Global fund managers are increasingly turning their attention to the UAE. High-profile firms are choosing to establish a presence in Dubai and/or Abu Dhabi to gain access to a growing asset base in the region.

The year 2023 saw an unprecedented number of asset managers and hedge funds choosing to register in one or both of the UAE’s financial hubs, Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM). There has been particular interest from UK based funds. The size of the wealth and asset management sector in the DIFC is currently worth US$450 billion and is likely increase exponentially over the coming years.

Dubai of course is seen as a gateway to the region, including Saudi Arabia. At present, there are more than 350 asset management companies, including hedge funds and private equity ventures, in Dubai.

Many regional and international asset managers (e.g., Franklin Templeton and NBK Capital, Schroder Investment Management Ltd., MFS International (U.K.) Ltd., and FIL Distributors International Ltd. — Fidelity International) have established operations in the DIFC and tend to target institutional investors and family office investors. NBK Capital has Saudi’s Public Investment Fund (PIF) as its largest investor. Leading alternative asset management firm Hayfin recently announced the opening of its new representative office in the DIFC. Through this opening, Hayfin is looking to strengthen its footprint in the MENA region.

The DIFC essentially aims to compete with Singapore and Hong Kong for hedge fund businesses outside of the traditional hubs like London and New York. 

In order to attract new fund management companies, the DIFC Authority recently introduced significantly reduced registration fees. No application fee is now payable by a fund manager setting up in the DIFC, and the annual commercial license fee has been slashed to US$2,000 from US$12,000. New incentives for VCs and fund managers have also been introduced by the DIFC Authority, including no regulatory capital requirement. The regulatory capital requirement for other types of fund have also been reduced from US$500,000 to US$70,000 for QIFs and exempt funds, and US$140,000 for public funds. It is very likely that fund managers will want to benefit from reduced costs and streamlined QIF regime.

While the DIFC has emerged as a financial hub in recent years, the growing popularity and significance of ADGM cannot be underestimated. In fact, ADGM might just be becoming the preferred jurisdiction due to regulatory ease and close proximity to ‘deeper pockets’.

Last year, global alternative investment manager Brevan Howard announced the doubling of its headcount in Abu Dhabi and the appointment of its first Middle East-based CEO recognizing an “unprecedented” opportunity for growth in the region.

It is important to look at some core differences between the DIFC and the ADGM.

The DIFC opened in 2004, while the ADGM began operations in 2015. They differ in their application of English law, court systems, arbitration and insolvency law regulations.

While the DIFC is a bit more established and is considered by some as more vibrant from a staffing and infrastructure perspective, ADGM has the advantage of being close to a number of the world’s largest sovereign wealth funds. These include the Abu Dhabi Investment Authority, Mubadala and ADQ. These huge entities often place money in alternative investment strategies such as hedge funds.

ADGM has created a very friendly regulatory, legal and tax environment. In particular, it has instituted legal and regulatory frameworks that are specific to asset management and allow common cross-border structures such as master/feeder structures, limited partnerships, open or closed ended investment companies, investment trusts, protected cell companies, umbrella funds and SPVs and holding companies.

In addition, fund managers can establish many different types of funds in ADGM, including mutual funds, hedge funds, private equity funds, property funds, REITs, listed funds, Sharia compliant funds and venture capital funds.