Saudi Arabia's new fund rules: The simplified investment fund and financing investment fund frameworks examined

The Saudi Capital Market Authority (CMA) has introduced two fund frameworks that further develop Saudi Arabia's investment funds market and expand the range of regulated fund products and structuring options available in the Kingdom. The new Simplified Investment Fund framework creates a more flexible route for institutional private fund formation, with a notification-based launch process and greater scope for negotiated fund terms. The new Financing Investment Fund framework replaces the prior Instructions on Direct Financing Investment Funds with a consolidated regime covering both direct and indirect financing strategies and, for the first time, permits the public offering and listing of financing fund units on the Main Market and the Nomu Parallel Market. Together, these reforms represent a further step in the CMA's continuing development of Saudi Arabia's capital markets architecture.

Key takeaways:

• The SIF framework introduces a new institutional fund category. Simplified Investment Funds ("SIFs") are governed by a standalone framework, sitting outside the Investment Funds Regulations (the "IFR"), with certain IFR provisions incorporated by cross-reference and capable of being displaced by the fund terms. However, the SIF Instructions expressly preserve several overlying regulatory floors, including the Market Conduct Regulations, the Capital Market Institutions Regulations, the International License Regulations, the Securities Business Regulations and the Rules for Special Purpose Entities, which apply independently and cannot be displaced by fund terms.
• The SIF launch process is notification-based. For SIF offerings, the IFR requirement to notify the CMA at least 15 days before the proposed offering date is replaced with a notification process subject to no prescribed minimum notice period, while preserving the CMA's powers to investigate, suspend or prohibit an offering.
• SIFs allow greater contractual flexibility. The framework permits multiple unit classes, limits unitholder liability to the loss of investment, and allows managers and investors to structure governance, reporting and other key matters in the fund terms. Certain IFR provisions apply as defaults that may be varied or displaced by the fund terms where they do not provide otherwise. However, other requirements, including conflicts-of-interest handling obligations and baseline asset segregation requirements, apply regardless of the fund terms.
• The Financing Fund framework now covers direct and indirect financing. The amended Instructions on Financing Investment Funds expand the prior direct financing fund regime to include indirect financing through origination channels regulated by the Saudi Central Bank (SAMA) and SAMA-licensed financing companies.
• Public financing funds may now be listed. Financing fund units may be publicly offered and listed on the Main Market or the Nomu Parallel Market ("Nomu"), subject to specific product, leverage, concentration, disclosure and reporting requirements.
• Borrowing capacity depends on fund type and listing venue. Public Financing Funds are subject to a 15 per cent. NAV-based borrowing cap, while Nomu-listed and Private Financing Funds may borrow up to 50 per cent. of total fund size (being total asset value plus capital pledged to be paid by unitholders).

Overview

Saudi Arabia's investment funds market continues to develop in scale and sophistication as the Kingdom deepens its capital markets under Vision 2030. Against that backdrop, the CMA has introduced two significant fund reforms. The first is the Instructions for Simplified Investment Funds (the "SIF Instructions"), issued pursuant to CMA Board Resolution No. 1-26-2026 dated 2 March 2026. The second is the Instructions on Financing Investment Funds (the "FIF Instructions"), which replace the previous Instructions on Direct Financing Investment Funds and establish a consolidated regime covering both direct and indirect financing funds.

The SIF Instructions are likely to be of relevance to institutional feeder fund structures and bilateral arrangements between managers and anchor investors, while the FIF Instructions expand the regulatory options available to direct lending funds and private credit strategies operating in the Kingdom.

This alert examines the key features of each framework and the practical implications for fund managers, institutional investors, financing companies, financial institutions and other market participants active in Saudi Arabia.

Simplified investment funds

A standalone institutional fund framework

The SIF Instructions establish a new framework for the registration, offering, management, operation and supervision of Simplified Investment Funds in the Kingdom, sitting outside the IFR except where the SIF Instructions expressly cross-refer to the IFR. The framework is designed to create a route for highly flexible investment funds with lower establishment and management costs and greater flexibility in fund structuring and in the contractual relationship between fund managers and investors.

Simplified Investment Funds may be managed by CMA-regulated institutions licensed to conduct investment management and fund operation activities (or investment management activity), or by a financial market institution holding an international licence to conduct securities business where investment management is included within its licensed activities.

Units of a Simplified Investment Fund may only be offered by way of private placement to institutional clients, and transfers of units are also limited to institutional clients. The CMA may, on request, approve private offerings to other investor categories, subject to any additional requirements it imposes.

The notification process and CMA oversight

A fund manager may not offer Simplified Investment Fund units until it has notified the CMA in writing before the proposed offering date (with no prescribed minimum notice period), submitted the prescribed declaration, provided the fund terms and offering documents, paid the applicable registration fee and submitted any other information requested by the CMA. This replaces the IFR model, which requires notification at least 15 days prior to the proposed offering date, and should shorten launch timetables for institutional fund products.

While the removal of the 15-day minimum notice period may compress launch timetables, the practical benefit is not guaranteed. The CMA retains full power under Article 19(b)-(d) of the SIF Instructions to investigate, request additional information, or suspend or prohibit an offering at any time following notification. This residual discretion is particularly relevant for novel investment strategies and emerging managers, where the CMA may require additional time to assess whether the proposed offering is commensurate with the fund manager's capabilities and regulatory standing. Therefore, the absence of a prescribed notice period does not necessarily equate to an expedited or automatic approval process.

Contractual flexibility and manager accountability

Unlike the IFR, which impose a prescriptive set of mandatory governance and operational requirements, the SIF Instructions give managers and investors significantly greater freedom to design bespoke fund terms. The terms and conditions must address specified matters, including investment objectives, strategy, services, fees, risks and complaints procedures, but beyond those requirements, the framework does not prescribe the form or content of the fund's governance arrangements. Matters such as unitholder approvals, reporting, amendment mechanics, manager removal and termination can all be structured as the parties agree, with the fund's terms and conditions operating as the primary legal instrument rather than a prescribed regulatory template.

The framework also introduces structuring flexibility on custody. Article 17 of the SIF Instructions requires the appointment of one or more custodians licensed by the CMA in the Kingdom. The custodian may not be the fund manager, the sub-manager or any affiliate of either. However, where the fund takes the form of a special purpose entity, the requirement to appoint a CMA-licensed custodian does not apply. The fund manager remains liable for losses caused by fraud, intentional negligence, misconduct or failure, and must act for the benefit of unitholders. Annual financial statements must be prepared in accordance with accounting standards approved by the Saudi Organization for Chartered and Professional Accountants (SOCPA) and audited by a CMA-registered auditor.

Financing investment funds

Direct and indirect financing funds

The FIF Instructions consolidate direct and indirect financing fund regulation into a single framework, replacing the earlier Instructions on Direct Financing Investment Funds issued in 2022 and broadening the range of available financing products. Direct Financing Funds and Indirect Financing Funds are each regulated as distinct categories under the consolidated framework.

A Direct Financing Fund conducts direct financing for legal persons and investment funds, and does not extend to financing provided to individuals. It must take the form of a special-purpose entity with a minimum fund size of SAR 50 million at establishment, calculated as the total asset value of the fund plus any capital pledged to be paid by unitholders. A Direct Financing Fund may not assume exposure to a single beneficiary, or to beneficiaries belonging to the same group, equal to or exceeding 25 per cent. of total fund size. An Indirect Financing Fund may conduct indirect financing in the Kingdom by purchasing financing portfolios originated by SAMA-regulated entities, entering into agreements or partnerships with SAMA-licensed financing companies to carry out joint financing, or investing alongside SAMA-licensed financing companies where the credit-granting decision is made by those financing companies.

In each case, the involvement of a SAMA-regulated or SAMA-licensed entity is a mandatory structural requirement. These routes allow funds to obtain exposure to financing assets without necessarily originating credit directly. Permitted investments are restricted to financing activities, money market transactions with SAMA-supervised or equivalent institutions, bank deposits with SAMA-regulated or equivalent institutions, and units of CMA-registered money market funds or equivalent foreign-regulated money market funds.

The FIF Instructions also impose secondary market constraints on Direct Financing Funds. Where a Direct Financing Fund sells a financing contract concluded inside the Kingdom to a domestic buyer, the sale agreement must include a full recourse right back to the fund, affecting the structuring of secondary dispositions, as purchasers of domestic financing contracts will retain recourse to the fund in respect of the underlying credit exposure. In addition, a Direct Financing Fund is prohibited from selling financing contracts concluded outside the Kingdom to SAMA-licensed financial institutions. This restriction limits the secondary market channels available for cross-border financing assets held by the fund and should be taken into account when structuring portfolios with an international component.

Public offering, listing and leverage controls

The FIF Instructions introduce Public Financing Funds, which may be offered publicly and listed on the Main Market or Nomu and are treated as specialised public funds under the IFR. This creates a new route for financing strategies to access a wider investor base and secondary market liquidity.

Borrowing limits under the FIF Instructions are determined by fund type and listing venue. A Public Financing Fund may not borrow more than 15 per cent. of its net asset value, with an exception for Nomu-listed funds and Private Financing Funds, which may borrow up to 50 per cent. of total fund size (being the total asset value of the fund plus any capital pledged to be paid by unitholders). The choice of denominator is material. Net asset value excludes unfunded capital commitments, whereas total fund size may include them, meaning that the effective leverage headroom may differ. Because the higher 50 per cent. cap also applies to the larger base, the practical difference in leverage capacity between the two regimes will typically be wider than the headline 15 and 50 per cent. figures suggest. Public Financing Funds are subject to the same single-obligor concentration limit, prohibiting exposure equal to or exceeding 25 per cent. of total fund size to one beneficiary or to beneficiaries belonging to the same group.

Disclosure, reporting and private fund flexibility

Public Financing Funds are subject to enhanced disclosure and reporting obligations. Fund terms must address sector concentration and, depending on whether the fund is a Direct or Indirect Financing Fund, include relevant credit-granting, collection and portfolio information. Managers are subject to quarterly reporting requirements covering credit, default and performance metrics, with immediate disclosure obligations in respect of any beneficiary default where the fund is listed. For these purposes, the FIF Instructions define a "Default" as a beneficiary's full or partial failure to pay any amount due under the financing contract for 90 days or more from its due date. Private Financing Funds also receive additional structuring options, including the ability to be structured as open-ended funds where the terms include clear subscription, redemption and liquidity management policies. In addition, private Direct Financing Funds are required under the FIF Instructions to have a Board of Directors, applying Articles 86 and 87 of the IFR.

Looking ahead

The SIF Instructions and the FIF Instructions together represent a meaningful advance in Saudi Arabia's investment funds market. The SIF Instructions create a flexible route for institutional private capital, including feeder fund structures and anchor investor arrangements, while preserving regulatory oversight through the CMA's post-notification discretion and the application of overlying regulatory floors. The FIF Instructions replace the prior direct financing fund regime with a consolidated framework covering both direct and indirect financing, and open financing fund products to public offering and exchange listing, with direct relevance to direct lending funds and private credit strategies seeking a regulated onshore vehicle in the Kingdom.

Several areas will warrant close attention as market practice develops. Under the SIF Instructions, the scope of the CMA's post-notification discretion, and in particular what constitutes an offering that is "commensurate with the fund manager's capabilities" under Article 19, remains largely untested. The practical timetable benefit of the notification-based process may vary significantly for novel strategies and emerging managers. Under the FIF Instructions, the full-recourse requirement for domestic financing contract sales and the prohibition on selling foreign-originated contracts to SAMA-licensed institutions will shape secondary market liquidity and portfolio structuring. For listed financing funds, the valuation methodology standards that the CMA will expect for quarterly reporting, particularly in respect of non-performing or restructured financing assets, have yet to be established, and the interaction between the borrowing framework and the single-obligor concentration limit will require careful monitoring as fund portfolios scale. The practical impact of these reforms will depend on the quality of structuring, documentation and operational readiness that managers, investors and their advisers bring to the new regimes.

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