Does Your Fund Need CMA Approval? Kenya’s Alternative Investment Funds Regulations Explained

In brief

• Kenya has a dedicated rulebook for private investment funds. The Capital Markets (Alternative Investment Funds) Regulations, 2023, published as Legal Notice No. 170 on 27 October 2023, require every alternative investment fund operated in Kenya to obtain approval from the Capital Markets Authority.
• An alternative investment fund is a scheme privately pooling money from between two and one hundred investors under a defined investment policy. Private equity funds, venture capital funds, hedge funds, private debt funds, property funds and infrastructure funds all fall within the net.
• The one year transition window for existing funds closed in late 2024. A fund within the definition operating in Kenya today without approval, and without a pending application, is committing an offence under the Capital Markets Act.

If you run or are raising a private equity, venture capital, private credit or property fund with Kenyan investors or a Nairobi management team, or you have been invited to invest in one, this guide tells you whether the Capital Markets Authority must approve it. For decades, private capital in Kenya operated in a quiet space between the regulated world of licensed collective investment schemes and the unregulated world of a handshake among friends. Private equity and venture funds structured offshore, syndicates pooled into special purpose vehicles, and nobody was quite sure where, if anywhere, the Authority’s writ ran. The Alternative Investment Funds Regulations of 2023 ended the ambiguity for funds operated in Kenya, and created a new set of questions for everyone else. Nearly three years on, Nairobi’s fund community still asks the same handful of questions, and the answers are not written down anywhere useful. This guide answers them from the text of the Regulations, and says so plainly where the law is unsettled.

What counts as an alternative investment fund

The definition in regulation 2 does most of the work, so it deserves a careful reading. An alternative investment fund is a collective investment scheme that privately pools funds from at least two but not more than one hundred investors, in Kenya or outside Kenya, to invest on the investors’ behalf in accordance with a defined investment policy statement.

Four elements matter. There must be pooling, so a manager running fully segregated accounts for individual clients sits outside the definition. The pooling must be private, meaning no invitation to the public, which is what separates an alternative investment fund from a licensed unit trust, a special fund or any other public collective investment scheme. The investor count must sit between two and one hundred. And the pooled money must be deployed under a defined investment policy.

Regulation 3(3) names the fund types the Authority expects to approve, namely debt funds and debt linked funds, equity and equity linked investments, hedge funds, property funds, infrastructure funds, and a residual category for any other alternative investment fund. In practice this covers the whole of the private capital market, from a first time venture fund to a large private credit vehicle.

An alternative investment fund ordinarily takes one of three legal forms, and the Authority may prescribe documents for any other. The definition of formation documents in regulation 2 contemplates a trust, including a unit trust, constituted by a trust deed, an investment company constituted by its memorandum and articles, or a limited liability partnership constituted by its partnership deed, and regulation 4 requires the formation documents to conform with the Second Schedule and to give the fund express power to operate as an alternative investment fund.

What is expressly outside the net

Regulation 4(2) excludes a defined list of arrangements. Family trusts are out. Employee participation and employee savings schemes are out. Holding companies are out. Securitisation special purpose vehicles are out. And the same regulation carries a further exclusion, easy to miss and quietly important in the Kenyan context, for pooling by members of a club or association, whether or not incorporated, where the members can reasonably be regarded as having a common interest with each other and in the affairs of the club and in what is done with the proceeds.

This last exclusion is where most chamas and genuine investment clubs will find shelter. A group of colleagues or friends contributing monthly and deciding together what to buy is a club of persons with a common interest, not an alternative investment fund. The picture changes as the arrangement professionalises. Once a promoter is recruiting strangers, charging management fees and running a defined investment policy on their behalf, the club exclusion becomes hard to sustain, and the arrangement starts to look exactly like the thing the Regulations regulate.

The three questions Nairobi keeps asking

Is an offshore fund with Kenyan deals caught?

This is the most common question in the market and it deserves an honest answer rather than a confident one. The definition speaks of pooling from investors in Kenya or outside Kenya, but those words describe the investors, not the fund. The Regulations are made under the Capital Markets Act, whose reach is Kenyan. The better reading is this. A Cayman or Mauritius fund, managed abroad, which simply acquires a Kenyan portfolio company does not become a Kenyan alternative investment fund by virtue of the acquisition alone. What changes the analysis is activity in Kenya, whether a Kenyan management team running the fund from Nairobi or the raising of money from Kenyan investors. A fund operated from Kenya is within the regime wherever it is incorporated, and a structure built to dress a Nairobi managed fund in offshore clothing invites the Authority to look through it. No guidance or decided case yet draws this line precisely, and I say so because certainty on this point does not currently exist. Structure with advice, not with assumption.

Does an angel syndicate need approval?

It depends on what the syndicate is. A one off special purpose vehicle formed by a handful of investors to hold a single deal, with no ongoing manager discretion and no defined investment policy beyond the deal itself, sits awkwardly in the definition and in my view falls outside it. A standing syndicate with a lead who raises from a rotating pool of backers, charges carry, and deploys under a stated strategy is pooling private capital under a defined investment policy, which is the definition of an alternative investment fund. Syndicate leads treating this as a grey area should note the direction of travel. The structure they are building is the one the Regulations describe.

Who needs the approval, the fund or the manager?

Both, in different ways. The fund itself needs the Authority’s approval to exist and operate. The fund manager must hold a fund manager licence from the Authority, and the application file requires a certified copy of it. Under the Capital Markets (Licensing Requirements) (General) Regulations, 2025 a licensed fund manager must keep shareholders’ funds of at least KES 20 million, and the Authority’s Circular No. 06/2026 adds liquid capital of KES 5 million or eight percent of its liabilities, so the manager’s balance sheet is part of the fund’s compliance story. A promoter without a licensed manager has two options, obtain the licence or appoint a licensed manager, and neither is optional.

The approval process, step by step

The application goes to the Authority in the form set out in the First Schedule, accompanied by the formation documents, details of the key officers and functionaries, the draft placement memorandum and the fee. The Authority examines eligibility under regulation 4, which requires conforming formation documents with no provisions unfairly prejudicial to participants, no invitation to the public, fit and proper directors, trustees or partners, adequate infrastructure and human resources, and a key investment team with at least one person holding relevant professional qualifications and not less than five years’ experience in managing pools of capital, fund or portfolio management, or dealing in securities.

The fees in the Third Schedule are refreshingly modest by the standards of Kenyan financial services licensing. The application fee is KES 10,000 and the approval and annual regulatory fee is KES 250,000.

Two features of the process matter commercially. First, under regulation 6(3) a fund manager may accept commitments from investors once the application is submitted, but must not accept any money until approval is granted. A first close is lawful on paper before approval, but the wire transfers wait. Second, the placement memorandum is not a private document. Under regulation 13 it goes to the Authority, which approves it subject to incorporation of its comments. Budget time for this in any fundraising calendar.

Where the Authority is minded to refuse, regulation 8 requires it to give the applicant an opportunity to be heard and to communicate the decision with grounds within fourteen days, and the applicant has fifteen days to appeal to the Capital Markets Tribunal.

The rules an approved fund lives under

The ongoing regime is real, and any manager used to the freedom of an offshore structure should read this part twice.

Under regulation 12, every participant must invest a minimum of KES 1 million and must maintain that minimum in book value throughout the life of the investment. The fund is capped at one hundred participants. Capital is raised by private placement only. The fund manager may hold a continuing interest in the fund, but not through a waiver of management fees.

Regulation 15 requires the fund manager to appoint a custodian licensed by the Authority for the safekeeping of scheme assets. This requirement fits liquid portfolios naturally and private equity portfolios awkwardly, since the assets are shares in private companies rather than tradeable securities, and managers should engage custodians and the Authority early on how custody of private assets will work in practice. Regulation 16 requires an annual audit by an auditor in good standing with the Institute of Certified Public Accountants of Kenya. Under regulation 19, net asset value must be calculated at least quarterly and disclosed to the Authority and the participants, and an independent valuer must value the fund’s investments at least annually.

Transparency runs on a quarterly rhythm. Regulation 18 requires quarterly reports to participants covering financial information on investee companies, fees charged by the manager and its associates, regulatory inquiries, and material risks, expressly including concentration, foreign exchange, leverage, realisation, strategy, reputation and environmental, social and governance risks. Records must be kept for seven years after the fund winds up.

The investors hold real power in the structure. A material change to the investment strategy needs the consent of two thirds of participatory interest holders by value under regulation 11, and regulation 7(2) adds that an approved fund shall not amend its investment policy statement without the approval of the Authority as well as its participants. Extending the fund’s tenure needs the approval of two thirds of participants by number and value under regulation 14, failing which the fund must fully liquidate within a year of its stated tenure expiring. Participants holding seventy five percent by value are able to resolve to wind the fund up under regulation 24, and removal of the fund manager by the participants under regulation 23 requires an extraordinary resolution passed by a three quarters majority in value, excluding interests held by the manager and its associates, and of the total number of participants. The same regulation removes a manager automatically if the Authority suspends or revokes its licence, and allows the fund’s board, partners or trustee to remove it on three months’ notice where it goes into liquidation or administration, or where they state in writing that a change is desirable in the participants’ interest.

The transition window has closed

Regulation 33 gave funds already within the definition one year from commencement to apply for approval, with a right to continue operating while a timely application was determined. The Regulations were published in the Gazette Supplement of 27 October 2023, and Kenya Law also records their publication in the Kenya Gazette of 15 December 2023, so on either reading the window closed by December 2024. A fund within the definition operating in Kenya today without approval or a pending application is required to cease activity. Regulation 33(2) makes failure to cease an offence, regulation 32 attaches the penalties under section 34A of the Capital Markets Act, and regulation 30 adds liability for loss or damage suffered as a result of the contravention. The Authority also holds inspection powers over approved funds and, under regulation 28, a menu of directions after a breach, including prohibiting new pooling, ordering the disposal of assets, ordering refunds to participants with interest, and barring persons from the capital market for a stated period.

For managers in this position the practical advice is simple. An unapproved fund is a problem which compounds. Regularise now, on your own initiative and with a well prepared file, rather than after the Authority finds you. The Authority has begun approving funds under the Regulations, including a trust structured alternative investment fund sponsored by a teachers’ savings movement in May 2026, so the path is open and the Authority knows how to walk it.

There is one safety valve worth knowing. Regulation 31 allows the Authority to exempt a person from any of the provisions for up to twenty four months within the regulatory sandbox, for furthering innovation in the capital markets. For novel structures, including tokenised or digital asset funds sitting at the boundary of this regime and Kenya’s new virtual asset rules, the sandbox is a legitimate front door.

What this means for investors

If you are being invited into a private fund in Kenya, the Regulations hand you a short due diligence checklist. Ask whether the fund holds the Authority’s approval, ask for the approved placement memorandum, and confirm that the manager is licensed and that a licensed custodian holds the assets. The KES 1 million minimum tells you the regime assumes sophisticated participants rather than retail savers, and the quarterly reporting and annual independent valuation give you contractual and regulatory rights to information most private funds never used to offer. An operator who cannot answer the approval question is telling you something important.

What happens next

The Authority has signalled continuing attention to the private funds market, and the interaction between this regime, the 2025 licensing rules for fund managers, and the new virtual asset framework will generate guidance and, in time, enforcement. The open questions flagged above, especially the territorial reach of the regime over offshore structures with Kenyan management, are the ones to watch. I will analyse each development as it lands.

Frequently asked questions

What is an alternative investment fund in Kenya?

A collective investment scheme which privately pools money from between two and one hundred investors to invest under a defined investment policy, as defined in regulation 2 of the Capital Markets (Alternative Investment Funds) Regulations, 2023. The named categories are debt and debt linked funds, equity and equity linked investments, hedge funds, property funds and infrastructure funds, which between them cover private equity, venture capital and private credit.

Who approves alternative investment funds in Kenya?

The Capital Markets Authority, under the Capital Markets (Alternative Investment Funds) Regulations, 2023. The fund obtains approval and the fund manager must hold a CMA fund manager licence.

What is the minimum investment in an alternative investment fund in Kenya?

KES 1 million per participant, maintained in book value throughout the investment, under regulation 12. A fund is limited to one hundred participants and raises money by private placement only.

Does a chama need CMA approval as an alternative investment fund?

In almost every case, no. Regulation 4(2) excludes pooling by members of a club or association with a common interest, as well as family trusts, employee schemes, holding companies and securitisation vehicles. The analysis changes where a promoter runs the pool as a business for strangers under a defined strategy.

Does a foreign fund investing in Kenya need CMA approval?

Not merely because it owns Kenyan assets. The regime bites on funds operated in Kenya or raising money from Kenyan investors, and the precise boundary has not been settled by guidance or case law. Offshore structures with Kenyan managers need specific advice.

What does CMA approval of an alternative investment fund cost?

The application fee is KES 10,000 and the approval and annual regulatory fee is KES 250,000 under the Third Schedule. The real cost sits in the compliance architecture, which requires a licensed manager, a licensed custodian, an annual audit, quarterly net asset value and reporting, and an annual independent valuation.

What happens if a private fund in Kenya operates without CMA approval?

The transition window under regulation 33 closed in late 2024. Continued operation without approval or a pending application is an offence under regulation 32, attracting the penalties in section 34A of the Capital Markets Act, and the Authority may direct the fund to stop pooling money, dispose of assets and refund participants with interest under regulation 28.

Peter Maina is an advocate of the High Court of Kenya and the Managing Partner of Peter Maina & Company Advocates in Nairobi, where he leads the firm’s capital markets practice and advises fund managers, promoters and investors on fund structuring and approvals before the Capital Markets Authority. This article states the law as at 4 September 2026. It is general information, not legal advice. For advice on your specific structure, contact the firm.