Middle Eastern Promises: Hedge funds look to new markets

• Hedge Funds

The Middle East becoming an increasingly important source of investor capital, but the region is also transforming itself into a leading hedge fund hub.

Many prominent hedge funds, including Millennium Management, Point72 Asset Management, Exodus Point Capital Management and Balyasny Asset Management, have recently made the decision  to open offices in Dubai.

Meanwhile, Abu Dhabi Global Market, the Emirate’s financial centre, is currently home to a number of  hedge funds while a further 40 are in discussions to potentially join them.

This activity has prompted not only funds, but also the outsourcing ecosystem to turn to the Middle East and build frameworks to offer support for the growing number of firms with a presence there.

In some cases, new and emerging managers are choosing the Middle East for their regulatory requirements and there is a feeling that the sometimes long and intricate process of getting regulated in the US and UK can be a negative experience for those looking to begin capital raising. While this is subjective, it seems to have informed some firms views on where to regulate their funds.

Chasing new investors

As hedge funds look to diversify their client base beyond North America and Europe, many are beginning to target the Middle East, a region whose economies are riding high off the back of strong oil and gas prices.

Middle Eastern markets – particularly the United Arab Emirates (UAE) and Saudi Arabia – have vast pools of institutional and private wealth, making them an attractive fundraising destination for capital hungry managers.

According to data from Global SWF, sovereign wealth funds (SWFs) in the Middle East and North Africa account for a staggering 40% of the $11 trillion total currently managed by all SWFs.

Although the Middle East’s high net worth investor (HNWI) populations are much smaller than those in North America, Europe and Asia, the region is getting wealthier, in contrast to the other markets,  which have suffered a fairly sizeable wealth contraction lately.

Whereas North America’s HNWIs saw their wealth fall by 7.4% to $25.6 trillion between 2021 and 2022, Middle Eastern HNWIs enjoyed a 1.5% increase in net worth, bringing their assets to $3.4 trillion.

Establishing a physical presence in the Middle East, however, is critical if managers are to demonstrate their commitment to investors in the region.

Becoming a fund hub

Aside from an abundance of deep pocketed investors, there are other reasons why so many hedge funds are gravitating towards the Middle East.

The UAE in particular is very business friendly and is becoming home to a large cohort of leading service providers, including prime brokers, fund administrators, and law firms.

Additionally, there is no income tax in the country, which is a major draw for managers, especially when competition for talent is so high.

Others note that a lot of people in the industry are relocating to the Middle East for lifestyle reasons, while very few appear to have been deterred by the recent geopolitical tensions.

Owing to its large investor community and sensible business policies, the Middle East is rapidly becoming the destination of choice for hedge funds. Linear’s are well placed to support clients operating in this region. Contact Joe Ford [email protected] to discuss your requirements.

• Bloomberg – October 17, 2023 – Dalio’s Abu Dhabi penthouse shows rise of new hedge funds
• Pensions & Investments – August 4, 2023 – Hedge funds setting up in Dubai to access talent pool, investment opportunities
• Capgemini – World Wealth Report 2023