UAE takes on New York and London in attracting hedge funds

Reuters/Christopher Pike

• Abu Dhabi and Dubai are proving attractive centres
• Five US and Hong Kong funds set up in Dubai in Q2 alone
• Bridgewater opened in Abu Dhabi this year

The UAE is fast emerging as an attractive alternative to traditional hedge fund centres, experts say, as five funds from the US and Hong Kong set up business in Dubai’s financial hub in the second quarter of 2023 alone.

Although more established regions such as London and New York still dominate, the likes of Dubai and Abu Dhabi are viewed as nascent markets offering the right conditions to grow.

Dubai International Financial Centre (DIFC) said it has attracted Hudson Bay Capital, King Street Capital, Balyasny Asset Management and Verition Fund Management from the US, while Hong Kong-based Asia Research and Capital Management has also set up in the city.

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A hedge fund is a type of investment vehicle open only to advanced investors such as financial institutions and individuals with significant assets. They are managed more actively than other funds because of their focus on more risky investment strategies or asset classes.

DIFC announced last week that it had become the first financial centre in the Gulf region to enter into an agreement with the Alternative Investment Management Association (AIMA), the industry’s global voice

The AIMA represents more than 2,100 corporate members which manage over $2.5 trillion in hedge fund and private credit assets. 

New research from Refinitiv found that DIFC is in discussions with more than 60 global hedge funds which are seeking to establish offices in the city.

In 2022, DIFC recorded a 54 percent increase in the total number of hedge funds setting up in the financial hub. Around two-thirds originated from the US and UK, including two of the world’s 10 largest funds.

Globally hedge funds had assets under management exceeding $4.8 trillion at the end of 2022, up 1 percent year on year, according to data from BarclayHedge.

“The flood of hedge funds into the UAE has been a long time coming, with it now emerging as an attractive alternative to traditional hedge fund hubs,” Dr Bhaskar Dasgupta, non-executive director GCC, Israel & India Boards at Apex Group, told AGBI. 

“With many jurisdictions implementing burdensome regulation, heavy taxation, and dwindling liquidity providers, hedge funds are seeing the UAE as a viable alternative.

“Since 2021 we have seen a steadily rising number of hedge funds looking to set up in the UAE.”

He added that DIFC’s AIMA agreement was one of a “significant number of powerful pull factors” alongside innovative regulatory regimes in both Dubai and Abu Dhabi and the UAE’s proximity to deep pools of liquidity.

Sovereign wealth funds, pension funds and endowments are also all well represented. 

“The opportunity to live and work in Dubai is especially appealing to our current and prospective portfolio managers,” said Josh Goldstein, co-founder and president of Verizon, which manages more than $7.3 billion in assets.

“The region offers a friendly timezone for traders with a global investment mandate, lower taxes and excellent infrastructure.”

Record growth

The latest edition of the Global Financial Centres Index names Dubai just outside the world’s top 20, but ahead of Geneva and Toronto, among others.

The emirate registered record-breaking growth last year, with the number of companies up by a fifth to nearly 4,400.

The UAE is also an increasingly popular destination for high net worth individuals, with private wealth estimated to hit $966 billion and the number of HNWIs projected to grow by 40 percent in the next eight years.

“As the number and scope of hedge funds established in DIFC grows, the ecosystem is developing around these world-class firms, as well as prime brokers and trading technology startups,” said Salmaan Jaffery, chief business development officer at DIFC Authority.

Abu Dhabi Global Market (ADGM) is also attracting big names including Brevan Howard from Jersey, and Ray Dalio, founder of Bridgewater Associates – one of the world’s largest hedge funds — plus Blackstone and OneIM.

ADGM recorded a 56 percent rise in assets under management in 2022.

“Abu Dhabi and ADGM offers a transparent and business-friendly environment,” Alan Howard, founder of Brevan Howard, which has more than $30 billion of assets under management, said in a statement. “It is an important global hub with tremendous potential.”

Douglas Greenig, CEO of Florin Court Capital, which set up in Abu Dhabi in 2021, added: “We wanted to tap the Asian markets much more heavily and Abu Dhabi gives us a base to do that. It’s also about quality of life and being able to attract talent.”

Debashis Dey, partner at legal firm White & Case, said that the ADGM’s adoption of English law as its governing legal regime and its favourable approach to fund incorporation makes it “very attractive” for the establishment of foreign funds.

“Foreign ownership rules in the UAE have been redrawn allowing for far more investment opportunities by foreign capital,” Dey said.

Apex Group’s Dasgupta added: “While other jurisdictions such as New York and London will continue to be important hedge fund hubs, the confluence of factors make the UAE a particularly attractive jurisdiction for managers over the next 3-5 years.”