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The ADGM Fund Rules regulate the performance fee of a domestic fund in one way: they require it to be permitted by the fund’s Constitution and specified in its Prospectus.
The ADGM Fund Rules regulate the performance fee of a domestic fund in one way: they require it to be permitted by the fund’s Constitution and specified in its Prospectus. They do not regulate how it is built. There is no rulebook high-water mark, no hurdle, no crystallisation rule, and no clawback anywhere in the Fund Rules. The single operative provision is Rule 12.13.5, and it is a control on authorisation and disclosure, not on structure.
This holds across the whole rulebook. A search of FUNDS VER12.290426 for the structural devices that ordinarily discipline a performance fee, high-water mark, hurdle, crystallisation and clawback, returns nothing. The words do not appear. The rulebook leaves the design of the fee, including whether it crystallises on unrealised gains and whether a reversal is clawed back, to the fund’s own documents and to what the manager and its Professional Client investors agree.
The consequence differs sharply by fund type. For a Public Fund and an Exempt Fund, Rule 12.13.5 and the surrounding charge controls in Rule 12.13 apply in full. For a Qualified Investor Fund, Rule 12.13 is disapplied in its entirety, so even the authorisation-and-disclosure control is absent as a rulebook requirement. And a carried interest vehicle established to let a manager’s staff share in fund profit sits outside the Fund definition altogether under Rule 2.1.18.
Rule 12.13.5 provides that “no promotional payment, performance fee or benefit may be made out of or given at the expense of the Fund Property to the Fund Manager unless it is permitted by the Constitution and specified in the Prospectus.” Two conditions, both procedural: authorisation in the Constitution, and specification in the Prospectus. The rule does not prescribe the rate, the basis, the frequency of crystallisation, or any protective mechanic.
Rule 12.13.5 sits within a set of general charge controls that apply to the same fund types. Rule 12.13.2(1) requires that no payment be made to the manager out of Fund Property unless permitted by the Constitution and unless the Prospectus specifies how the payment is calculated, how it accrues, when it is paid, and the maximum and current rates. Rule 12.13.3 requires not less than 90 days’ written notice and approval by Special Resolution of unitholders before the manager introduces a new category of remuneration or increases its rate. These provisions govern the disclosure and the process by which a fee is introduced and changed. None of them constrains the internal design of a performance fee.
The structural protections that a sophisticated investor in an illiquid vehicle would look for are not imposed by the Fund Rules. There is no requirement for a high-water mark, so nothing in the rulebook prevents a manager from charging a performance fee on a recovery of value that an investor has already paid on once. There is no hurdle requirement, so nothing requires the fee to be earned only above a stated return. There is no crystallisation rule, so nothing in the rulebook prevents a fee from crystallising on an unrealised valuation rather than on a realised gain. There is no clawback, so nothing requires the return of a crystallised fee where the gain that generated it later reverses.
Each of those statements is a statement about the Fund Rules, verified against the text of FUNDS VER12.290426. It is not a statement that such structures are unregulated in every respect. Where the fee crystallises on a valuation, the manager remains subject to whatever valuation obligations apply to the fund type, and to the general duty in Rule 12.2 to manage the fund in accordance with its Constitution and Prospectus and to perform its functions properly. For a Public or Exempt Fund those valuation obligations are substantial. For a Qualified Investor Fund they are reduced to the single interval-valuation duty in Rule 12.4.1(b), which is the point at which the performance-fee question and the valuation question meet, and where the rulebook’s restraint is at its thinnest.
For a Public Fund and an Exempt Fund, Chapter 12 applies in full under Rule 12.1.1(1), so Rule 12.13 and Rule 12.13.5 bind the manager. A performance fee in either vehicle must be permitted by the Constitution and specified in the Prospectus, with the calculation, accrual and payment terms disclosed under Rule 12.13.2, and any new category of remuneration introduced only on 90 days’ notice and a Special Resolution under Rule 12.13.3. The structural design of the fee remains a matter for the documents, but the authorisation-and-disclosure gate is a rulebook obligation.
For a Qualified Investor Fund, Rule 12.1.1(3) lists the only provisions of Chapter 12 that apply, and Rule 12.13 is not among them. The authorisation-and-disclosure control in Rule 12.13.5 therefore does not bind the manager of a Qualified Investor Fund as a rulebook requirement. What discipline exists comes from the fund’s Constitution, from the principles-based offering-document standard in Rule 9.5.2, and from the general duty in Rule 12.2. This is developed in the companion article on Qualified Investor Funds.
Rule 2.1.18 excludes from the definition of a Fund “a carried interest vehicle which is established solely for the purposes of enabling officers, directors or employees of a Fund Manager, or related persons, to participate in carried interest or similar profit generated by one or more Funds.” A vehicle built solely to carry the manager’s own economics is therefore not a Fund, and the Fund Rules do not regulate it as one. The performance economics of a private-capital structure frequently sit in exactly such a vehicle, which means the rulebook’s performance-fee provisions and the carried-interest arrangement can be governed by different parts of the regime, or in the case of the carry vehicle, largely outside it. The boundary in Rule 2.1.18 is drawn by the word “solely”; a vehicle that does more than carry the manager’s participation may fall back inside the Fund definition, and that is a question of the vehicle’s actual purpose rather than its label.
The reading is settled on the text. Rule 12.13.5 is the only performance-fee provision in FUNDS VER12.290426; the absence of any high-water mark, hurdle, crystallisation or clawback requirement is confirmed by the full text; the disapplication of Rule 12.13 for Qualified Investor Funds follows from Rule 12.1.1(3); and the carried-interest exclusion is stated in Rule 2.1.18.
Two forward-looking points are open. First, Consultation Paper No. 12 of 2025 proposes streamlined frameworks for smaller and institutional fund managers and an employee-investment-vehicle exclusion, and a second consultation paper affecting the funds framework is planned for 2026. The FSRA has stated that the draft amendments accompanying the 2025 paper are indicative and should not be acted on until enacted, and none of them is reflected in VER12.290426. This article states the current rules; it will require review when those amendments are enacted. Second, obligations that sit outside FUNDS, in the GEN rulebook on systems and controls and in FSMR, bear on manager conduct and are referred to here rather than verified against those instruments.
For your facts, in confidence, put the question to the firm.
The bench stands behind it