By CRYPTOVERSE Legal Consultancy | September 2026
An ADGM fund manager finds an attractive private company investment. The deal moves quickly. Before signing, however, three people ask three different questions:
The administrator asks, “In whose name will the shares be registered?”
The finance team asks, “What value will we report to investors next quarter?”
A director asks, “Should we disclose that our managing partner owns shares in the target?”
These are not matters to tidy up after closing. They go to the manager’s duties concerning fund property, valuation and conflicts of interest. The FSRA expects a manager to have arrangements that work for the fund’s actual assets and strategy, and to follow the fund’s constitution, prospectus and applicable rules.
The precise requirements differ between a Public Fund, Exempt Fund and Qualified Investor Fund (QIF). This article focuses on the decisions sponsors should make before launching a fund or completing its first investment.
The manager remains accountable
Under FUNDS Rule 12.2.1, an ADGM fund manager must manage the fund and its property in accordance with the constitution and most recent prospectus, comply with applicable FSRA restrictions, and perform its responsibilities under the rules.
FUNDS Rule 12.2.2 requires the manager to act honestly, use reasonable care and diligence, put unitholders’ interests ahead of its own in a conflict, and treat investors in the same class equally and those in different classes fairly. Fund property must be clearly identified and kept separate from the manager’s property and from the property of other funds it manages. (Rulebook)
Appointing a custodian, administrator or valuation specialist can help the manager perform these duties. The appointment does not make the underlying investor-protection questions disappear.
1. Custody: who holds the fund’s assets?
For a fund that is not an Investment Trust, FUNDS Rule 12.3.2 makes the manager responsible to unitholders for ensuring the safekeeping of fund property in accordance with the rules. It generally requires the manager to delegate Providing Custody to an Eligible Custodian, unless doing so is both impracticable and disproportionate, subject to the relevant provisions of Rule 12.3.3. Investment Trusts have a distinct trustee-based structure. (Rulebook)
An Eligible Custodian is a defined regulatory concept. A sponsor should not assume that any bank, corporate service provider, nominee or digital asset platform qualifies simply because it can hold an account or appear on a share register.
What if a conventional custodian does not suit the asset?
Private equity and real estate assets do not always fit neatly into the same custody arrangements as listed securities. FUNDS Rule 12.3.3 provides for specified alternative arrangements. Depending on the circumstances, these may involve title registered in the fund’s name or a qualifying nominee structure, subject to the rule’s conditions. The guidance identifies highly illiquid strategies, including certain private equity and infrastructure funds, as examples where appointing an Eligible Custodian may be neither practical nor proportionate. (Rulebook)
That is a fact-specific route, not a general “private funds do not need custody” exemption. The manager should be able to demonstrate who holds legal title, how fund property is identified, what controls prevent unauthorised transfers, and how the assets would be treated if the manager became insolvent.
The QIF rule needs separate attention
For a QIF that is not an Investment Trust, FUNDS Rule 15.3.1 requires legal title to fund property to be registered with an Eligible Custodian. The rule provides an exception where compliance is impracticable and disproportionate given the fund and its assets, provided the manager has effective arrangements ensuring that the property is not available to the manager’s creditors on its insolvency. (Rulebook)
That insolvency protection is an important practical test. A neat ownership chart is not enough if the legal title and supporting documents leave the fund’s claim to an asset unclear.
2. Valuation: how does the manager support the reported number?
A private fund’s assets may have no daily market price. A startup has raised a new round on different terms. A property valuation is several months old. A token is traded on multiple venues with thin liquidity.
The manager still needs a defensible method for reporting value.
For funds to which the full provision applies, FUNDS Rule 12.4.1 requires comprehensive, documented valuation policies and procedures and addresses valuation frequency, valuation points and consistency with the fund’s constitution and prospectus. The FSRA’s Appendix 4 provides guidance on asset valuation and pricing. (Rulebook)
A practical valuation framework should answer:
- Who proposes the value, and what data do they use?
- Who reviews or challenges it, particularly where the investment team benefits from a higher reported value?
- Which method applies to each asset class?
- When is a valuation updated after a financing, impairment, market event or material change?
- How are assumptions and exceptions recorded?
- What do investors receive, and how does that match the prospectus?
A valuation policy that says only “assets will be valued at fair value” leaves the difficult decisions unanswered.
Independence matters when the investment team marks its own work
FUNDS Rule 12.3.10 requires managers to address the risks inherent in operating a Domestic Fund. To an extent proportionate to the fund and manager, it calls for functional and hierarchical separation between risk management functions, including valuation and asset pricing, and portfolio management. Where adequate separation cannot be demonstrated, the FSRA may require an independent, suitably competent fund administrator to perform the relevant functions. (Rulebook)
For a small manager, this creates a real design question. The person who led an investment may have the best information about the asset, yet may also have an incentive to avoid recognising a loss. The operating model needs a credible way to use that information while subjecting the proposed value to review.
QIFs have a more limited set of express Chapter 12 rules
The rulebook applies Chapter 12 selectively to QIFs. Under FUNDS Rule 12.1.1(3), Rule 12.4.1(b) applies to a QIF, requiring fund property to be valued at regular intervals appropriate to the fund, market practice and investor expectations, and in accordance with the procedures in its constitution or prospectus. The full list of valuation obligations in Rule 12.4.1 does not automatically apply to a QIF.
That distinction matters when describing the strict legal requirement. As a practical matter, a QIF manager still needs a valuation process capable of producing credible figures and supporting its broader management, disclosure and reporting obligations. A lighter express rule does not make an unexplained valuation dependable. (Rulebook)
3. Conflicts: whose interests influence the decision?
Conflicts can arise long before a fund buys an asset. Common examples include:
- The manager or its principals having a financial interest in a target company;
- Two funds managed by the same firm competing for one investment;
- A founder selling an asset to the fund;
- Fees payable to an affiliate;
- Preferential information or economic terms granted to one investor; and
- An investment professional sitting on a portfolio company’s board.
Under FUNDS Rule 12.2.2, the manager must prioritise unitholders’ interests over its own where they conflict and treat unitholders appropriately. For funds to which it applies, FUNDS Rule 12.3.11 further requires reasonable steps to avoid conflicts in dealings with fund property and, where a conflict arises, disclosure to unitholders of its nature and how it will be managed. (Rulebook)
The manager should do more than list “potential conflicts” in a prospectus. A useful conflicts process identifies a conflict before a decision, records who has an interest, removes conflicted decision-makers where appropriate, tests the transaction terms, and documents the approval and investor disclosure required for the fund.
Related-party transactions need particular care
For a Public Fund or Exempt Fund, FUNDS Rule 12.3.13 contains detailed requirements for transactions involving an Affected Person, including a standard that the terms be at least as favourable to the fund as a comparable arm’s-length arrangement. The required oversight or approval process differs by fund type and transaction. Sponsors should examine the specific procedure before agreeing to buy an asset from a founder, manager affiliate or other connected party.
A QIF is subject to a narrower selection of Chapter 12 provisions under Rule 12.1.1(3); sponsors should not describe every procedure in Rule 12.3.13 as automatically applicable to it. Its manager remains subject to the general duties in Rule 12.2 and should address connected-party transactions through its governance, disclosures and governing documents.
Side letters can also create conflicts
FUNDS Rule 12.3.12(1) requires the prospectus to describe how the manager ensures fair treatment of investors and to state whether it may enter into side-letter arrangements. Public Funds have additional side-letter requirements under Rule 12.3.12(2).
A fee discount, enhanced reporting right or co-investment opportunity for a large investor should be reviewed against the fund’s disclosed terms and the manager’s ability to treat other investors fairly. “It is in a private side letter” does not remove the issue.
These three controls meet in a single deal
Imagine an ADGM venture capital fund acquiring shares in a startup partly owned by one of the manager’s partners.
Custody: The team must determine how legal title to the shares will be registered and protected as fund property.
Valuation: The partner’s suggested price and the latest financing round may be relevant, but the fund needs a reasoned valuation process and a reviewer able to challenge the assumptions.
Conflicts: The partner’s interest must be identified, the transaction assessed under the applicable rules and fund documents, and the decision handled through a credible approval and disclosure process.
Resolving only one of these questions will not protect the fund from the other two.
What should the manager have ready before first close?
An FSRA fund manager application and fund launch should be supported by arrangements suited to the intended assets. In practice, the sponsor should prepare:
- An asset-holding map showing the legal owner, custodian or nominee for each expected asset class.
- Custody and safekeeping agreements or a documented basis for a permitted alternative.
- Valuation procedures covering methods, frequency, data sources, review and escalation.
- A conflicts register and decision process addressing personal interests, affiliates and allocation between funds.
- Clear prospectus and constitution provisions that match how custody, valuation and conflicts will actually be handled.
- Records of decisions and oversight, so the manager can explain what it did when a difficult asset or transaction arose.
The exact rule set should be mapped to the fund’s legal form and classification. Public Funds, Exempt Funds and QIFs are not subject to every Chapter 12 provision in the same way.
The takeaway
The FSRA’s expectations are most visible when a manager faces a difficult decision: an illiquid asset with no obvious custodian, a valuation based on uncertain assumptions, or an investment involving someone close to the manager.
A sound ADGM fund structure answers three questions before that moment arrives:
Where is the asset protected? How is its value determined? Who can make the decision fairly?
If the manager can answer each question with clear documents, controls and evidence, its operating model is better prepared for both investors and regulatory scrutiny.
CRYPTOVERSE Legal Consultancy advises sponsors on ADGM fund structuring, FSRA fund manager licensing, governance frameworks and the documentation of custody, valuation and conflicts controls.
FAQs
1. What does the FSRA require for custody of fund assets in ADGM?
The FSRA generally requires an ADGM fund manager to ensure the safekeeping of fund property and, for applicable funds, to appoint an Eligible Custodian. Alternative custody arrangements may be permitted where appointing an Eligible Custodian is impracticable and disproportionate, subject to the relevant rules and conditions.
2. How should an ADGM fund manager value illiquid assets?
An ADGM fund manager should maintain documented valuation policies and procedures appropriate to the fund and its assets. The process should address valuation methods, frequency, data sources, assumptions, review procedures and material events that could affect an asset’s value. For certain QIFs, specific valuation requirements under Chapter 12 apply more selectively.
3. How does the FSRA expect ADGM fund managers to manage conflicts of interest?
Managers must identify and manage conflicts between their interests and those of fund investors. This can include maintaining a conflicts register, identifying conflicted parties, restricting participation in decisions where appropriate, assessing transaction terms and making required disclosures to investors.
4. Are related-party transactions subject to additional requirements for ADGM funds?
Yes. Public Funds and Exempt Funds can be subject to specific requirements for transactions involving an Affected Person, including requirements concerning arm’s-length terms and appropriate oversight or approval. QIFs are subject to a narrower selection of Chapter 12 provisions, so the applicable requirements should be assessed based on the fund’s classification.
5. What should an ADGM fund manager prepare before launching a fund?
A manager should have clear arrangements for custody and asset ownership, documented valuation procedures, a conflicts management process, and constitution and prospectus provisions that accurately reflect how the fund will operate. Records of key decisions and oversight should also be maintained to demonstrate compliance with applicable FSRA requirements.