Why setup an investment fund in the ADGM?

The ADGM is an upcoming financial hub in the region. Besides offering a wide range of financial service activities, the centre also provides an integrated environment and excellent infrastructure facilities.

The Financial Services Regulatory Authority, or FSRA, acts as the independent regulator of fund managers and investment funds setup in the ADGM, which provides a high degree of comfort to individual and professional investors. The ADGM offers both Domestic Fund Manager and External Fund Manager licenses, both of which allow for the management of Public, Exempt and Qualified Investor Funds. The ADGM Registration Authority (RA) offers multiple fund structures, included open-ended and closed ended investment companies, and GP-LP structures.

With ADGM Funds, Fund Managers can target the GCC market, and the wider MENASA region, taking advantage of the numerous Double Taxation Avoidance Treaties that the UAE has in place. Fund Managers who wish to specifically target the Abu Dhabi sovereign wealth funds, and family offices, will find the ADGM an attractive destination for the purpose. Zero-rate personal and corporate tax also make the  ADGM an attractive destination to setup and manage investment funds.

You can read more about ADGM Investment Funds here:

https://10leaves.ae/publications/adgm/guide-to-investment-funds-in-the-adgm

Specific Advantages:

Here are some specific advantages of establishing in the Abu Dhabi Global Market:

LEGAL AND REGULATORY FRAMEWORK:

• Legal framework supports cross-border activities
• 100% foreign ownership permitted
• No restriction on foreign talent or employees
• No restrictions on capital repatriation

TAX BENEFITS:

• Zero tax for 50 years on profits, capital or assets from 2004
• Zero tax on employee income

COUNTERPARTY CONFIDENCE:

• Well regarded, independent regulator
• Independent, English-speaking, common law judicial system
• Distinct from the UAE legal system
• Risk-based regulatory approach

DIVERSE ECOSYSTEM:

• Central to regional deal making
• High concentration of international firms, investment funds, wealth management firms, banks, and financial institutions
• World-class regional and international law and auditing firms, and other professional services
• A growing fund domicile in the region

GEOGRAPHIC EPICENTRE:

• Management offices, holding companies and family offices are located closer to the assets they own or manage
• The Middle East, Africa and South Asia (MEASA) is increasingly the centre of gravity for the global economy
• The UAE plays a central role in the growing South-South trade, principally between Asia and Africa
• Well-positioned to harness the potential of emerging markets.

Documents required for an investment fund in the ADGM:

Starting an investment fund not only requires deep understanding what investment strategies, but also of the various structures available and the documents required for these structures.  Broadly speaking, there are two main categories of hedge fund structures in the ADGM – partnerships and investment companies. Let’s take a closer look at the documents required to setup partnerships and investment company-related structures in the ADGM.

For ADGM-investment companies:

Private Placement Memorandum

Subscription Agreement (for investors)

Investment Management Agreement

Fund Constitution

For ADGM Partnerships:

Private Placement Memorandum

Limited Partnership Agreeement

Subscription Agreement (for investors)

Investment Management Agreement

Private Placement Memorandum:

A Private Placement Memorandum, or PPM, is the key document for ADGM Investment funds. The PPM details material information on the fund and serves as the backbone of the legal documentation involved.

A PPM contains specific information about the terms of the offering, the structure of the investment, the background of the fund manager and related professionals, service providers, statutory and commercial disclosures. Prospective investors make a choice about whether to subscribe to the fund, based on this PPM and other supplementary documentation provided by the investment manager. A condensed form of the PPM, called the term sheet, is usually used as a teaser to gauge interest in the fund. This term sheet mentions specific information and refers to the more detailed PPM.

A typical PPM contains:

A summary of the offering

Investment objectives and strategies

Investment methodologies

Risk factors:

Background of the promoters

Details on the Investment Manager and advisors

NAV calculation methods

Legal background and rules & regulations that the Fund is subject to

Service providers involved in servicing the fund

Subscription Agreement:

The subscription agreement sets out the terms under which an investor subscribes to the fund and holds non-voting participating shares within the fund structure.

In addition to the terms, the investor will make representations and warranties within the subscription agreement, which can include his/her compliance with the suitability tests (status as a ‘professional investor’ as required by the FSRA).

In most cases, a subscription agreement forms part of the annexure of the fund PPM. Some subscription agreements mention a specific rate of return that will be paid to the investor, such as a particular percentage of company net income or lump sum dividend payouts, and related payment dates.  

Investment Management Agreement:

An investment manager is contracted by the fund, to manage it’s assets. In case of ADGM funds, they can be managed by a Domestic Fund Manager (setup in the ADGM) or an external fund manager (setup in a recognised jurisdiction). This arrangement is governed by an Investment Management Agreement, that managed the contractual relationship between the two parties. It grants the investment manager power of attorney over the assets of the fund and gives the investment manager the authority to manage the fund’s investments.

The investment management agreement usually contains:

Power of attorney to the investment manager

Details on the discretionary powers granted

Management and performance fee structure

Disclosure of potential conflicts of interests, and mitigation

Representations and warranties

Liability limitation and indemnities.

Other Agreements:

The fund also enters into agreements with third-party service providers. Learn more about this by reading our article below:

Setting up a fund structure in the ADGM:Setting up a fund in the ADGM requires either a) setting up a Domestic Fund Manager or b) licensing an existing fund manager in a recognized jurisdiction, to act as the External Fund Manager of the ADGM fund. Read this article to know more about the licensing process and associated costs.

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