Hedge fund operators seeking stability and agile regulations are increasingly finding that in Dubai. They’re also attracted to an exponentially growing pool of capital.
In Dubai, hedge funds are able to tap into the region’s rising individual and institutional wealth. During the Covid-19 pandemic, the UAE became a popular destination for high-net-worth investors. Dubai is home to over 72,000 millionaires – triple the number of any other city in the region – and the third largest number of wealthy people within the BRICS bloc.
A statement from DIFC says: “The migration of hedge funds to DIFC from other global and regional centres reinforces Dubai’s reputation as the region’s leading financial centre and business capital. It also reflects the emirate’s ability to attract top talent and provide access to large concentrations of public and private capital.”
The UAE is estimated to have $996 billion in private wealth, and the number of high-net-worth-individuals in the UAE is expected to grow 40% by 2031.
This wealth is drawing hedge funds in droves to Dubai.
In November 2023, Dubai International Financial Centre (DIFC) announced that 10 new hedge funds had been authorised by the Dubai Financial and Securities Authority to operate in the financial hub of the United Arab Emirates (UAE).
In 2023, DIFC recorded a 125% year-on-year growth regarding the number of hedge fund managers establishing in the centre, according to the Dubai Financial Services Authority (DFSA) annual results.
As of May 2024, Dubai and DIFC are now home to more then 50 hedge funds, making it one of the top ten hedge fund locations globally. On its current trajectory it will soon be in the top five, with the number of funds setting up in the Centre significantly outperforming regional averages.
Following the government’s exemplary handling of the Covid-19 pandemic, many global hedge funds found that, while the Middle East is a nascent market, Dubai provides all the right conditions to grow.
New York and London-based hedge funds that saw capital outflows during 2022 are now looking to expand into emerging markets as operating environments in their native markets become particularly challenging. Approximately two-thirds of DIFC-based hedge funds originate from the US and UK, including two of the world’s 10 largest hedge funds.
“Hedge funds are showing increasing interest in Dubai as a gateway to the region, looking to establish a presence in DIFC – a rising global hub for alternative investments and hedge funds,” writes Nadim Najjar, Managing Director, Central & Eastern Europe, Middle East & Africa (CEEMA) Refinitiv, an LSEG business.
This is a trend that shows no signs of slowing. In May 2024, 200 senior leaders – including over 120 hedge funds – gathered in Dubai for the inaugural HFM Middle East Summit, the largest hedge fund conference of its kind in the region. A survey of attendees found that nearly 60% are establishing or already have an established presence in the region, with a further 36% in the research stages. Ease of doing business and visa processing, access to talent, time zone advantages and quality of life in the Centre were all cited as crucial components of its appeal by leaders who have made the move.
Additionally, sovereign wealth funds and sovereign-owned institutions globally are increasing their allocations in alternative investments such as hedge funds, which tend to outperform during volatile times. The highest proportion of sovereign wealth held in hedge funds is found in the Middle East.
Sovereign wealth funds have increased their hedge fund investments by 11% to $498bn in 2022, with the average portfolio allocation increasing to 2.2%.
The global landscape
Hedge funds based in the US, the UK, and Europe, including offshore territories, dominate the global hedge fund landscape, holding 94.3% of assets at the end of 2022.
Currently, the Middle East is estimated to account for less than 1% of global hedge fund assets under management. But with demonstrated growing interest, the market is also growing. DIFC hosts more than 370 wealth and asset management firms and is the largest market in the region.
Within two decades, Dubai and DIFC have become the leading financial centre and investment hub for the Middle East, Africa, and South Asia (MEASA).
The overall industry size in DIFC in 2022 was $800 billion, with $450bn of wealth and assets under management and nearly 4,400 companies registered in DIFC in 2022.
Dubai ranked first among financial centres in the region on the Global Financial Centres Index 33, published in March 2023. Globally, the city has consistently ranked within the top quartile of the world’s financial centres in the last five years.
This is due to a host of factors, including Dubai’s location – a gateway to the region. The city offers a world-class, forward-thinking legal and regulatory framework, as well as fast and flexible set-up options. It has attracted portfolio managers who are excited to live in Dubai, to grow teams around them, and to tap into DIFC’s extensive growth ecosystem.
To learn more about the evolving hedge fund market in DIFC, download the free brochure.
