For asset managers in the Middle East, there are numerous options when it comes to choosing the domicile of a Fund and its Manager.

On the Fund side, choices include setting up in an international offshore jurisdiction, such as the Cayman Islands or the British Virgin Islands, or setting up an entity locally, such as a Qualified Investor Fund (a "QIF") – a new type of Fund introduced late last year by the Dubai Financial Services Authority (the "DFSA").

On the Manager side, investment management entities can be set up in the Dubai International Financial Centre (the "DIFC"), where such entities are subject to the supervision of the Dubai Financial Services Authority (the "DFSA") or in the Qatar Financial Centre, where such entities are subject to the supervision of the Qatar Financial Services Authority. In addition, there will soon be an ability to establish investment management entities in the Abu Dhabi Global Market ("ADGM"), where such entities will be subject to the supervision of the Financial Services Regulatory Authority (the "FSRA"). It is currently anticipated that the FSRA will begin accepting financial services licence applications in the final quarter of 2015.

Making the right decisions when considering all of these options can often be difficult, but one approach which we have seen used frequently and successfully, in the context of both open-ended and closed-ended Funds, is to set up a DIFC-incorporated, DFSA-regulated Manager to manage a Cayman Islands domiciled Fund. This approach has a number of advantages. The DIFC and DFSA, which celebrated their 10 year anniversary last year, have together cemented Dubai's position as the regional financial hub, and the DFSA's rigorous, exacting standards have earned it international credibility and respect as a financial services regulator.

Whilst it is expected that the FSRA will seek to adopt standards broadly similar to those adopted by the DFSA, the last decade of operations has enabled the DFSA to acquire invaluable experience (including during the global financial crisis) and has allowed it to develop and refine its approach to a range of Fund-related issues. In our view, there is no substitute for experience, and we expect that it will take some time before the FSRA acquires a status commensurate with that held by the DFSA.

In a similar vein, we expect that the QIF offering, whilst successfully addressing a number of issues associated with the DFSA's original Funds offering, the Collective Investment Funds regime, will take some time to iron out teething issues and to gain acceptance amongst investors. By contrast, the Funds regime in the Cayman Islands is sophisticated and well-developed (again, a function of many decades of existence) and, critically, is familiar to and respected by investors worldwide. Its various advantages, including no taxation, no exchange controls, structural flexibility and limited corporate governance requirements, are complemented in the Middle East by the fact that, in our experience, regional investors are more familiar with Cayman Islands Funds than those established in any other jurisdiction.

Pairing a Cayman Islands domiciled Fund with a DFSA-regulated Manager provides asset managers with the "best of both worlds". Promoters are able to benefit from:

  1. setting up a Fund in a timely and cost-effective manner in a flexible, internationally renowned jurisdiction that is respected by regional investors; and
  2. setting up a Manager in the DIFC, a regional financial hub, with a valuable stamp of approval from the DFSA, an internationally respected regulator.

The future may well herald new developments in the Funds area, but for now it seems clear to us that establishing a Cayman Islands domiciled Fund with a DFSA-regulated Manager provides asset managers with the best foundation on which to market and operate their Funds in the Middle East.

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