Special funds in Kenya are the fastest-growing corner of the collective investment scheme market, now worth over KES 200 billion and rising. This article explains what a special fund actually is, how it differs from an alternative investment fund, and what you should check before you invest.
Series note: This is the third and final article in our three-part Investment Funds series. In the first article we traced the long history of pooled investment and the birth of the unit trust. In the second we looked at how collective investment schemes work in Kenya, how the Capital Markets Authority and the 2023 Regulations protect the ordinary Kenyan saver, and what the Cytonn story teaches about the difference between a regulated product and an unregulated one. Here we turn to the part of the market that is growing fastest and asking the hardest questions of investors: the special fund.
What a special fund actually is
A special fund is a category of collective investment scheme created by the Capital Markets (Collective Investment Schemes) Regulations, 2023, Legal Notice No. 173 of 2023. It sits alongside the money market fund, the equity fund, the fixed income fund and the balanced fund, all of which are listed in regulation 102(1).
The special fund is the fifth category, at regulation 102(1)(e), and it is different in kind from the others.
The ordinary categories are defined by what they may hold. A money market fund under regulation 102(1)(a) invests only in interest earning money market instruments with a maximum weighted average tenor of 18 months, things like Government securities, call deposits, fixed deposits with banks and credit rated or guaranteed commercial paper. An equity fund must keep at least 60% of its assets in shares, and a fixed income fund at least 60% in bonds and similar instruments.
These funds are boxes with clear walls. A special fund has softer walls.
Regulation 102(1)(e) does not prescribe a fixed list of assets. Instead, it says the fund shall be based on the fund manager’s investment strategy in the investment policy statement, which must be clearly described in the information memorandum and approved by the Authority on a case-by-case basis, subject to continuous disclosure to investors.
In plain terms, the manager tells the CMA what it intends to do and where it intends to invest, and the CMA either approves that mandate or it does not. That is why you will see special funds investing in things ordinary Kenyan unit trusts never touched: global equities in New York, London and Frankfurt, offshore bonds, private debt, commodities, precious metals and structured products.
There are, however, real limits inside regulation 102(1)(e). The market value of an interest-bearing investment in any single bank, financial institution or insurance company, or a combination in a single one, cannot in aggregate exceed 25% of assets under management. Investment in alternative investments is capped at a maximum of 80%.
Investment in a related company is limited to 25% of assets under management. And there is a minimum investment of KES 100,000 for each investor, which the investor must maintain throughout the life of the investment except where the value falls because of market movements.
That figure of KES 100,000 matters, because it is where special funds in Kenya are most often misrepresented. The threshold for a special fund under the CIS Regulations is KES 100,000, not KES 1 million. The 1 million figure belongs to a different regime, the alternative investment fund, which we come to shortly. Getting this wrong is the single most common error in the market commentary, and it changes who can lawfully invest.
The naming rule is worth knowing too. Regulation 13(3) requires that a special fund include the word “special” in its name and describe the characteristics of the assets it holds. So when you see the Arvocap Multi Asset Strategy Special Fund, the Mansa-X Special Fund or the Oak Multi Asset Special KES Fund, the word special is not marketing. It is a statutory label telling you that this fund operates under the wider mandate of regulation 102(1)(e).
The one power an ordinary fund does not have
The most important difference between a special fund and every other category is leverage. The proviso to regulation 102(1) states plainly, at paragraph (ix), that no assets under management in a money market, equity, fixed income or balanced fund may be leveraged. Borrowing to invest is forbidden for those funds.
The special fund is the only category allowed to do it. Regulation 102(1)(e)(iii) permits the portfolio to be leveraged to a ratio to be determined by the fund manager, provided that the ratio and the stop loss measures are disclosed in the information memorandum and the investment policy statement.
Notice what the Regulations do and do not do here. They permit leverage, they require the ratio to be disclosed, and they require stop loss measures to be disclosed, but they do not set a numeric ceiling.
There is no rule that says a special fund may borrow only up to a stated percentage of its net asset value. The ratio is left to the manager and the discipline is disclosure. For an investor, this is the single most important line in the document. A fund that can borrow can amplify gains, and it can amplify losses just as fast.
How a special fund differs from an alternative investment fund
Special funds are constantly confused with alternative investment funds, and the confusion is understandable because both regimes were born on the same day and both allow the exotic. They are, though, two separate regimes with different rules and different investors in mind.
The alternative investment fund is governed by its own instrument, the Capital Markets (Alternative Investment Funds) Regulations, 2023, Legal Notice No. 170 of 2023, which appeared in the same Kenya Gazette of 15 December 2023 as the CIS Regulations.
An alternative investment fund is defined as a collective investment scheme that privately pools funds from at least two but not more than one hundred investors, in Kenya or outside Kenya, according to a defined investment policy. Three features set it apart. It is private, so it may raise money only by private placement and not by public offer. It is capped at 100 participants. And it will not accept an initial investment of less than KES 1 million from a participant, who must maintain that minimum throughout.
This is the regime for private equity, venture capital, hedge funds, property funds and infrastructure funds, the world of institutions and high net worth investors.
The special fund, by contrast, is a public facing collective investment scheme. It can be offered to the public, it has no one hundred investor cap, and its minimum is the KES 100,000 in regulation 102(1)(e)(v).
So the practical distinction is this. If a product is open to the public, carries the word “special” in its name, and asks for KES 100,000, it is a special fund under Legal Notice 173 of 2023. If it is offered privately to no more than 100 investors and asks for KES 1 million a head, it is an alternative investment fund under Legal Notice 170 of 2023.
Both require a licensed fund manager and an independent custodian, and both must be approved by the CMA, but they are not the same animal and the eligibility rules are different. Real estate investment trusts, for completeness, are a further specialised form of collective investment scheme governed by their own rules, the Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations, and not by regulation 102 at all.
The special funds that actually exist in Kenya
By the quarter ended 31 March 2026, the CMA’s Collective Investment Schemes Quarterly Report put total industry assets at 851.7 billion shillings, and special funds accounted for 203.6 billion shillings of that, about 23.9 per cent of the whole market, up from about five per cent at the end of 2021. Special funds in Kenya are now the fastest growing part of the collective investment scheme market.
Standard Investment Bank was first off the block. On 1 August 2024 it announced that the CMA had licensed it to operate special collective investment schemes, at which point its long running Mansa-X strategy became the Mansa-X Special Fund in Kenya shilling and dollar classes, together with the Mansa-X Shariah Special Fund.
Market commentary describes Mansa-X as the first fund licensed under the special category in Kenya, and it is comfortably the largest. By March 2026 the Mansa-X family of funds held about three quarters of all special fund assets in the country.
Other managers have followed. Arvocap Asset Managers Limited runs, among others, the Arvocap Multi Asset Strategy Special Fund, which uses a leveraged multi asset approach. Others include the Etica and Oak special funds, the Sanlam Multi-Asset Special Kenya Shilling Fund and the XENO Kenya International Equity Special Fund in dollars, the latter two approved by the Authority in November 2025.
These are all real, CMA approved, and easy to confuse with one another, which is exactly why the offering documents matter.
Why lawful special funds still fail, and the Woodford lesson
Article 2 drew a bright line between regulated and unregulated products. Cytonn High Yield Solutions failed partly because it sat outside the regulatory perimeter. Special funds are inside the perimeter. They are approved, they have trustees and custodians, and their assets are segregated.
So the question changes. It is no longer whether the fund is regulated. It is whether a fully regulated fund can still hurt you. It can, and the clearest illustration is British, not Kenyan.
The Woodford Equity Income Fund was one of the most celebrated funds in the United Kingdom. It was authorised, it was regulated by the Financial Conduct Authority, and its value grew to a peak of just over 10.1 billion pounds by May 2017. It was an open-ended fund that promised daily dealing, meaning investors could ask for their money back on any business day.
The problem was that the manager, Neil Woodford, had steadily moved the portfolio into illiquid and unquoted holdings that could not be sold quickly. As performance fell and investors asked for their money, the manager sold the assets that were easy to sell and was left holding the ones that were not.
By the time the fund was suspended on 3 June 2019 only 8% of its investments could be sold within 7 days, even though under the rules in place investors should have been able to access their money within 4 days. Investors were trapped. The fund never reopened. It was wound up, and more than 300,000 ordinary savers were locked in.
The regulatory aftermath is instructive. On 11 April 2024 the FCA published its findings against Link Fund Solutions, the fund’s authorised corporate director, concluding that it had failed to act with due skill, care and diligence and that between 31 July 2018 and the suspension on 3 June 2019 it had failed to manage the fund’s liquidity.
A redress scheme of up to 230 million pounds, sanctioned by the High Court in February 2024, began paying the investors who were trapped when the fund suspended, with Link’s parent contributing up to a further 60 million pounds to bolster it.
Then, on 5 August 2025, the FCA issued decision notices fining Neil Woodford 5,888,800 pounds and Woodford Investment Management 40 million pounds, close to 46 million pounds in total, and moving to ban him from senior manager roles and from managing funds for retail investors. It found that he had held a defective and unreasonably narrow understanding of his own responsibility for liquidity.
Both Mr Woodford and his firm referred the notices to the Upper Tribunal, which they are entitled to do, so the findings against him are not yet final. In June 2026 the FCA separately commenced civil proceedings against him in connection with a new venture, so his dispute with the regulator continues.
The Woodford lesson is not that regulation failed. It is that regulation cannot replace arithmetic. A fund that promises you your money on demand cannot honour that promise if it has quietly filled itself with assets that take months to sell.
This is called liquidity mismatch, and it is the specific danger inside a lawful special fund. Add leverage, which regulation 102(1)(e)(iii) permits, and the risk sharpens, because borrowings must be serviced and repaid whatever the market is doing. None of this is a reason to avoid special funds in Kenya. It is a reason to read them properly.
What to check before you invest in a special fund
My approach, as a capital markets lawyer, to a special fund is to read the documents before reading the returns. Start with the trust deed and the information memorandum.
Under regulation 21 the information memorandum must comply with the Third Schedule, and under regulation 22 the fund manager must also produce a key investor information document. These are not brochures. They are the contract, and the information memorandum must be available for inspection under regulation 23.
Read the stated investment policy in regulation 102(1)(e) terms. Where can this fund actually invest, how much of it can go into alternative investments, and up to what leverage ratio. The ratio and the stop loss measures must be disclosed under regulation 102(1)(e)(iii). If you cannot find them, that absence is itself the answer.
Read the redemption terms. How quickly can you get your money out, what notice must you give, and, crucially, what powers does the manager have to gate or suspend redemptions in stressed conditions. A fund that invests in illiquid or offshore assets but promises instant exit is making the Woodford promise, and you should understand how it intends to keep it.
Read the costs too. Special funds tend to carry higher management fees than money market funds, and some impose lock in periods. Read who the trustee and the custodian are, because under the 2023 Regulations they are your protection.
The trustee’s duty under regulation 36 is to take reasonable care that the manager stays inside the mandate, and the custodian holds the assets separately so that they are not the manager’s to lose. A fund manager must be independent of the trustee and the custodian under regulation 12.
Finally, confirm that the fund is actually approved. Only the CMA can approve a scheme, and it maintains a public register of licensees and approved funds on its website. If a product carries the word “special” but does not appear on that register, treat it the way Article 2 taught you to treat Cytonn High Yield Solutions.
For fund managers, the route to a special fund runs through regulation 10, an application to the CMA supported by the formation documents, the information memorandum, the risk management policy in the Fifth Schedule, and the details of an independent trustee and custodian. The Authority has 60 days under regulation 15 to process a complete application and may impose conditions on approval.
Managers should also note that fund manager licensing now sits under the Capital Markets (Licensing Requirements) (General) Regulations, 2025, Legal Notice No. 197 of 2025, which came into force on 11 December 2025 with a compliance deadline of 11 December 2026 and higher capital thresholds.
The case for more special funds, not fewer
I should declare where I stand. I act for a number of fund managers who run special funds, and having watched this market from the inside I hold a firm view that the numbers now support. Special funds are the most important thing to happen to Kenyan capital markets in a generation.
In under five years they have grown from about five per cent of the collective investment scheme market to 203.6 billion shillings, nearly a quarter of an industry now worth 851.7 billion shillings. That growth did not come from nowhere.
It came from ordinary Kenyan investors discovering that for KES 100,000 they can hold global equities, dollar assets, commodities and private markets through a CMA approved, trustee supervised, custodian protected vehicle, returns that were once the preserve of the wealthy and the offshore account. Money market funds taught Kenyans to save. Special funds are teaching Kenyans to build wealth, and the wealth already created speaks for itself.
That is why my message to fund managers is direct. The framework exists, the appetite is proven, and the pioneers have shown that the CMA will approve well constructed mandates.
Kenya needs more special funds, not fewer, and it needs them across a wider range of strategies, in private credit, in infrastructure, in regional and global markets, in shariah compliant portfolios, so that competition deepens the market and gives investors genuine choice rather than a handful of dominant products. A manager with a credible strategy and the discipline to document it properly should be in front of the Authority, not on the sidelines.
The Capital Markets Authority deserves credit for creating the category, and the invitation now is to lean into it. Alternative investments are where the next phase of Kenyan capital markets growth will come from, because a market built solely on Treasury bills and bank deposits will never mobilise the long-term capital this economy needs.
Every special fund approved channels Kenyan savings into productive assets, broadens the investor base and deepens the market the Authority exists to develop. An approval process that is rigorous but predictable, and a supervisory posture that treats innovation as something to be shaped rather than feared, will do more for market development than any single policy paper.
The industry, for its part, must earn the confidence it is asking for. The time is right for special fund managers to come together, whether through a formal association or an agreed code, and set their own standards above the regulatory floor, on valuation, on disclosure of leverage and liquidity, on reporting to investors, on governance of the manager itself.
The lesson of this series is that trust is the whole business. Cytonn showed what happens outside the perimeter, and Woodford showed that even inside it, discipline is what keeps the promise. A market that polices itself to a higher standard than the law demands is a market investors run towards, and the managers who lead that effort will be the ones who define the next decade.
Closing the series
We began this series with history, the slow invention of the idea that ordinary people could pool their savings and own a slice of something larger. In the second article we saw how Kenya built a modern legal home for that idea, and how the line between regulated and unregulated products decides who carries the loss when things go wrong.
The special fund is where that story matures. The old question, is this product regulated, has largely been answered in the investor’s favour by the 2023 Regulations. The new question is subtler, and it is the one every Kenyan moving from a money market fund into a special fund now has to ask.
Within a fully regulated, fully approved fund, what am I actually holding, how quickly can I leave, and how much has the manager borrowed to get these returns. Regulation has drawn the outer boundary. Inside it, the reading is yours to do, and mine at a fee.
To follow the series as each part is published, visit the firm’s insights page at www.pmlaw.co.ke/insights.
Peter Maina is one of the leading capital markets lawyers in Kenya. He has advised fund managers, trustees, custodians and investors on the setting up, licensing and governance of fund managers, the approval and structuring of collective investment schemes and special funds, and regulatory engagement with the Capital Markets Authority.
This article states the position as at August 2026. It is for information purposes only and is not a legal opinion, talk to a lawyer for that. Should you need assistance or advice relating to capital markets, collective investment schemes and special funds or any related matters, reach out via e-mail or WhatsApp on +254 714 644 080.
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