Dubai’s capital current: What it means for hedge funds
As an independent free zone, DIFC provides an optimal legal and regulatory infrastructure and support for hedge funds seeking access to the MEASA region.
3 min read
Growth markets across the Middle East, Africa and South Asia (MEASA) region are attracting the attention of financial institutions and investors around the world. As governments pursue economic diversification and economies transition towards fully digitised operations, MEASA markets offer enormous untapped potential for ambitious investors.
Dubai is seeing significant growth in investment capital. According to Dubai Investment Development Agency, part of the Department of Economic Development in Dubai, the Emirate saw a 16% rise in investment projects in the first nine months of 2021, attracting around $4.33bn in foreign direct investment – and the numbers are only trending upwards.
“Private wealth is where we are seeing real growth,” says Ali Hassan, senior representative for Europe and North America at Dubai International Financial Centre (DIFC), the leading global financial centre in the MEASA region. “Hedge fund portfolio managers are coming to Dubai and making investment decisions. For them, Dubai is the place where talent wants to come to make the most of the attractive business environment and experience the city’s world-class lifestyle offerings,” he adds.
An optimum location for asset raising
“The MEASA region itself is a significant source of capital, and this has been well established over decades,” Hassan explains. “It has an aggregate of around $7trn of investable assets.”
The total value of assets includes both traditional sovereign wealth funds and an increasingly active private wealth pool of around $3.5trn, he says.
“Sovereign wealth funds have always been sophisticated, but what we are seeing now is a substantial growth in private wealth,” adds Hassan. “Private wealth has traditionally been held in assets, such as cash, real estate and physical businesses. Now, this capital is increasingly being invested in financial markets, resulting in a significant increase in assets under management.
“Dubai is a great location for asset raising, and there is a real appetite for alternative assets. Venture capital firms and asset managers are seeing value in their fixed income strategies for regional clients and realising that there is more they can do in the region if they have a more substantive presence.”
DIFC: An ideal base for international hedge funds
As an independent free zone, DIFC provides an optimal legal and regulatory infrastructure and support for hedge funds seeking access to the MEASA region. This framework is based upon English common law, which is the global standard for financial services. In recent years, DIFC has also made several enhancements for hedge fund clients looking to domicile both their manager and fund at DIFC. For such firms, DIFC registration costs have been waived, regulatory capital has been reduced, and regulatory fees have been lowered by up to 60–80%, depending on the business model.
“As the premier financial centre in the region, DIFC is a natural choice for a hedge fund’s location,” Hassan explains. “In DIFC, the hedge fund community is well connected. They feel comfortable because their peers and major global and regional financial institutions are present.”
Why hedge funds and portfolio managers are choosing Dubai
Investors are looking to benefit from Dubai’s reputation as a business-friendly environment with unique lifestyle opportunities. “Hedge funds and portfolio managers are seeking to relocate to Dubai,” says Hassan.
Portfolio managers value Dubai’s appeal, especially in contrast with their respective cities, which remained closed during Covid-19. Firms realised that Dubai is highly vaccinated and open for business. The city is modern, cosmopolitan and safe for families, and offers outstanding healthcare and education. For hedge funds, DIFC’s legal and regulatory platforms are world-class and benchmarked against top global financial centres. As a result, firms and individuals are moving here, many with families.
The post-Covid work environment allows for more flexibility since the pandemic broke the relationship between ‘what you do’ and ‘where you do it’. Companies noted that they have the luxury of attracting talent to the most desirable locations. The UAE government is highly supportive, offering enhanced visa schemes, including the five and ten-year Golden Visa, providing hedge funds managers with the ability to attract and retain world-class talent.
Dubai’s geographical location and time zone are also advantageous for those with global strategies. The Emirate serves as a bridge between the leading financial centres of London and New York in the West, and Hong Kong and Singapore in the East. Furthermore, Dubai’s airports provide easy and regular connectivity to almost all major cities of the world.
From the respected legal framework and ultra-low rate of taxation to the multiple opportunities for building lasting business connections, these factors provide investors with greater certainty. DIFC offers hedge fund managers the support they need to access the wealth of opportunities available in the region, along with the chance to operate from a leading regional hub alongside prestigious peers.