a valuation policy, conflict management, reporting and a legal language that is understandable. This is not absolute protection from losses. It is protection from chaos.

In investment, people sometimes want the impossible: high return, low risk, immediate exit and a full guarantee. The fund form should not support this illusion. Its merit is different: it allows an honest description of where the return is, where the risk is, where the expenses are, where the restrictions are, where the unitholder’s rights are and where the fund manager’s powers are.

Structural flexibility of the AIFC

The AIFC fund environment allows various forms and strategies to be used. A collective investment scheme may be organised, in particular, through an investment company, limited partnership, protected cell company, umbrella fund, private equity fund, venture capital fund, fund of funds, feeder fund, master fund, real estate investment trust and other specialised structures, subject to applicable requirements. [5]

This flexibility is important because different projects require different legal solutions. Real estate cannot be structured in the same way as a venture portfolio. A credit strategy cannot be described in the same way as a private equity fund. An umbrella structure and a protected cell company may be useful where different strategies, assets or groups of investors need to be separated.

This is exactly where it becomes clear that an AIFC fund is more than a tax wrapper. It is a set of instruments. The only question is whether the applicant knows how to choose the right instrument and is prepared to build the fund not for a presentation, but for a real investment process.

International infrastructure and a language understandable to investors

The AIFC is also valuable because it offers a legal and regulatory environment understandable to professional and international investors. The terms “unit”, “unitholder”, “fund manager”, “fund property”, “offering materials”, “constitution”, “Professional Client” and “private placement” create a common language.

A common language matters. When an investor understands the form being entered into, the investor assesses risk more quickly. When an adviser understands the documents, the adviser formulates comments more precisely. When the fund manager acts in familiar terminology, it is easier to interact with administrators, custodians, auditors, exchanges, brokers and foreign investors.

In this sense, the AIFC competes not only through taxes. It competes through legal intelligibility, infrastructure, the possibility of using English common law and specialised financial regulation. For a professional investor, this may be no less important than the tax rate.

AFSA consultation papers and development of the regime

AFSA consultation papers are not binding law unless the relevant amendments have been adopted. But they are important as an indicator of the direction in which the AIFC fund regime is developing. AFSA consultation materials have discussed specialised funds, credit funds, digital asset funds, exchange traded funds, money market funds, venture capital funds, tokenised units, fund administrators and other elements of fund infrastructure. [6]

For applicants, this means that the AIFC is developing as a fund jurisdiction, not merely as a place for registering one type of structure. For unitholders, it means that investment products may become more diverse, technological and specialised. Of course, such prospects require caution. A new regulatory possibility is not the same as a finished product. But the direction itself shows that the AIFC fund market is oriented toward expanding instruments, not only preserving tax incentives.

The applicant’s practical mistake

In practice, the applicant’s main mistake is that it sometimes comes to the fund either too late or too narrowly. Too late, when the commercial model has already been promised to investors, the presentation has been circulated, the return has been announced and the legal structure merely has to catch up with the marketing. Too narrowly, when the fund is perceived only as a way to obtain a tax benefit or attractively package passive income.

The correct approach is different. First, it is necessary to understand what asset or strategy underlies the fund. Then, who the investors are and whether they are Professional Clients. Then, how fund property will be formed, who will be the fund manager, whether external administration is needed, how assets will be held, how units will be valued, how risks will be disclosed, what expenses are permitted, what conflicts may arise, how the unitholder may exit and how the fund will be terminated.

Only after that does tax analysis take its place. An important place, but not the first. Tax should not govern the fund. The fund should govern the investment structure, and the tax regime should be its consequence, not its only meaning.

Limits of the advantages

It would be wrong to present an Exempt Fund as a universal solution. It is not suitable for every project. It requires professional investors, documents, expenses, management, servicing and regulatory understanding. Sometimes an ordinary company, loan agreement, shareholders’ agreement or another structure is sufficient for a project. Sometimes a fund will be excessive. Sometimes the cost of servicing it will not be justified by the scale of the project.

But where there are several investors, a complex asset, a need to pool capital, a need for professional management, an expected exit, different classes of participation, international investors or a prospect of scaling, an AIFC fund may provide what simple contractual forms do not.

It provides not only return and tax efficiency. It provides a measure of participation, a boundary of risk, segregated property, a professional manager, documented disclosure, valuation rules, transparency of expenses, conflict management, the possibility of classes of units, potential transferability and the legal language of professional investment.

Conclusion

An AIFC fund should be viewed not as a wrapper, but as an institution. A wrapper is needed to cover something. An institution is needed to organise something. An Exempt Fund organises an investment project: it defines the rights of unitholders, the powers of the fund manager, the regime of fund property, the disclosure procedure, the economics of expenses, valuation of units, conflict management and exit conditions.

That is why the discussion of AIFC funds should not begin and end with tax benefits or passive income on units. These are important elements, but they are not the essence of the structure. The essence is that the fund gives the professional investor a legal form of participation and gives the project initiator an instrument for institutional capital raising and management.

Put briefly, an AIFC fund gives more than interest. It gives structure. And in investments, structure is not decoration. It is a way to make the project understandable, manageable, verifiable and fit for professional capital.