Guide to Investment Funds in the ADGM - 10 Leaves

  • 02-06-2020

The ADGM is an upcoming international financial centre in the MENA region for business and fintech. The quality of ADGM’s independent regulator, the prevailing common law framework, excellent infrastructure and tax efficiencies make it the perfect base to take advantage of the rapidly growing demand for financial and business services in Abu Dhabi and the greater MENA region.  

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.

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.
Types of Funds in the ADGM:

Public Funds:

Public Funds are open to Retail Clients (as defined by the ADGM), and hence subject to higher levels of regulation. The other features of a Public Fund in the ADGM are:

  • No minimum subscription limit;
  • Units are offered to the general public;
  • Can have any number of unit-holders; and
  • Have to comply with IOSCO principles.

Exempt Funds:

Exempt Funds are open only to Professional Clients (as defined by the ADGM). The other features of an Exempt Fund are:

  • Minimum subscription of US$ 50,000; and
  • Units are offered to persons only by way of Private Placement.
Qualified Investor Funds:

Qualified Investor Funds are open only to Professional Clients (as defined by the ADGM). The other features of a Qualified Investor Fund are:

  • Minimum subscription of US$ 500,000; and
  • Units are offered to persons only by way of Private Placement.

 

Who is a Professional Client?

The ADGM has a detailed definition of Professional Client, which includes service-based, assessed and deemed professional clients. While specifics are best checked at the FSRA website (or you can contact us for more details), in general, assessed professional clients are subject to the net asset test of US$ 500,000.

Specialist Funds:

Islamic Funds:

A Fund Manager must be authorised by the FSRA to conduct Islamic Financial Business or an Islamic Window before setting up an Islamic Fund. Also, the Fund Manager is required to:

  • Appoint a Sharia Supervisory board to the Fund;
  • Have Sharia-compliant systems and controls;
  • Maintain Islamic business policies and procedures manuals; and
  • Obtain approvals from the Sharia Supervisory board, for the relevant fund documents.

Hedge Funds:

A hedge fund is an investment fund that pools capital from professional or institutional investors and invests these monies in a portfolio of assets, often with complex portfolio-construction and risk management techniques.

Regulators usually mandate that the Fund Manager of Hedge Funds must ensure effective risk-management of the fund. This is usually possible by making sure that certain duties are adequately segregated (for example, the  of the investment function and the Fund valuation processes)

Private Equity Funds:

A private equity fund makes investments in the equity  and debt of privately-held companies (sometimes listed entities as well), focusing on the long-term potential of the acquisition, much like private-equity firms.

In the ADGM, Private Equity Funds are closed-ended and open to only Professional Investors. An ADGM PE Fund can be either an Exempt Fund or a Qualified Investor Fund.

Venture Capital Funds:

These funds operate much like the PE funds described above, however, they are usually limited to stakes in startups and smaller companies with a high-growth potential. The VC-stage of the investment cycle of a startup comes before a PE stage, and hence these investments are characterized by smaller ticket sizes, and higher risks.

In the ADGM, Venture Capital Funds are also closed-ended and open to only Professional Investors. An ADGM VC Fund can be either an Exempt Fund or a Qualified Investor Fund.

Property Funds:

Property Funds in the ADGM invest predominantly in real estate-related assets. These are closed-ended Funds. There are certain restrictions on ADGM Property Funds that are Public Funds, and these include being able to only invest in physical property (or property-related assets) and a percentage (of NAV) limitation on its borrowing.

A carveout are Real Estate Investment Trusts, or REITs. ADGM offers private REITs as well.

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.

Our services include assistance in:

1. Reviewing the fund structure and advice on the applicable regulatory framework;
2. Preparation of the Regulatory Business Plan and comprehensive financial projections;
3. Preparation of all policies, processes and manuals required;
4. Provision of Outsourced Compliance Officer and Outsourced Finance Officer services;
5. Finalising the legal structure, including holding company setup and customisation of Memorandums;
6. Preparation of complete fund documentation, including Private Placement Memorandums, Subscription Agreements and Fund Constitutions;
7. Assistance in finalisation of all service providers, including Fund Administrators, External and Internal Auditors; and
8. Finalisation of leased space, bank account opening and obtaining Financial Services Permissions.

Contact us to discuss your fund requirements today!

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