Abu Dhabi joins Dubai in race to lure asset managers

This content was originally published by ION Analytics.

Dubai has long been the hotspot for asset managers in the United Arab Emirates, offering an attractive base to raise and deploy capital in the Gulf. But Abu Dhabi’s financial centre, Abu Dhabi Global Market (ADGM), is wooing a growing number of funds in an effort to replicate this success.

Just yesterday (24 July), news broke that Princeville Capital, which counts Hollywood star Leonardo DiCaprio as an adviser, is set to open an office in the capital. This follows a trend of prominent fund managers choosing Abu Dhabi in recent years, including Brevan Howard and the Dalio Family Office (DFO), among others.

In the credit space, Abu Dhabi has recently attracted a number of funds Fidera Capital, Argentem Creek Partners, SC Lowy and Monroe Capital.

“We are witnessing significant growth in the asset management sector, including hedge funds, private equity, institutional funds, and venture capital firms, attracting entities from around the world,” said Arvind Ramamurthy, Chief of Market Development at ADGM.

ADGM currently has 80 firms in its pipeline, with its total assets under management (AUM) growing by 211% in Q1 2024 compared to the same period last year, added Ramamurthy.

Amidst the noise around the capital, Abu Dhabi’s financial centre in Al Maryah Island is almost full, with the government now working to expand the freezone’s jurisdiction to neighbouring Al Reem Island.

“Just look around, Abu Dhabi wasn’t like this just a few years ago,” said one financier based in the Emirate.

Argentem Creek Partners, an emerging market specialist credit and investment firm, announced its intention to be based in ADGM last year.

Its reasoning was that ADGM’s regulatory framework closely mirrors the UK’s, said Jeroen Westrik, regional director of MEA at the firm.

“We also considered proximity to clients, infrastructure, and logistics,” he added.

Despite the momentum towards Abu Dhabi, it is still Dubai and DIFC that accommodate the greatest number of wealth managers in the UAE.

DIFC has more fund managers than the other Emirates, amassing over 40 ‘billion-dollar hedge funds’, managing more than USD 720bn. That is more than six times the number of billion-dollar hedge funds operating elsewhere in the UAE.

In terms of regulation, ADGM and DIFC are broadly similar, said Dr Bhaskar Dasgupta, chairman of the board and non-executive director at APEX UAE, a fund services company.

“There is vastly more in common between the two centers than there are differences,” he added. “Both have English common law, both are very welcoming to asset managers, both jurisdictions are fast and progressive in progressing applications, both jurisdictions are able to respond fast to queries and are able to deal with exceptions in a transparent and standardised manner.”

Big Money

What really makes Abu Dhabi attractive is the ease of access to the Emirate’s sovereign wealth funds and their deep pockets, said a regional financial advisor.

“A lot of these fund managers will base themselves in Abu Dhabi to tap the sovereign wealth funds – either to build new relationships, or double down on existing ones,” the advisor said.

Being based in Abu Dhabi can often be a pre-requisite for fund managers to tap certain liquidity providers linked to the sovereign wealth funds, said the Abu Dhabi-based financier.

The lure of big money is clearly appealing.

“What we have seen is that DIFC attracts funds who are looking to be staffed with people who like the Dubai lifestyle, whilst ADGM attracts funds looking for institutional Sovereign Wealth Funds” explained Dasgupta.

But basing yourself in Abu Dhabi, or indeed even Saudi Arabia, in the hope of big ticket funding is not always a given, and oftentimes never actually materialises, said a source familiar with the matter.

Soumya George, Associate Partner Karm Legal, agreed that there was some evidence suggesting that Abu Dhabi sovereign wealth funds preferred ADGM-based firms, but cautioned that this trend was not absolute.

“Factors such as strategic alignment with Abu Dhabi’s economic vision and proximity to local investors might influence this perception, but it is not a definitive rule,” said George.

There is also the fact that fund managers can still tap plenty of money from within the DIFC.

“Dubai has a double advantage – providing access to vast pools of both public and private capital,” said Salmaan Jaffery, chief business development officer at DIFC Authority. “The city is a neutral location accessing over 40 regional sovereigns, including Dubai’s own Investment Corporation of Dubai and Dubai Investment Fund.”

Passporting rules across the UAE also mean that the location of your fund can also be flexible, according to Dr Bhaskar Dasgupta of APEX UAE.

“There is a passporting regime in the UAE which allows DIFC, ADGM and SCA funds to market so you don’t really need to re-domicile – the passporting allows you to market your fund to other UAE jurisdictions easily,” added Dasgupta.

Credit funds?

Thus far, most of the funds establishing in Abu Dhabi have been equity-focused. But with the increasing presence of private credit and venture debt in the Middle East, the ADGM and DIFC are positioned to leverage this trend alongside fund managers.

“Generally, global markets have favoured equity funds in recent years, which likely explains their prevalence,” said Jeroen Westrik of Argentem Creek Partners. “It’s possible that credit-focused funds will increase in number as the market evolves,” he added.

Many special situation credit funds will also want to fly under the radar, as opposed to their louder equity counterparts, meaning that they won’t be in the press as often, added the regional financial advisor.

The regulatory regime for credit funds is also relatively newer in ADGM than in DIFC, said Soumya George of Karm Legal, but this will develop in time.

“As ADGM’s credit fund regime evolves, we may see increased interest from fund managers,” she added.