General partners looking to market their funds within the United Arab Emirates, home to heavy institutional investors such as the Abu Dhabi Investment Authority, may soon encounter a few roadblocks on their way.
Today the deadline passes for consultation submissions over new rules proposed by UAE watchdog agency, the Emirates Securities and Commodities Authority. Similar to legislative efforts underway in other corners of the globe, the ESCA is considering subjecting funds to a slew of new reporting requirements and transparency measures. Among other things, the proposed rules would cover a fund’s investment policy, the submission of quarterly audited financial reports and detail a GP’s obligations to the fund.
As written, the rules may be a potential setback for the private equity funds in particular. The ESCA made no carve-out or distinction between rules for retail investors and professional investors. The latter are considered by many jurisdictions to be sophisticated enough to invest without extensive protections and comprise the large majority of private equity investors.
In addition, under the proposed rules, any foreign fund wishing to be marketed in the UAE will only be allowed to do so if it is subject to supervision by its home regulator. However, in most regions, including the US and Europe, laws regulate managers, and not necessarily the fund itself, notes Benjamin Aller, managing partner of SJ Berwin's Dubai office. The result may mean the bulk of foreign domiciled funds would be unable to meet the UAE’s compliance standards as currently drafted.
More headaches may result from proposals requiring foreign funds to in essence employ a UAE intermediary to supervise the promotion of a fund, another safeguard primarily intended for retail investors, and not institutional investors, explains Aller.
The ESCA is understood to have taken comments on the proposed regulations up until the end of February.