asset management in the middle east - simmons & simmons

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


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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


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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


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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


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Dubai International Financial Centre


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Abu Dhabi Global Market


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Different approach in Qatar …


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The GCC in figures

Relative nominal GDP


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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)


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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


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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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asset management in the middle east - simmons & simmons

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