VC Fund Marketing and Distribution | VC Fund Formation - 10 Leaves

VC FUND MARKETING AND DISTRIBUTION

 

The UAE has three jurisdictions of consequence, when it comes to marketing and promotion of investment funds. 

There are two financial free zones – the Dubai International Financial Centre (DIFC), which is regulated by the Dubai Financial Services Authority (DFSA) and the Abu Dhabi Global Market (ADGM), which is regulated by the Financial Services Regulatory Authority (FSRA). The rest of the UAE is considered the mainland and the Securities and Commodities Authority (SCA) is the relevant regulator. 

Both the DIFC and the ADGM have domestic fund regimes, and so does the SCA. In addition to this, a vast majority of funds distributed in the UAE are foreign funds, mainly Luxembourg and Cayman-registered funds. 

 

 

Assuming most potential investors will be located within the mainland UAE, there are multiple considerations to take into account. 

  1. Foreign Funds marketed to the UAE Mainland and the DIFC & ADGM; and 
  2. Domestic Funds marketed across the UAE

We will restrict this discussion to a holistic view on the fund marketing and distribution landscape in the UAE, elaborating on the above scenarios. 

The UAE mainland:

The Securities and Commodities Authority (SCA) has issued legislation on the Regulation of Investment Funds (RIF) that set out the provisions for the promotion of foreign funds.

A fund established outside the UAE mainland jurisdiction is considered a foreign fund. 

All foreign funds must be registered with and approved by the SCA, prior to conducting any marketing within the UAE. Once registered, the fund would have to be promoted or distributed by an SCA-licensed intermediary. 

There are two exemptions from this requirement:

  1. Reverse solicitation; and 
  2. Marketing of the foreign fund to Qualified Investors. 

Reverse solicitation is where the potential investor initiates the purchase of the units of the fund, of their own accord and not due to marketing by the foreign funds or its placement agents. In this case, extensive evidence would have to be maintained to demonstrate that the investor approached the fund manager independent of any promotional activity conducted by the fund manager in the UAE. 

For instance, in case of a fund manager registered in the EU (possibly an AIFM), it would require registering with the SCA prior to conducting any marketing activities in the UAE. Unless it qualifies for the exemptions. 

Once the funds are registered with the SCA, they can be promoted by a placement agent registered with the SCA. 

Alternatively, in case of a fund manager registered in the DIFC or the ADGM, there exists an option to ‘passport’ funds and market them across the UAE, subject to notification of their regulator and provision of a copy of the offering documents. This costs around US$ 10,000. 

Fund managers in the DIFC and ADGM can also market foreign funds, subject to the conditions of registering above. In addition to this, both the DIFC and the ADGM have rules on the kinds of funds that can be marketed, and this largely depends on the jurisdiction of incorporation and regulation of the said funds. 

 

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