For the past few years, Dubai has been climbing ranks to claim its place as a premier finance hub, rolling out a flurry of reforms aimed at making it more attractive for foreigners and international companies to live and invest, with high-level events, new visa programs to lure top talent, tax concessions, lower licensing fees, and capital requirements for the industry.
As much of the world looks grim and bearish, with forecasts of slow economic growth, Dubai is flourishing.
“Dubai will rank as one of the top four global financial centers with an increase in FDI to over AED 650 billion ($177 billion) over the next decade,” H.E. Sheikh Mohammed bin Rashid al Maktoum, Vice President and Prime Minister of the UAE and the ruler of Dubai, tweeted in January. “Over 300,000 global investors are helping make Dubai the fastest growing global city.”
Recently, several global alternative financial services, including hedge funds, have been expanding into Dubai as operating environments in their native markets become increasingly challenging.
“By aligning itself with international standards, Dubai’s financial ecosystem has begun to thrive with a record number of hedge fund registrations,” says Bas Kooijman, CEO and asset manager of DHF Capital S.A. “These funds collectively manage over $1 trillion in assets worldwide, which is particularly noteworthy considering that the global hedge funds under asset management sit at $4.84 trillion.”
Dubai International Financial Centre (DIFC) is becoming a global hub for alternative investments and hedge funds. The DIFC has about 60 hedge funds with more than $1 trillion in assets under management waiting to be licensed, DIFC governor Essa Kazim said in April.
It registered record-breaking growth last year, with the number of active companies in the Gulf’s financial hub up by a fifth year-on-year to 4,377, driven by fintech and innovation firms.
In 2022, DIFC experienced a 54% increase in the total number of hedge funds within the center, where a strong base of established firms already exists.
Quant investing giant AQR, BlueCrest, ExodusPoint Capital Management, credit specialist hedge fund King Street Capital Management, and multi-strategy firms such as Sculptor and Lighthouse Investment Partners are among the hedge funds to establish a presence in the city. In July, US-based Verition Fund Management announced the opening of an office in Dubai. Millennium Management was one of the first significant US hedge funds to move to the city in 2020.
In July, DIFC signed an agreement with the Alternative Investment Management Association (AIMS) to bolster its status as an international hub for alternative investments. AIMA represents over 2,100 corporate members with $2.5 trillion in hedge fund and/or private credit assets.
“Dubai’s financial sector has seen unprecedented growth over the past five years, experiencing significant infrastructural and economic developments, resulting in a paradigm shift for the sector,” says Noor Sweid, Managing Partner at Global Ventures.
Business-friendly policies and regulations, a strong economy, and an ideal geographical location – access to some of the world’s largest and most strategic markets, often considered a stepping stone between the economies of the West and East – contributed to the global financial services growing interest.
“The city’s world-class infrastructure, aviation hub, and state-of-the-art financial centers and free trade zones provide a conducive environment for financial institutions to operate efficiently,” says Abbas Basrai, Partner and Head of Financial Services at KPMG Lower Gulf.
“The absence of personal income tax and low corporate tax rates are particularly appealing to many companies, including financial services,” he adds.
Is Dubai becoming a rising global hub for alternative investments?
“Definitely,” says Sweid. “We have seen this first-hand with venture capital. While the venture capital ecosystem is nascent, venture financing peaked last year with $3 billion across the MENA region – with the UAE alone receiving $1.2 billion from increasingly international investors.”
“For venture capital, Dubai offers companies who are truly capital-efficient, due to their historical lack of capital, and who use technology to solve real-life issues, rather than top-line growth for growth’s sake. This combination has enabled Dubai’s growth into an attractive hub for international capital – and is a trend we expect to continue,” adds Sweid.
The shift of global financial services to the UAE isn’t just about tax and raising capital. After the pandemic, Dubai is increasingly seen as an attractive alternative city to London, New York, and Hong Kong.
INFLUX OF HNWIs
Experts say Dubai’s deft handling of the pandemic incentivized many high-net-worth individuals (HNWIs) and hedge fund portfolio managers to relocate to the UAE.
“This accelerated the city’s financial growth, allowing it to play catch up with major markets, and the emirate is now arguably sitting atop this financial ladder,” adds Kooijman.
Global companies are actively pursuing cash-rich clients in the Middle East as a significant influx of wealth flows here, especially in Dubai.
“The rising affluence presents business opportunities across various sectors, including finance, technology, luxury goods, and real estate. Companies are tailoring their strategies to tap into these emerging markets, recognizing the immense potential for growth and profitability,” says Basrai.
Dubai witnessed a substantial influx of HNWIs from regions like India, Africa, and the Middle East – many of whom want to diversify their income through family offices, says Kooijman.
By crafting tailored investment portfolios that enable their assets to be allocated strategically across stocks, bonds, real estate, and alternative investments, these individuals leverage a network of expert investment managers and advisors to establish family offices while accessing a wide range of opportunities and minimizing reliance on any single strategy or manager.
“As a result, recent data shows that family offices are expected to contribute $500 billion to the UAE economy by 2026,” adds Kooijman.
The situation underscores the importance of Dubai’s solid macroeconomic mix to enable itself to use all available tools to ensure its economic growth.
Sweid says Dubai’s macros are attractive for global companies expanding to the region. “The emirate has one of the highest-ranked GDPs per capita across the region. This interests international companies: be they deploying capital directly into corporates or targeting individuals for direct financial services.”
And, of course, the announcement of D33, a mandate that Sheikh Mohammed has introduced to double the size of Dubai’s economy over the next decade, is poised to boost this progress further.
Moreover, long-established markets no longer offer growth prospects or cost efficiencies that can compete with those available in emerging hubs like Dubai.
The state of global markets and concerns over recession have helped Dubai to attract global investments seeking expansion. Tension between China and the US has dented Hong Kong and Singapore’s allure, and the recent banking crisis, including the collapse of Credit Suisse Group AG, has further heaped pressure on the financial industry.
“Dubai provides an opportunity for investors to diversify their portfolios beyond traditional markets, with access to different asset classes, sectors, and regions,” says Kooijman. “Emerging markets can also typically offer higher growth rates and the potential for better returns than mature markets, which can be attractive to risk-tolerant investors.”
Furthermore, the growing wealth in the region and the demand for tailored wealth management services have created a niche market that global financial firms are eager to tap into.
“Dubai’s appeal to global financial services, its role as a hub for alternative investments, the influx of wealth, and its growth potential compared to long-established markets make it a magnet for financial institutions and investors alike,” adds Kooijman.
However, Basrai says, established markets still possess mature industries and diverse opportunities. “While emerging hubs offer high growth rates, established markets offer established networks. Both have unique advantages; the choice depends on individual goals and risk appetite. Therefore, while long-established markets can still compete, they require adaptability and innovation to sustain growth.”
Meanwhile, with cutting-edge technology, innovation, and partnerships, experts say Dubai has become a key player that parallels traditional financial capitals.
“Furthermore, an upward trajectory, which has the global hedge fund industry by assets under management pegged to grow from $4.60 trillion in 2023 to $.37 trillion by 2028, will continue bolstering Dubai’s appeal,” says Kooijman.
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