Dubai emerges as global hedge fund hotspot: A new financial powerhouse

Dubai, renowned for its vibrant economy and strategic significance, is reinforcing its status as a robust international business, financial, and industrial centre. The city’s appeal is now further underlined by a notable influx of global hedge funds establishing their presence within its bounds.

The Dubai International Financial Centre (DIFC), an influential financial hub serving the Middle East, Africa, and South Asia since its establishment in 2004, recently reported the establishment of five prominent global hedge funds, solidifying Dubai’s place on the global financial map.

Among the prominent hedge funds setting up regional bases in Dubai are industry giants such as King Street Capital Management, Hudson Bay Capital, Balyasny Asset Management, Verition Fund Management, and Capital Management. These enterprises augment an already extensive list of financial powerhouses that have chosen Dubai, including Schroder Investment Management and FIL Distributors – Fidelity International.

Historically, global hedge funds have predominantly situated themselves in traditional financial capitals such as London, New York, Singapore, and Hong Kong. However, Dubai has emerged as a formidable competitor, gaining traction and attracting attention from the financial community.

According to a report by the DIFC, these newly established hedge funds are relocating their senior personnel to leverage Dubai’s robust web infrastructure for investor relations and portfolio management services.

The allure of Dubai is compelling, driven by factors like the region’s favourable tax environment and the presence of deep-pocketed investors, making it an enticing destination for global hedge funds.

While the five newly established hedge funds have made recent headlines, the past year witnessed a surge in hedge funds establishing their bases in Dubai. Lighthouse Investment Partners, Sculptor, and AQR are just a few of the names that have found a home in Dubai during this time.

The DIFC reported a record number of hedge fund registrations in 2022, with these funds collectively managing over $1 trillion in assets worldwide. Notably, the global hedge funds under management boast an impressive $4.84 trillion.

Dubai’s prudent management of the Covid-19 pandemic has been pivotal in casting the spotlight on the region and attracting hedge fund managers. While global financial hubs like New York, Hong Kong, and London grappled with stringent restrictions and lockdowns, Dubai adopted a balanced approach that facilitated business continuity.

Swift vaccine rollouts, effective social distancing measures, and other strategic initiatives ensured that Dubai remained open for business. A crucial factor propelling Dubai’s ascent is its favourable tax regime, including the absence of personal income tax.

This stands in contrast to other regions that have witnessed significant tax increases. Moreover, Dubai’s innovative visa schemes, particularly the self-sponsored renewable residence visas for specialised talents, have further bolstered its appeal among money managers.

The city’s pro-business culture, combined with its enticing tax structure, makes it an attractive and accessible destination for hedge funds. Declan Quiligan, Head of Hedge Fund Services at Cisco Fund Services, emphasised in a news article that Dubai’s influx of institutional managers is partly driven by a desire for a change in work culture in the post-Covid era.

Dubai’s attractiveness as a financial hub is further amplified by the presence of some of the world’s largest institutional investors and sovereign wealth funds in the Middle East. According to Global SWF, a research platform, MENA-based wealth funds command over 40% of the impressive $11 trillion in assets.

The Alternative Investment Management Association (AIMA) has also joined forces with the DIFC, aiming to support Dubai’s alternative asset management sector’s growth and maturation.

Under the agreement, DIFC collaborates with AIMA’s extensive network of over 2,100 corporate members, representing a combined $2.5 trillion in hedge fund and private credit assets.

Several of the hedge funds establishing a presence in Dubai have longstanding ties to the region. For instance, King Street has maintained an association with Dubai and the Middle East for decades, making the decision to open an office in Dubai a natural progression.

In a report, Reba Zebdi, Managing Director of Marketing and Investor Relations at King Street, underscored the significance of having a physical presence in Dubai to nurture investor relationships in the region.

Dubai’s growing influence on the global economy is contributing to its allure as a hedge fund destination. A physical presence on the ground provides hedge funds with valuable macro insights, enabling informed portfolio and risk management strategies. King Street, which manages over $23 billion in assets, exemplifies this trend.

Incorporating the strategic advantages of Dubai, Millennium Management LLC established Millennium Capital (DIFC) Ltd within the DIFC. The fund’s proactive efforts to diversify and expand across EMEA, APAC, and the Americas highlight Dubai’s role as an attractive launching pad for global expansion. The favourable time zone that Dubai offers is an added advantage, enabling comprehensive coverage of global markets spanning Asia, Europe, and the United States.

Jean-Luc Roghe, Head of Investor Relations, EMEA, at Millennium, acknowledged the growing influence of the DIFC as a financial centre, which has attracted a robust pool of tech and investment talent, further enhancing Dubai’s appeal to larger hedge funds.

Dubai’s magnetic pull extends beyond financial institutions to a diverse range of talent. The city’s thriving local trade markets and the influx of businesses, tech talent, and startups have created a dynamic ecosystem that naturally attracts hedge funds. As Dubai increasingly shapes global economic dynamics, being situated in the heart of this transformative landscape offers unparalleled advantages.

In summary, Dubai’s meteoric rise as a global financial hub is being propelled by a combination of factors, including its strategic response to the pandemic, favourable tax regime, vibrant business culture, and increasing influence on the global economy. With an array of hedge funds now calling Dubai home, the city’s position on the global financial stage is solidified, poised for continued growth and prosperity.

This article has been contributed by Sindhu Kashyap.

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