Fund Management Eco-System in ADGM
ADGM offers fund managers a leading investment funds platform with application of Common Law combined with business-friendly ecosystem operating with international regulatory standards whilst maintaining investor protection rights.
Key elements of ADGM’s Funds regulatory framework:
- Consideration for specialist funds (eg. VC Fund, REITs, Property Fund, Hedge Fund, etc.) along with innovative sector-specific rules;
- Authorisation criteria for undertaking fund management by ADGM-based (domestic) fund managers and foreign fund managers;
- Fund types caters to all investor categories (retail and institutional investors) aligned with investor protection;
- Choice for fund vehicles and structures;
- Permits ADGM-based firms to conduct certain functions in respect of foreign funds.
A TYPICAL FUND STRUCTURE:
- Fund Manager – authorised by FSRA to create, manage, wind-up Funds. A Fund Manager can be based in ADGM (domestic) or outside ADGM (foreign) regulated and located in a recognized jurisdiction.
- Fund – includes a domestic fund established in ADGM and foreign fund.
- Fund Administrator – responsible inter alia for fund accounting, NAV valuation, maintaining the register of unitholders, issuance and redemption of units, etc.
- Custodian – responsible for the safe custody of fund property and is generally outsourced to Custodian unless due to the nature of the fund it is not practical (e.g. a PE Fund or a VC Fund).
- Investment Advisor – responsible for non-discretionary advice in respect of the fund’s assets/property as per the prospectus and investment strategy, and may or may be outsourced by the Fund Manager if insufficient in-house resources.
What is a Domestic Fund?
Domestic Funds are established and domiciled in ADGM and can be managed by a domestic or foreign fund manager. A Domestic Fund can be set-up as a Public Fund, Exempt Fund or Qualified Investor Fund. The distinguishing factors between these funds are described below.
ADGM provides wide range of fund vehicles and structures to choose from and includes Open or Closed ended Investment Companies, Limited Investment Partnerships, Investment Trusts, Protected Cell Companies (PCC) & Incorporated Cell Companies (ICC).
ADGM’s commercial regulations provides for structuring avenues which includes Master/Feeder structures, Umbrella Fund structure, SPVs (as holding companies), Restricted Scope Companies.
Passporting of funds:
Under the UAE Funds Passporting regime, an ADGM fund manager can register its Domestic Fund for passporting, i.e. allowing direct distribution across the whole of the UAE.
What is a Foreign Fund?
Foreign Funds are non-ADGM established or domiciled fund.
Nature of activities permitted for Foreign Funds:
- Management activity:
- A domestic fund manager can establish and manage such funds in and from ADGM.
- An ADGM-based asset manager can provide investment management services to such funds.
- Marketing activity:
- An ADGM-based authorized firm can market such funds in ADGM, subject to certain conditions.
- A foreign fund can be marketed to retail clients if it is capable of being offered to retail investors in its home jurisdiction.
Whom does FSRA regulates and what are the authorization criteria?
Fund Management activity is one of the regulated financial services activities within ADGM and FSRA authorizes domestic and foreign fund manager to perform such activities.
The authorization process is risk-based and depends on the proposed activities of the fund manager, i.e. a less stringent and risk-proportionate approach is adopted for non-retail funds (e.g. VC funds) as compared to more rigorous and detail-oriented approach applied to the proposed fund manager seeking to manage and sell Public Funds.
Effectively all funds registered in the ADGM shall be managed by a fund manager authorized by FSRA.
- Domestic Fund Manager:
- Established in ADGM and authorized by FSRA;
- Permitted to establish and manage a domestic fund and foreign fund;
- Could undertake investment management for foreign fund, subject to asset management license in ADGM;
- Could promote and sell units of foreign funds, subject to license to advice and arrange investments.
- Foreign Fund Manager:
- Set-up in a recognized jurisdiction, regulated by financial services regulator alike to fund management and authorized by FSRA;
- Permitted to establish and manage a domestic fund in ADGM (provided mandatory appointments are in place – e.g. fund administrator, custodian).
Whereas the central focus of funds industry is the Fund Manager, the industry is dependent on key service providers for functions other than fund management.
The regulatory framework within ADGM allows:
- Incorporation and authorisation of funds related service providers such as fund administrators, custodians and trustees.
- Fund Manager to appoint both ADGM and / or foreign domiciled service providers, subject to certain conditions.
What is the minimum capital requirement?
The capital requirement of the fund managers depends on the type of the funds it manages (i.e. higher for Public Funds as compared to non-retail funds).
What are the fees applicable for set-up of fund and fund manager?
The below table provides the standard fees that are applicable within ADGM for various types of fund and fund manager set-up.
In light of COVID-19, ADGM has issued support measures waiving off some of the renewal fees applicable to existing regulated firms within ADGM.
About ADGM and ADGM’s FSRA:
Abu Dhabi Global Market (ADGM), an international financial centre in the capital of the United Arab Emirates, is a financial free zone with rules and regulations aligned with international best practice.
ADGM’s three independent Authorities (Registration Authority, Financial Services Regulatory Authority and the ADGM Courts) provide a holistic environment enabling registered companies to conduct business in the region.
The Financial Services Regulatory Authority (FSRA), the financial services regulator of ADGM, provides a fair, well-regulated and robust financial regime that is benchmarked against international standards and best governance practices. The FSRA licenses and supervises financial services companies, including banks, insurance companies, exchanges and capital market intermediaries providing financial services in and from ADGM. The FSRA is a recognised member of the International Organisation of Securities Commissions (“IOSCO”), the International Association of Insurance Supervisors (IAIS) and the Basel Consultative Group of the Basel Committee on Banking Supervision in January 2016.
Partner & Head – Regulatory & Compliance Services
Senior Manager – Regulatory & Compliance Services