In 2021, the size of the asset management sector in one of the financial centers of Dubai (DIFC) comprised US$424 billion, and US$702 billion in Abu Dhabi Investment Authority (ADIA). 

For individuals, who are keen to focus on investment strategies, there is a range of options available from investment funds and asset management tools, which adds value towards the sustainability of the financial sector in the country.

There are three most common types of funds in the UAE: discretionary funds, public funds, and qualified investor funds. These types of funds are usually managed by the “fund manager” whether in the UAE or outside as per applicable Regulations. These funds have specific investment purposes and qualified administration, these and other terms are listed in a document, called Prospectus.

In this article, we will overview each of the types of funds in detail. First and foremost, several key differences between the three types of funds are the capability of the investment volume, the minimum threshold for the investment, and the purpose of investments. Each type of fund is subjected to its own set of regulations. 

Funds Regulatory Frameworks in the UAE

There are several jurisdictions, which monitor funds in the UAE, which include Securities and Commodities Authorities (SCA), Dubai Financial Services Authority (DFSA), ADGM's Financial Services Regulatory Authority (FSRA). Each jurisdiction has its regulatory protocols in licensing and monitoring financial activities in the country. For instance, here is an example of a Fund Protocol Rules by DFSA. Now, let’s have a closer look at the types of funds, which are operating in the country. 

Discretionary funds

In the context of adopted regulations, the discretionary fund is subjected to one of the lowest regulatory scrutinies, with alleviated protocols for monitoring its investors. Meanwhile, the minimum requirement for investment is USD 50,000 (For example, as per DFSA and FSRA jurisdictions), and is not being constrained to the maximum number of investors. A discretionary fund is derived from the name of a fund — an entity, which assigns the Discretionary Fund Manager (DFM) to build and manage an investment portfolio on a client's behalf, usually, it is a third party entity or an integral entity of a group of companies. Hence, considering the client’s end goals, the amount of investment, and the tax-related optimization comments, DFM builds the portfolio, based on self-assessed discretion. 

Public funds

This type of fund is noteworthy, as the minimum amount of investment may be significantly lower, compared to discretionary, or qualified investor funds, however, this is the most regulated type in the country, with multiple protocols of investments. Public funds may have more than 100 investors and can be offered to investors by way of a public offer. An example of a public offering in the UAE is Abu Dhabi National Oil Company (ADNOC), one of the largest drilling companies in the Middle East, which has raised more than $1.1 billion from an 11% sale of shares in its drilling unit through an initial public offering in September 2021.

Qualified investor funds

Another type of fund is a qualified investor fund, which purpose includes, but is not limited to offshore and private accounts management. The qualified investor fund’s regulation is subjected to lower scrutiny, compared to the discretionary fund. The minimum investment amount for this type of fund is USD 500,000 per one investor, with a maximum number of investors per fund being 50. The definition and requirements for an entity, fund, or natural person to be entitled to the Qualified investor slightly varies, depending on a certain jurisdiction, however, briefly, the common outlines of criteria of a qualified investor are as follows: 

• regulated financial institutions (including investment funds, pension funds, and fund managers);
• single-family offices (with assets more than AED 15 million);
• an individual, whose net worth is more than AED 4 million, or who is approved by the SCA or a similar regulatory authority. 

In general, the key conditions, criteria, and definitions are similar in all jurisdictions of the UAE, however, each of them offers different mechanisms of managing a fund in the country, which is aimed to stimulate the influx of foreign and domestic investments, enhancing the position of the country in GCC and global markets. 

If you would like to have advice or assistance concerning the investment management in the UAE jurisdictions, kindly contact us. 

Marsel Shadmanov

Head of Corporate Services at Garant Business Consultancy DMCC

Phone +971 4 421 4335 

Email info@garant.ae