Open a Hedge Fund in UAE
Updated on Thursday 18th March 2021
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One of the best destinations for opening an investment fund and performing investment activities in the United Arab Emirates (UAE). Foreign investors may open a hedge fund startup in this country, following the applicable regulations, which were last modified on the 1st of August 2016.
What is a hedge fund in UAE?
What is a hedge fund in UAE?
Foreign investors interested in how to start a hedge fund in UAE should know that there aren’t specific regulations concerning this type of vehicle. More exactly, it is treated under the same legislation applicable to other types of funds. Investment funds that are registered in the UAE will need to provide a prospectus, which will state relevant aspects, such as the objective of the fund, the investment policies applicable through the fund, and the manner in which the fund will be managed.
The above-mentioned regulations are also applicable to hedge funds, as prescribed by the UAE Central Bank. However, when investing in Dubai, UAE, the regulations for hedge funds will differ. Also, it is important to know that the investment vehicles registered as hedge funds do not prescribe any type of restrictions applicable to the investors.
As a general rule, in terms of taxation and legal structures, the UAE hedge funds will follow the same rules applicable to open-ended retail funds. Investors starting a hedge fund in the UAE must know that the vehicle is considered a legal entity, accountable for its liabilities. The investors are liable for the company’s debts only in accordance with the unit share they own within the fund.
Hedge funds regulatory framework in the UAE
Investment funds and investment companies operating in the UAE are regulated under the rules established by the Central Bank of the United Arab Emirates. However, investors interested in how to start a fund in the UAE will also need to follow the rules of the Commodities Authority of the United Arab Emirates, which generally establishes regulations for securities and for the domiciliation of foreign funds on the local market.
An important aspect that should be known by businessmen interested in investing in UAE is that the jurisdiction provides a dedicated area for performing business activities, the Dubai International Financial Centre (DIFC). Investment funds registered in Dubai, UAE, will fall under the regulations of the Dubai Financial Services Authority.
Although there is no standard rule of law regarding the registration of a hedge fund, the manner in which the vehicle will be incorporated will depend on whether the fund is registered in the DIFC area or in the rest of the country, known as the Mainland UAE. Foreign investors who are interested in how to start a hedge fund in Mainland UAE must know that the main rules of law that will apply in this case are the following:
- the Banking Law – the Federal Law No. 10/1980, which stipulates that the Central Bank has the legal right to regulate the UAE financial system;
- the Central Bank Resolution 164/A/94 – regulating the manner in which financial companies (including banking institutions and investment companies) are set up in this country;
- the Central Bank Resolution 89/3/2000 and the Central Bank Resolution 58/3/96;
- the Central Bank Resolution 21/2/88 – referring to investment banks set up here;
- legislation concerning the transparency requirements available for financial companies – Securities Commodities Authority Resolution 3 of 2000.
Legislation on hedge funds in DIFC, UAE
Provided that those starting a hedge fund will choose DIFC as their registration destination, other rules of law will apply. The main rule of law is the one that stipulates the DIFC’s right to be a separate legal authority – the DIFC Law 12 of 2004; another rule of law is the Regulatory Law (DIFC Law 1 of 2004). Investors should also know that this jurisdiction within the UAE provides a legal framework for collective investments, provided by the Collective Investment Law.
Other investment laws in UAE
Yes, foreign investors should also take into account the legal framework available in the region of Abu Dhabi, UAE. In the case in which foreigners want to register a hedge fund startup in this region, which is known as the Abu Dhabi Global Market (ADGM), the incorporation of the vehicle and the legal requirements for this procedure will fall under two main rules of law – namely the Financial Services and Market Regulations 2015 and the Common Reporting Standard Regulations 2017.
Types of investment funds in UAE
The creation of a hedge fund in UAE can be completed by respecting the national legislation which provides for the registration of various types of investment structures. The following are available in and outside free zones of the Emirates:
- public funds;
- exempt funds;
- special funds.
Public funds are available for retail investors who need to comply with international standards in matters of investor protection. These also require extensive disclosure requirements which is why they are seldom used for the creation of hedge funds.
Exempt funds, on the other hand, can be set up by professional investors who need to participate with subscriptions of at least 50,000 USD. These cannot be traded to the public and are limited to the issuance of 100 units.
Special funds can take the following forms:
- Islamic funds;
- hedge funds;
- private equity funds;
- property funds;
- real estate investment trusts.
If you are interested in the creation of a hedge fund in the UAE, our affiliates can guide you through the types of investment vehicles available here. They will also help you set up the type of fund you are interested in.
Steps for creating a hedge fund in the UAE
Just like in the case of any other jurisdiction, the creation of a hedge fund startup in UAE implies respecting a few steps. These are:
- choosing a legal form for the investment vehicle (there are several forms that can be employed);
- preparing the documentation necessary for the registration of the vehicle with the Trade Register;
- the fund must have a manager that complies with the local legislation;
- the licensing phase is next – this is completed after the vehicle is setup;
Among the types of legal forms that can be employed for the creation of a hedge fund in UAE are:
- the partnership;
- the trust;
- limited liability companies.
Also, prior to registration, the settlor must make sure there are at least 50 participants in the fund.
If you want to create an investment fund in UAE or any other jurisdiction, our partners in various countries are at your disposal with information and guidance on the procedures to follow.
With respect to hedge funds in the UAE, Dubai International Financial Center or DIFC is one of the most sought destinations in the country for the creation of investment funds. DIFC has its own regulatory body, the Dubai Financial Services Authority (DFSA) which makes it reliable for professional investors from all over the world.
Licensing requirements for UAE hedge funds
The licensing requirements when setting up a hedge fund in the UAE implies preparing and filing various documents. These are:
- the prospectus which must contain specifics of the investment plan;
- the business strategy(ies);
- information about the owners and manager;
- the value of the assets held in administration.
What should be noted about UAE hedge funds is that they require at least 10 million AED as a capital. Also, they are subject to specific promotion strategies.
Just like other countries, the UAE has its own regulations about the creation, management, and promotion of such funds.
If you need details on how to start a hedge fund, you can obtain them from our affiliates.
Managers of hedge funds in UAE
Management is an important component in a hedge fund, and this is also applicable to those registered in the UAE. According to the local regulations, the fund manager must be licensed by the Dubai Financial Services Authority and they must put in place anti-money laundering protocols.
Also, the fund manager will be in charge of ensuring audits are completed on a regular basis and accounting principles are respected.
Another important aspect to consider is that certain types of funds, such as private equity, umbrella and Islamic funds are subject to specific pricing requirements imposed by the DFSA.
All the information about how to start a hedge fund can be provided by our partner firm in the UAE.
What are the top regions for registering a UAE hedge fund?
Although UAE in its entirety represents a very attractive business destination, foreign investors are generally interested in investing here in the regions of Abu Dhabi (ADGM) and the Dubai International Financial Center. These two regions have reported the highest number of foreign investment funds and the main reason is given by the less restrictive requirements that are applicable here – for example, the legislation does not stipulate the need of having the majority of the fund’s ownership owned by a UAE national.
Main legal entities for UAE funds
One of the main requirements for starting a hedge fund in UAE is to choose a legal entity that will represent the fund. In DIFC and ADGM, foreign businessmen can choose to operate under business forms that can be met in most of the world’s jurisdictions, such as the limited liability company, the partnership, the investment company or the company limited by shares.
Who can register a hedge fund in UAE?
As a general rule, there are no restrictions for investors starting a hedge fund in this country. However, it is necessary for the investors to be classified by their authorized companies as being either a retail client, a personal, or a professional client.
Main requirements for a DIFC hedge fund
In order to open a hedge fund in the DIFC region, investors will need to respect the criteria imposed by the Collective Investment Law. In this case, it will be necessary to register the fund as either public or exempted fund. It is necessary to know that if the hedge fund will be registered as an exempt fund, it can’t have more than 100 investors, nor can it obtain its funding by using any public offerings. Thus, the vehicle may be funded only from private sources, and the minimum investment is established at USD 50,000.
When starting a hedge fund in the UAE, the DIFC region, the investors will also need to appoint a licensed fund manager that has been approved by the authority appointed to regulate the activity of financial companies registered here (Dubai Financial and Services Authority). The applicants must also provide the documents requested by this institution and respect the legislation on anti-money laundering.
Investors interested in further information on the regulations available for hedge funds are invited to contact our team of partners in UAE. Our affiliates can assist with advice on all the procedures that are involved in starting a local fund and can offer professional information on the documents that have to be subscribed with the local institutions.