Wednesday, March 19 14:41:28
Dubai is considering regulatory reforms to persuade more funds to base themselves in its financial centre in an effort to emulate the success of Ireland in attracting managed funds.
However, industry experts believe that other parts of its investment environment may also need to change for the emirate to compete globally.
The proposed rules would create a new class of funds in the Dubai International Financial Centre (DIFC) in an effort to attract asset managers, such as hedge funds and private equity funds, serving the richest and most risk-tolerant investors.
The DIFC has boomed since it was set up as a financial free zone in 2004, becoming the Middle East's top banking hub. The number of registered firms operating in the DIFC jumped 14 percent to 1,039 last year, but it has not come close to competing with the likes of Luxembourg, Dublin and the Cayman Islands as a top domicile for funds.
Only nine funds have been domiciled in the DIFC since its current funds regime was introduced in 2010, compared with hundreds established in the leading centres, industry sources said. The DIFC declined to comment.
The Dubai Financial Services Authority (DFSA), the regulatory body for the DIFC, is now moving to narrow that gap with its new fund class, which would impose less stringent regulation - and therefore lower costs - on asset managers.
Rapidly expanding financial markets and rising incomes in the Gulf suggest there is room for a fund management hub to develop in the region.
"You need an option now for a Middle East domicile," said Chris Harran, a national partner at law firm Dechert LLP, which has worked extensively on setting up funds in Dubai.
But he added that elements outside the DFSA's control - such as the way in which investment funds are incorporated and registered - would also need to be considered to maximise Dubai's attractiveness.
Anthony Mallis, chief executive of asset management firm Securities & Investment Co in Bahrain, said the DIFC would succeed in the long run if it could accommodate investors such as family offices from around the Gulf.
A growing number of these offices, which help the region's wealthy families and business dynasties to manage their money, have been establishing a presence in Dubai, he noted.
For now, however, Dubai needs to develop its "human infrastructure" of financial lawyers, custodians and other professionals to sustain growth as a fund centre, Mallis said.
"The volumes of money flowing through must be large enough to sustain the infrastructure. They haven't got that yet."