The UAE boasts a staggering $996 billion in private wealth, as of June 2024, with the number of high-net-worth individuals expected to rise by 40% by 2031. Hedge fund operators, in search of stable environments and agile regulations, are increasingly gravitating towards Dubai, drawn by its burgeoning pool of capital.
In Dubai, hedge funds can leverage the region’s escalating individual and institutional wealth. During the Covid-19 pandemic, the UAE emerged as a favored destination for affluent investors. Dubai now hosts over 72,000 millionaires – three times more than any other city in the region – and ranks third among BRICS nations in terms of wealthy residents.
The Dubai International Financial Centre (DIFC) highlights this trend: “The migration of hedge funds to DIFC from other global and regional centres reinforces Dubai’s reputation as the region’s leading financial centre and business capital. It also reflects the emirate’s ability to attract top talent and provide access to large concentrations of public and private capital.”
This wealth influx is driving hedge funds to Dubai in significant numbers. In November 2023, DIFC reported that 10 new hedge funds had been authorized by the Dubai Financial and Securities Authority to operate in the UAE’s financial hub.
The DIFC saw a 125% year-on-year growth in hedge fund managers establishing themselves in 2023, as per the Dubai Financial Services Authority (DFSA) annual results. As of May 2024, Dubai and DIFC host more than 50 hedge funds, making it one of the top ten global hedge fund locations. It is projected to soon rank among the top five, with the Centre outperforming regional averages in fund establishment.
Dubai’s exemplary handling of the Covid-19 pandemic attracted many global hedge funds. Despite being a nascent market, Dubai offers the ideal conditions for growth. Hedge funds from New York and London, which faced capital outflows in 2022, are now expanding into emerging markets like Dubai as operating environments in their home countries become challenging. Approximately two-thirds of DIFC-based hedge funds originate from the US and UK, including two of the world’s ten largest hedge funds.
This trend shows no signs of slowing. In May 2024, Dubai hosted the inaugural HFM Middle East Summit, the largest hedge fund conference in the region, attracting over 200 senior leaders, including more than 120 hedge funds. A survey revealed that nearly 60% of attendees have or are establishing a presence in the region, with 36% in the research stages. Factors such as ease of doing business, visa processing, access to talent, time zone advantages, and quality of life were cited as major attractions.
Moreover, sovereign wealth funds and institutions are increasing their allocations to alternative investments like hedge funds, which tend to perform well during volatile times. The Middle East holds the highest proportion of sovereign wealth in hedge funds globally, with investments rising by 11% to $498 billion in 2022, and average portfolio allocations increasing to 2.2%.
The Global Landscape
US, UK, and European hedge funds, including those in offshore territories, dominate the global hedge fund landscape, holding 94.3% of assets by the end of 2022. The Middle East currently accounts for less than 1% of global hedge fund assets under management, but interest and market size are growing. DIFC hosts over 370 wealth and asset management firms, making it the largest market in the region.
In just two decades, Dubai and DIFC have emerged as the leading financial centre and investment hub for the Middle East, Africa, and South Asia (MEASA). By 2022, the overall industry size in DIFC was $800 billion, with $450 billion in wealth and assets under management and nearly 4,400 companies registered.
Dubai ranked first among financial centres in the region on the Global Financial Centres Index 33, published in March 2023. Globally, the city has consistently ranked within the top quartile of the world’s financial centres over the last five years. This success is attributed to factors such as Dubai’s strategic location, a forward-thinking legal and regulatory framework, and swift and flexible setup options, attracting portfolio managers eager to grow their teams and capitalize on DIFC’s growth ecosystem.
