UAE eases rules on private equity fund marketing

The changes exempt registration for private placement of foreign funds, overturning regulations adopted in 2012 that lengthened the process of offering foreign funds to local investors.

An amendment to fund laws in the UAE exempts foreign funds from registration with the regulator, provided they offer funds on a private placement basis only to qualified investors.

The UAE's Securities and Commodities Authority (SCA) passed the amendment of the Investment Funds Regulations on March 13.

The regulations only came into force on August 27, 2012, but they caused upset among foreign fund managers wanting to distribute to local investors as they made the process of offering funds in the UAE far lengthier.

Under the Investment Funds Regulations, managers offering funds to UAE investors previously had to appoint a local licensed distributor or set up a branch or representative office in the UAE outside the Dubai International Financial Centre (DIFC). The office outside the DIFC had to be authorised by the regulator.

Managers then had to apply to the SCA to obtain authority for permission to promote the fund. Each fund to be promoted needed to be separately authorised.

From start to finish the process of setting up an office in the UAE takes at least six months, according to Muneer Khan, a financial markets partner at Simmons & Simmons in the UAE. If opting to appoint a local distributor, the time period depends on how long it takes to come to a distribution agreement, he says.

The amendment to the fund rules exempts foreign fund managers from this process as long as the fund is offered via private placement to UAE investors that are: investment funds owned by federal or local government entities in the UAE; entities whose main objective or one of their objectives is to invest in securities investing for their own account; or investment managers with the authority to make and execute investment decisions.

"It is a really big win for the industry," says Khan. "Since the regulation came out last year – and even when we had the draft regulation – we and others were asking for a qualified investor exemption. The regulator decided to go ahead with the rules as they were but after further discussion they have decided to incorporate this amendment. It is quite unusual for it to happen in this way. One of the major factors in this was the leading local sovereign wealth funds, which did not want their investment options to be restricted."

"Sovereign wealth funds have been concerned about managers – those they have existing relationships with as well as potential new managers – being deterred from coming to see them for business," says Khan. "They rely on the largest network of possible investments and they like good managers to come and see them, as well as visiting managers, primarily from New York and London."

As a result of the concerns of both managers and investors, "the regulator recognised that there are some types of qualified investors in the market who are capable of assessing the risks of investing, who don't want to limit their investment options and who don't therefore desire that level of regulation", says Khan.

He adds that the regulator always had retail investor protection in mind when it set out the regulations.

The amendments extend to funds in the DIFC, where most foreign funds are based. Khan says managers based in the DIFC were concerned that the amendment would not apply to them because the DIFC has its own jurisdiction and its own regulatory framework.

The SCA previously held that even if a fund was registered in the DIFC, it had to register separately in order to market to investors based in the rest of the UAE, most of which are in Abu Dhabi. However, the amendment does apply to the DIFC-based funds as long as they are privately placed with qualified investors.

On March 28 the SCA issued guidance on reverse enquiries. It formalises the regulator's previously informal position on this and allows the fund manager to distribute the fund without authorisation.

Although the amendment to the rules has been approved, it does not come into effect until it has been published in the Official Gazette. However, Khan says he has spoken with the SCA and as far as it is concerned the amendment is effective because it does not increase obligations for managers but relaxes the rules.

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