x Abu Dhabi, UAETuesday 23 January 2018

Better DIFC terms draw hedge funds

The Dubai International Financial Centre is booming with hedge funds

Spring has sprung in the Dubai International Financial Centre (DIFC), and hedge funds are sprouting as the emirate starts to regain its position as an asset management hub.

Guna Mahalingam, a managing director at Platinum Wealth Management, which operates hedge funds, said his company was preparing to establish operations in the DIFC, with political turmoil in several countries in the region proving no deterrent to a Mena-focused fund launch expected this summer.

"It has been a long-term idea - there has been a little uncertainty after the financial crisis, and we believe while there are still a lot of question marks, we say life goes on and you've got to keep moving forward," Mr Mahalingam said.

"The incentives offered by the DIFC have been very attractive," he said, describing better office rents as a particular draw.

Hedge fund managers are able to buy and short-sell in a variety of asset classes, including stocks, bonds and commodities.

Other companies have also been keen on the DIFC as a potential location to set up shop. Neuberger Berman, an asset management firm once owned by Lehman Brothers, is also exploring establishing operations in the Gulf, with Dubai in the running as a base of operations, according to sources close to the company.

Hedge funds' focus on high profits has made them one of the most popular investments among companies and the super rich. However, they have courted controversy recently for often exemplifying some of the worst traits of cut-throat capitalism.

The insider-trading trial of Raj Rajaratnam, the founder of Galleon Group, began in New York last week. Mr Rajaratnam is accused of making millions of dollars using information from a network of sources he cultivated over many years.

In spite of a tarnished image, the hedge fund industry is booming worldwide and could reach an all-time high this year of US$2.5 trillion (Dh9.18bn), according to a recent report from Deutsche Bank.

Kevin Birkett, the director of financial services for the DIFC Authority, saidDubai was "coming out of what's been a difficult time, and that sets the scene".

Initially, the DIFC had sought to maintain tight control over companies operating there, which required asset management houses to set up representative offices in the financial free zone. Recently, asset managers have been granted a freer rein - a move that is encouraging more arrivals.

"The biggest change is that you can establish an exempt fund somewhere overseas, whereas, previously, you had to be here," Mr Birkett said. The DIFC's rent formula, which clearly lays out the price of office space, had also helped funds to assess the cost of setting up in Dubai, he said.

And certain parts of the DIFC carried a certain cachet, with which funds were keen to associate themselves. "At the end of the day, we could re-let the Gate Building this afternoon," Mr Birkett said. "It's in huge demand, especially from international firms."