DIFC fills the time-zone gap for a global financial centre between the leading financial centres of London and New York in the West and Hong Kong and Tokyo in the East.
Why setup an investment fund in the DIFC?
The DIFC is a leading financial hub in the region. Besides offering a wide range of financial service activities, the centre also provides an integrated environment and world-class standard of living. It is well regarded in the international community as well.
You can read more about DIFC Investment Funds here:
Here are some specific advantages of establishing in the Dubai International Financial Centre:
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.
- Zero tax for 50 years on profits, capital or assets from 2004.
- Zero tax on employee income.
- Highly regarded, independent regulator.
- Independent, English-speaking, common law judicial system.
- Distinct from the UAE legal system.
- Risk-based regulatory approach.
- 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.
- The largest fund domicile in the region.
- 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.
- Dubai 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 DIFC:
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 DIFC – partnerships and investment companies. Let’s take a closer look at the documents required to setup partnerships and investment company-related structures in the DIFC.
For DIFC-investment companies:
1. Private Placement Memorandum.
2. Subscription Agreement (for investors).
3. Investment Management Agreement.
4. Fund Constitution.
For DIFC Partnerships:
1. Private Placement Memorandum.
2. Limited Partnership Agreeement.
3. Subscription Agreement (for investors).
4. Investment Management Agreement.
Private Placement Memorandum:
A Private Placement Memorandum, or PPM, is the key document for DIFC 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:
1A summary of the offering.
Investment objectives and strategies.
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.
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 DFSA).
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 DIFC funds, they can be managed by a Domestic Fund Manager (setup in the DIFC) 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.
The fund also enters into agreements with third-party service providers. Learn more about this by reading our article below:
Setting up a fund in the DIFC 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 DIFC fund. Read this article to know more about the licensing process and associated costs.
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