5.1 Investment Objective

CIS Principle 10 already requires that a CIS should disclose its investment policy in its offering document. The investment policy of a CIS, which in general terms includes its investment objectives and risk profile, is critical to the prospective investor's decision about whether or not to invest in a particular CIS. Supervision of the operator should therefore ensure that the investment policy is followed on an ongoing basis. This may involve periodic review of the investment portfolio of a CIS to ensure that the CIS is in fact invested in accordance with its stated objectives, whether in terms of asset class, geographical spread, or risk profile.

5.2 Investment and Borrowing Restrictions

CIS Principle 8 already contemplates that regulations would be in place which require an operator to invest in a minimum number of investments, as well as limitations on other forms of investment. Such restrictions exist to reduce a CIS's exposure to market movements in particular investments, as well as the risk of an individual investment failing. Typically regulatory requirements may restrict a holding in an individual investment to 10% of a CIS's net asset value.

In addition to regulatory requirements, the prospectus or rules of a CIS will set out a fund's investment objectives and any additional restrictions on investment and borrowing limits. These may include, for example, restrictions on the countries into which a CIS may invest as well as restrictions on the types of industry and the level of investment generally.

There are a number of reviews which may be undertaken to check compliance with a CIS's investment and borrowing restrictions. It may be appropriate to establish who, within the operator, has responsibility for the investment decision making process and how that person ensures that each CIS with similar investment objectives contains similar investments. In addition, checks can be carried out to confirm that regulatory and CIS specific investment restrictions have been complied with, including by those entities to whom investment functions have been delegated.