Fund manager migration: Understanding the push and pull towards ADGM and DIFC

Premier destinations

The Dubai International Financial Centre (DIFC) and the ADGM, the two financial freezones of the UAE, have over the years emerged as premier destinations for international fund managers. 

In recent years, DIFC and ADGM have seen a surge in the establishment of funds and regulated entities by some of the largest global fund managers and asset management companies. The growth in assets under management (AUM) within these regions underscores their increasing prominence in the global financial landscape. As of 2024, DIFC hosted over 410 wealth and asset management firms, including 75 hedge funds, 48 of which are in the ‘billion-dollar club.’¹ By early 2024, the AUM in DIFC had surged by 58 percent to $700 billion.² ADGM recorded an impressive 226 percent increase in AUM in the first half of 2024, with 112 asset and fund managers overseeing 141 funds.³ 

These jurisdictions offer a compelling mix of robust regulatory environments, strategic fund-raising opportunities and attractive tax regimes, making them highly appealing for global funds and asset managers. We have analyzed some of the push and pull factors which are contributing to this.

Attractive regulatory regime

DIFC and ADGM strike a balance between the highly regulated environments of the US, UK and the EU and the unregulated offshore jurisdictions like the Cayman Islands or the British Virgin Islands. For instance, fund managers are not subject to the stringent reporting obligations or capital adequacy requirements you would have in the US or the EU/UK, and unlike the Cayman Islands, they require licenses or authorizations for fund management in the DIFC or ADGM.

The funds regulatory regime in DIFC and ADGM also follow international principles including adopting English law or applying common law which provides familiarity for international fund managers. Both financial centers have independent financial regulators, the Dubai Financial Services Authority for the DIFC and the FSRA for the ADGM, who have a reliable international reputation. The funds regulatory framework allows for these independent regulators to apply adaptable risk-based supervision, giving consideration to the investor base or the investment strategies of funds, which resonates with mature financial systems. In addition to typical asset classes like private equity, real estate or hedge funds, there are provisions for setting up funds with specialist asset classes for cryptocurrencies or Islamic finance. Funds may be categorized based on the investor sophistication, ranging from public funds for retail investors to qualified investor funds tailored for high net worth worth individuals and financial institutions.

Large pools of capital

As a fund manager evaluating fundraising options, the broader Gulf Cooperation Council (GCC) region stands out for the accessibility and diversity of its investor base. The UAE is home to vast capital reserves, in particular from state-owned funds, sovereign and quasi-sovereign wealth funds (SWFs), with one such SWF boasting of AUM worth over US$1 trillion.⁴ Abu Dhabi recently dubbed itself the ‘Capital of Capital.’ There is also noticeable interest from global family offices relocating to the UAE. The HNWIs in the UAE have seen their assets grow by 20 percent to reach US$700 billion in value since 2022.⁵ Some family offices have moved their entire operations to the UAE financial centers, while others have shifted their legal domiciles, management team and family members in order to access the tax flexibility and lifestyle benefits, such as healthcare, education and hospitality offerings in the UAE. 

Consequently, many global funds establish a presence in the UAE to gain closer access to these wealth reserves and investment appetite. There is also a case for the strategic location of these centers providing proximity to Europe and the emerging markets of Saudi Arabia, Asia and Africa, enhancing the appeal of regional and international investment activity for fund managers. The UAE financial centers are also often used as a spring board for fundraising in other GCC countries such as Saudi Arabia, Qatar and Bahrain.

Favorable tax environment

Complementing the capital raising advantage is the UAE’s favorable tax regime. The UAE offers a low corporate tax rate of 9 percent⁶ and most funds in ADGM and DIFC enjoy full exemptions from tax, including a 0 percent tax on capital gains and no withholding tax, subject to certain conditions.⁷ Individuals resident in the UAE benefit from no personal income tax,⁸ which is relevant for the fund management entity’s senior manager and founders earning carried interest and performance bonuses. In addition, the UAE’s expansive network of over 193 Double Taxation Avoidance Agreements and Bilateral Investment Treaties covering most of its key global trade and investment partners,⁹ significantly enhances the appeal of establishing funds in financial centers like DIFC and ADGM. These agreements eliminate or reduce withholding taxes, prevent double taxation on cross-border income and ensure tax neutrality for investors. This framework not only protects fund returns but also facilitates seamless capital repatriation and boosts investor confidence, making the UAE a globally competitive jurisdiction for fund domiciliation.

Operational perspective

From an operational standpoint, DIFC and ADGM are well-adapted to fund management businesses, providing systemic support to businesses which align with global trends. The ease of operations for businesses is facilitated by low base capital requirements for fund managers¹⁰ and less stringent operational regulations, allowing for outsourcing to other group entities or service providers for financial services¹¹. Fund managers are able to leverage their existing talent pool for operational purposes and give comfort to investors about the collective experience managing their assets. In sum, the operational advantages of DIFC and ADGM, ranging from regulatory agility to cost efficiency, make them highly conducive environments for fund managers looking to expand into new markets. A funds passporting regime between mainland UAE, DIFC and ADGM allows for flexibility in the choice of domicile for these new funds.

Marketing and distribution of funds

It is worth noting that the Securities and Commodities Authority of the UAE regulates the promotion and marketing of funds to retail investors in mainland UAE. Since April 2024, promotion of foreign funds units inside the UAE is limited to the private offering to professional investors.¹² As a result, retail funds must be domiciled in the UAE in order to be able to offer units to retail investors in the UAE. This new requirement has prompted some of the largest global fund managers to domicile public retail funds (typically as feeder funds into EU UCITs) in the ADGM and DIFC and establish physical offices for fund management in the UAE.

Outlook

The UAE’s fund management landscape is set to strengthen further with the DIFC’s upcoming Funds Centre, launching in 2025.¹³ This dedicated hub will support investment managers in raising and deploying capital, managing assets and expanding their networks. As the region continues to attract global capital and talent, DIFC and ADGM are well-positioned to lead the next phase of growth in cross-border fund management.

Conclusion

Establishing a fund in DIFC or ADGM offers clear advantages for international fund managers, including strong regulatory frameworks, strategic fundraising opportunities, operational flexibility and an attractive tax regime. As global market dynamics shift, both jurisdictions are well positioned to remain leading destinations for fund formation and growth.