Types of Investment Funds in UAE

Updated on Saturday 22nd June 2019

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The United Arab Emirates (UAE) is one of the top investment destinations in the world. Foreign businessmen interested in how to start a fund in the UAE may choose from numerous investment vehicles, designed to address the needs of various types of investors. Investment funds registered in the UAE can be registered as open-ended or closed-ended vehicles, each category offering different investment advantages.

Main categories of UAE investment funds

The regulatory framework applicable in UAE offers the following types of investment vehicles: mutual funds, equity mutual funds, fixed income mutual funds, hybrid mutual funds, exchange traded funds and hedge funds. A common way to start an investment project in this country is by registering a hedge fund.

Mutual funds in the UAE

Mutual funds in the UAE are regulated under the Decision No. (9/R.M) of 2016 - Concerning the Regulations as to Mutual Funds, available for onshore investment funds. Mutual funds registered in this jurisdiction can be set up as open-ended or closed-ended vehicles, which refer to the rights investors have in issuing shares or bonds.

One of the ways on how to start an investment fund in UAE is to incorporate it in the Dubai International Financial Centre; this investment destination is suitable for the registration of a mutual fund. 25 mutual funds were registered in UAE in 2016.

Does UAE have a passporting law?

Yes, UAE has recently introduced a passporting legislation. The decision was established in 2019, as a consequence of a public consultation on the matter which took place in November 2018. The new passporting regulation became applicable starting with March 2018 and it is recognized by all financial regulators available in the UAE, namely the Emirates Securities and Commodities Authority (ESCA), the Financial Services Regulatory Authority and the Dubai Financial Services Authority. Under the new regulations, the following will apply:

investment managers that are regulated by one of the three financial institutions will be able to market or sell the investment funds at the level of the entire country;
the advantage of the law is that the investors based in a financial center of the country will not need further approval from the authority of another UAE financial center;
the purpose of the new legislation is to stimulate the investment market available in this country;
the agreement that was signed between the main financial regulators of the UAE regulates onshore investment funds;
it also has the purpose of improving the licensing procedures necessary for UAE funds.

Why start an open-ended fund in UAE?

An open-ended fund in UAE is characterized by the fact that it can be set up with a variable capital. The open-ended fund is also known as an open-ended mutual fund; this type of vehicle can have its units listed and traded on a given market, but it is necessary to obtain a prior approval for this operation from ESCA.

Those interested in how to start a fund in UAE as an open-ended vehicle will have to obtain a license from ESCA in order to be recognized as a corporate structure in this country. The same applies to a closed-ended fund, the difference being that the structure is registered with a fixed capital.

What are the main documents for starting a UAE fund?

The registration documents necessary for a UAE fund, regardless if it is set up as a open-ended structure or as a closed-ended vehicle, are the same. The documentation necessary is rather extensive and it is advisable to seek professional representation during the registration of the fund, considering that the documents have to be submitted in an Arabic version. Some of the required documents are presented below:

a completed application form required for the issuance of the license;
the prospectus and the Key Investor Information Document (KIID);
information on the selected legal entity for the fund, as well as information on its corporate structure;
presentation of the legal responsibilities of the applicant and the fund’s internal procedures;
the fund’s prospectus, its main statutory document, must be written in Arabic and must contain information on all the aspects of the fund.

What does a prospectus contain in UAE?

The prospectus represents a document that has to be drawn upon the registration of a UAE fund. It must provide a set of details regarding the fund; for example, it needs to provide information on the persons who have set up the fund, as well as their qualities and experience in the financial sector. It must also state the purpose of the fund, its name or the minimum capital. It should provide clear information on the following:

the corporate bodies of the fund and its internal structure;
the selected investment policies and the associated risks with carrying the respective investment scheme;
the manner in which the assessment of the risks was done;
the classes of investors who are allowed to invest in the respective fund;
if the fund will invest in other countries, the investors must also provide information on the tax system applicable in the given jurisdictions;
the policies established for the distribution of profits, dividends and other types of incomes;
in the case in which the vehicle operates as an umbrella-fund, the prospectus must also mention details on the policies of such sub-funds.

What is the value of the investment market in Dubai?

Since 2011, the value of the investment market in Dubai gradually increased. Since then, it has gradually expanded until 2015, a year which marked a slowdown of the sector. However, since that year, the market continued to develop. In 2011, the value of the financial activities developed in Dubai reached AED 7,698 million (in terms of revenues), while for the next years, the following applied:

the market expanded until 2014, and the end of which, the financial industry accounted for AED 9,002 million;
the following year marked a slight decrease, reaching AED 8,534 million;
at the end of 2017, the Dubai financial market registered revenues with a total value of AED 9,427 million;
in 2018, the revenues registered at the level of this industry accounted for AED 9,443 million.
since January 2018, the UAE Stock Market had the highest development at the level of April 2019.

Hedge funds in the UAE

Another type of investment fund that can be incorporated in this country is the hedge fund. Investors interested in how to start a hedge fund in the UAE are required to incorporate the legal entity following the regulations imposed by the Emirates Securities and Commodities Authority (ESCA). As mentioned above, the country also incorporates the Dubai International Financial Centre, an economic free zone in which investment funds, which may also include a hedge fund startup, are regulated by a different institution, the Dubai Financial Services Authority.

Also, investors must know that regardless of the investment vehicle chosen for incorporation, the fund will need an approval issued by ESCA. Amongst the requirements, investors have to set up a capital of minimum AED 10 million. Foreign investors are invited to contact our team of affiliates in UAE for more details on this subject.