Asset Management in the Middle East
Speakers
James Coleman Muneer Khan
FI & AMIF Autumn Legal Update 2017
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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Overview
Introduction
Middle East Jurisdictional Overview
The Asset Management Sector in the Middle East
Fund Structuring – Regional fund vehicles – Shariah structuring – DFSA funds
Establishing a regulated presence in the Middle East
Financial Promotion Activities
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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Law Firm of the Year Global Investor MENA Awards 2017
Asset Management & Funds Law Firm of the Year IFN Law Awards 2016
Simmons & Simmons
Middle East focus
Offices - Doha, Dubai, Jeddah*, Riyadh*
23+ year presence
Advising in the region for over 35 years
Focus on asset management & investment funds and financial institutions
Expertise in cross-border financial services regulatory compliance
Particular focus on the GCC
* In alliance with Hammad & Al-Mehdar
The Asset Management Sector
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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The Middle East
The Gulf Cooperation Council (GCC)
Founded: 25 May 1981
Head Quarters: Riyadh, Saudi Arabia
Area: 1,032,093 square miles
Population in 2016: 53.5 million
Saudi Arabia Oman
UAE
Kuwait Bahrain
Qatar
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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Free Zones in the Middle East
Overview
Three principal financial services free zones in the Middle East – Dubai International Financial Centre (DIFC) – Abu Dhabi Global Market (ADGM) – Qatar Financial Centre (QFC)
Common law legislation
English language legal and regulatory environment
Own courts
No application of foreign-ownership restrictions
Tax guarantees
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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Dubai International Financial Centre
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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Abu Dhabi Global Market
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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Different approach in Qatar …
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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The GCC in figures
Relative nominal GDP
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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The Asset Management Sector
General characteristics and trends
Diverse and increasingly sophisticated group of investors
Shariah and non-Shariah sensitive investors
Predominance of managed portfolios
Significant growth of mutual funds
Opaque private equity market
The rise of the family office
SWF sponsored investment funds
Relaxation of foreign ownership restrictions
Significant foreign competition
Increased regulation and enforcement actions
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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The Asset Management Sector
Mutual Funds - Key characteristics and general trends
Predominantly KSA domiciled
High concentration in a limited number of funds
Significant regional differences in strategy
Banks are the dominant managers
The rise of the pure-play asset management firm
Digitalisation of distribution platforms
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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The Asset Management Sector
Private Equity – Key characteristics and general trends
Wide range of investment strategies but: – Generally growth capital rather than buy-out – Infrastructure key asset class – Historically limited real estate but changing – Tech Funds – Increase in Shariah structuring – Seeding preferred
Adherence to the 2 and 20 model
Sovereign wealth led club-deal structures
Greater risk awareness amongst investors
The rise of Venture Capital
Fund Structuring
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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Fund Structures
Four principal types
Locally licensed mutual funds (KSA / UAE / Bahrain) – Contractual structure – Often inflexible laws
Offshore funds (Cayman)
Regional free-zone funds (DIFC / ADGM / QFC) – Non-retail – Foreign manager in recognised jurisdictions – Local manager – Generally recognised as having GCC nationality – Taxation
Parallel, co-investment and unregulated structures
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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The use of Regional Fund Structures
Principal drivers
Investor demand and investor familiarity
Foreign-ownership structuring – Potential use as “blockers” – GCC nationality (but not always)
Tax structuring
Seed capital availability
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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Shariah-compliant Funds
Same game but different rules
Increased complexity
Different levels of investor conservatism
Restrictions / limitations on certain investments and strategies – Prohibited sectors – Interest bearing instruments / conventional derivatives – Short selling
Shariah boards and Shariah audits
Purification
Screening
Opt-in and opt-out arrangements
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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Shariah-compliant Funds
Case Study
Management Agreement
Engagement Letter
Administration Agreement
Global Depositary Agreement
SEDCO Capital Global Funds
(Luxembourg Specialised Investment Fund (SICAV))
…………………………
Fund Board
Credit Suisse (Custodian)
Credit Suisse (Administrator)
Deloitte Luxembourg
(Auditor)
SEDCO Capital Luxembourg
Sà r.l
(Management Company)
Shariah Advisers • Dr. Mohamed Ali
Elgari • Dr. Mohamed
Daud Bakar • Dr. AbdulAziz
Khalifa Al-Qassar
Shariah Monitor SEDCO Capital KSA Shariah Auditor
Investment Managers
Management Services
Liquid Strategy Funds
Illiquid Strategy Funds
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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DFSA Funds Regime
DFSA domestic funds
Domestic Fund
Domestic Fund Manager (DFSA Authorised Firm)
External Fund
Exempt Fund Qualified Investor Fund Public Fund
External Fund Manager (No Objection Status)
Some limited requirements will apply to External
Funds but they will not be regarded as
DFSA-regulated funds
The External Fund Manager (EFM) must be
established in a Recognised Jurisdiction (see General Information
Section for the list of jurisdictions) or a
jurisdictions otherwise acceptable to the DFSA
with respect to the activity of managing funds.
PLUS
The EFM must subject itself to the DIFC laws and DIFC court jurisdiction, so
far as these apply to its activities relating to the
Domestic Fund.
PLUS
The EFM must appoint a Fund Administrator or
Trustee in the DIFC to act as its agent.
Retail endorsement required on the Fund
Manager’s licence
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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DFSA Funds Regime
Domestic Fund Categories
Public Funds Exempt Funds Qualified Investor Funds
Investors >100 Unitholders ≤100 Unitholders ≤50 Unitholders
Investor Classification Any - including Retail Professional Clients Professional Clients
Offering Public Offer Private Placement Private Placement
Minimum Subscription N/A US$50,000 US$500,000
Application Process Time Variable 5 Business Days 2 Business Days
Fund Fees (US$) Application Fee – 1,000 Annual Fee – 4,000
Application Fee – Nil Annual Fee – 4,000
Application Fee – Nil Annual Fee – 4,000
Regulatory Environment
Detailed regulation in line with IOSCO standards
Somewhat less stringent than for Public Funds
Significantly less stringent than for Exempt Funds
Establishing a financial services regulated presence in the Middle East
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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Establishing a Middle East Regulated Presence
Boots on the ground
Onshore and free-zone options with principal structures being: – Representative Office – Branch Office – Corporate Presence
Minimum authorisation requirements (DFSA) – Category 3C (prudential requirement for managing domestic funds) – Base capital requirement (private funds) - US$70,000
Establishment process and timing – DIFC and ADGM – Accelerated process for QIF-only managers
Regulatory enforcement actions
Financial Promotion
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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UAE Financial Regulatory Map
Multiple jurisdictions
The Emirate of Dubai
The Emirate of Abu Dhabi
Dubai International Financial Centre (DIFC)
UAE
Regulators UAE Securities and Commodities Authority (SCA) UAE Central Bank UAE Insurance Authority Dubai Financial Services Authority (DFSA) Financial Services Regulatory Authority (FSRA)
Abu Dhabi Global Market (ADGM)
Q&A
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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Key contacts Muneer Khan Partner │ Dubai T +971 4709 6699 E [email protected]
James Coleman Partner │ Dubai T +971 4709 6621 E [email protected] "They always provide us with the range of
options, and their recommendations are backed up by fact and precedent where possible"
Middle East, Chambers Global 2017
Clients laud the Simmons & Simmons team for its: "Seamless service" and "prompt and sensible turnaround times, no matter what office we are dealing with“
Middle East, Chambers Global 2017
“Simmons & Simmons Middle East LLP stands out for its excellent technical strength, great value for money and responsiveness”
Legal 500 2017
09 October 2017. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. © Simmons & Simmons LLP
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Amsterdam Brussels Bristol Düsseldorf Frankfurt Lisbon * London Luxembourg Madrid Milan Munich Paris
Doha Dubai Jeddah ** Riyadh **
Beijing Hong Kong Shanghai Singapore Tokyo
*Sociedade Rebelo de Sousa in association with Simmons & Simmons LLP **Hammad & Al-Mehdar in alliance with Simmons & Simmons
General information
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DFSA Recognised Jurisdictions and Designated Funds Jurisdiction Designated Fund Type
Australia A retail fund established and registered under the Managed Investment Scheme provisions of the Corporations Act (Chapter 5 C) 2001 where the
Australian Securities and Investments Commission ('ASIC') has approved the constitution of the scheme.
Canada A mutual fund which has been authorised by any of the 13 respective Canadian provincial regulatory authorities in accordance with National Instrument 81-101 and National Instrument 81-102 issued by the Canadian Securities Administrators (CSA).
European Member States A UCITS compliant fund or scheme, authorised by the relevant Member State's regulator as a UCITS fund or scheme. NOTE: A European Member State is recognised for the purposes of this notice, if the Member State has implemented UCITS (I) and after 13 February 2007, has also implemented UCITS (II) and (III).
Guernsey Where the scheme is managed in, and authorised under the law of, Guernsey, any authorised scheme (within the meaning of the Collective Investment Schemes (Class A) Rules 2002, as amended by the Collective Investment Schemes (Class A) Rules 2000 (Amendment) Rules 2003).
Hong Kong A unit trust or mutual fund authorised by the Securities and Futures Commission under section 104 of the Securities and Furtures Ordinance.
India A mutual fund constituted as a unit trust approved by and registered with, the Securities and Exchange Board of India (SEBI) under the SEBI (Mutual Funds) Regulations 1996 (as amended) issued under the SEBI Act of 1992.
Isle of Man Where the scheme is managed in, and authorised under the law of the Isle of Man, any scheme which is an authorised scheme within the meaning of the Financial Supervision Act 1988 (an Act of Tynwald) (as last amended by the Corporate Service Providers Act 2000).
Jersey Where the scheme is managed in, an authorised under the law of, Jersey, any scheme which is a recognised fund within the meaning of the Collective Investment Funds (Recognised Funds) (Rules) (Jersey) Order 2003.
Malaysia An Islamic fund approved by the Securities Commission of Malaysia under section 32 of the Securities Commission Act 1993. An Islamic fund approved by the Securities Commission of Malaysia under section 212 of the Capital Markets and Services Act 2007.
Singapore A collective investment scheme authorised by the Monetary Authority of Singapore under section 286 of the Securities and Futures Act units of which may be offered to the general public.
South Africa A collective investment scheme which is registered with the Financial Services Board under the Collective Investment Schemes Control Act (Act 45 of 2002) of 2002 ("CISCA").
Switzerland A securities fund which corresponds to a UCITS fund in accordance with the Swiss Investment Fund Act and where the manager is licensed by the Swiss Federal Banking Commission.
United Kingdom The following schemes, in addition to any schemes falling under the UCITS designation for European Member States above, authorised by the Financial Services Authority: (a) Unit trust schemes authorised under section 243 of the Financial Services and Markets Act 2000 (FSMA), authorised open ended investment companies incorporated by virtue of regulations made under section 262 of FSMA in respect of which an authorisation order is in force; and (b) Authorised Qualified Investor Schemes whether in the form of a unit trust or an investment company with variable capital.
United States of America A mutual fund, that is, a collective investment scheme registered under the Investment Company Act of 1940, which has also registered the offering of its securities under the Securities Act of 1933 and where the registration statement has become effective in accordance with the Securities and Exchange Commission's Regulations and the Operator is registered with the SEC.
This document is for general guidance only. It does not contain definitive advice. SIMMONS & SIMMONS and S&S are registered trade marks of Simmons & Simmons LLP. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated practices. Accordingly, references to Simmons & Simmons mean Simmons & Simmons LLP and the other partnerships and other entities or practices authorised to use the name “Simmons & Simmons” or one or more of those practices as the context requires. The word “partner” refers to a member of Simmons & Simmons LLP or an employee or consultant with equivalent standing and qualifications or to an individual with equivalent status in one of Simmons & Simmons LLP’s affiliated practices. For further information on the international entities and practices, refer to simmons-simmons.com/legalresp. Simmons & Simmons LLP is a limited liability partnership registered in England & Wales with number OC352713 and with its registered office at CityPoint, One Ropemaker Street, London EC2Y 9SS. It is authorised and regulated by the Solicitors Regulation Authority. A list of members and other partners together with their professional qualifications is available for inspection at the above address.
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