Key Takeaways
- • The Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM) has created three new lighter-touch fund manager categories: sub-threshold, venture capital and institutional, according to Pinsent Masons.
- • Sub-threshold managers may run closed-ended, non-retail funds with aggregate committed capital of up to US$200 million, provided they do not act as host fund managers.
- • Sub-threshold and venture capital managers face a base capital requirement of US$50,000, with authorisation and annual supervisory fees for venture capital managers capped at US$10,000.
- • Institutional fund managers must hold the higher of US$50,000 or six weeks of audited annual expenditure, versus 13 weeks under the standard regime, and are exempt from professional indemnity insurance.
- • Foreign managers of ADGM-domiciled funds must now appoint a UAE-resident natural person to the relevant board and a licensed corporate service provider as agent for service of process.
Summary
The Abu Dhabi Global Market will offer lighter regulatory treatment to lower-risk fund managers under new regimes announced by the Financial Services Regulatory Authority (FSRA), according to experts at Pinsent Masons. The reforms create three new categories of fund manager: sub-threshold, venture capital and institutional. All three are exempt from requirements to maintain an internal audit function and to appoint a finance officer, and each benefits from a range of other regulatory concessions aimed at reducing capital and compliance burdens and control function requirements.
Sub-threshold managers may manage closed-ended, non-retail funds with aggregate committed capital of up to US$200 million across all funds they manage, provided they do not operate as host fund managers. Venture capital fund managers sit within the sub-threshold category and may manage only venture capital funds, with authorisation and annual supervisory fees capped at US$10,000. Institutional fund managers are limited to qualified investor funds or equivalent foreign funds with a minimum subscription of US$5 million, and cannot accept investments from natural persons.
Capital requirements also differ by regime. Sub-threshold and venture capital managers are subject to a base capital requirement of US$50,000 with no additional expenditure-based threshold. Institutional managers must hold the higher of US$50,000 or six weeks of audited annual expenditure, compared with the standard 13 weeks, and are exempt from professional indemnity insurance. Those obligations continue to apply to sub-threshold and venture capital managers.
Pinsent Masons' David Young said existing managers may apply to vary their permission to use one of the new regimes, though a firm acting as host fund manager for others cannot use the sub-threshold framework. The concessions will also extend to institutional fund asset managers, allowing in-group entities holding only asset management permissions for those funds to operate under the streamlined framework. Marie Chowdhry, also at Pinsent Masons, said firms should assess which regime applies and whether a variation of permission offers a more proportionate footprint. She noted that existing venture capital managers have lost their exemption from most prudential rules.
Alongside the changes, the FSRA has tightened requirements for foreign managers of ADGM-domiciled funds. These managers must ensure a UAE-resident natural person is appointed to the board of the fund, or of the general partner where the fund is an investment partnership, and appoint a licensed corporate service provider to act as agent for service of process.
Sub-threshold managers may manage closed-ended, non-retail funds with aggregate committed capital of up to US$200 million across all funds they manage, provided they do not operate as host fund managers. Venture capital fund managers sit within the sub-threshold category and may manage only venture capital funds, with authorisation and annual supervisory fees capped at US$10,000. Institutional fund managers are limited to qualified investor funds or equivalent foreign funds with a minimum subscription of US$5 million, and cannot accept investments from natural persons.
Capital requirements also differ by regime. Sub-threshold and venture capital managers are subject to a base capital requirement of US$50,000 with no additional expenditure-based threshold. Institutional managers must hold the higher of US$50,000 or six weeks of audited annual expenditure, compared with the standard 13 weeks, and are exempt from professional indemnity insurance. Those obligations continue to apply to sub-threshold and venture capital managers.
Pinsent Masons' David Young said existing managers may apply to vary their permission to use one of the new regimes, though a firm acting as host fund manager for others cannot use the sub-threshold framework. The concessions will also extend to institutional fund asset managers, allowing in-group entities holding only asset management permissions for those funds to operate under the streamlined framework. Marie Chowdhry, also at Pinsent Masons, said firms should assess which regime applies and whether a variation of permission offers a more proportionate footprint. She noted that existing venture capital managers have lost their exemption from most prudential rules.
Alongside the changes, the FSRA has tightened requirements for foreign managers of ADGM-domiciled funds. These managers must ensure a UAE-resident natural person is appointed to the board of the fund, or of the general partner where the fund is an investment partnership, and appoint a licensed corporate service provider to act as agent for service of process.
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