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Establishing and operating collective investment schemes in the United Arab Emirates has long involved a choice between on‑shore regulatory regimes, offshore centres such as the Cayman Islands and, more recently, the common‑law free zones of Dubai and Abu Dhabi. For managers whose strategies target high‑net‑worth individuals, family offices and institutional allocators, the Abu Dhabi Global Market (ADGM) has created a middle path: the ADGM Exempt Fund. This vehicle blends the credibility of a well‑regulated jurisdiction with the light touch appropriate for professionally advised investors. The following guide explains why Exempt Funds exist, how they differ from public and qualified funds, what licensing route a manager must follow, and which operational, governance and disclosure obligations apply.
The strategic appeal of ADGM and its Exempt Funds
Before delving into fund mechanics, it is worth revisiting why promoters increasingly favour ADGM over competing hubs:
Direct application of English common law ensures that partnership agreements, security interests and shareholder rights track the precedent familiar to investors from London, Singapore or Hong Kong. Contracts enforceable in the ADGM Courts carry weight with international counsel and counterparties.
Independent government bodies maintain checks and balances. The Registration Authority (RA) handles incorporation; the Financial Services Regulatory Authority (FSRA) oversees licenced financial firms; and the ADGM Courts resolve disputes without interference from local civil courts.
Fifty‑year zero‑tax guarantee on corporate profits, capital gains and employee income removes fiscal leakage at fund level; treaty access often eliminates withholding on incoming dividends.
Simple immigration rules allow senior officers and portfolio analysts to obtain three year employment visas quickly, and the free zone’s physical footprint offers coworking desks through to bespoke trading floors.
Proximity to capital matters: sovereign funds such as Mubadala, a growing network of GCC family offices, and an expanding community of venture and private‑equity managers all maintain presence on the island, turning casual coffee meetings into capital introductions.
With all that strategic context in mind, ADGM Exempt Funds emerge as the logical choice when a manager wishes to raise monies only from Professional Clients yet remain within a reputable, court‑backed jurisdiction.
Defining the ADGM Exempt Fund
Under the ADGM Funds Rulebook, collective investment schemes fall into three broad categories: Public Funds, Exempt Funds and Qualified Investor Funds. Public Funds market to retail investors, face the heaviest disclosure regime and must appoint independent oversight functions such as a custodian and a trustee. Qualified Investor Funds, aimed at ultra‑high‑net‑worth or institutional investors willing to commit at least half a million dollars, enjoy the lightest touch. Exempt Funds sit between these poles.
An ADGM Exempt Fund must comply with the following headline parameters:
- a minimum individual subscription of US $50,000;
- distribution restricted to persons classed as Professional Clients;
- no public marketing, units or shares must be offered solely by private placement;
- a constitutional form that may be an investment company, a limited partnership or a trust;
- An authorised Fund Manager from the public register, either domiciled in ADGM (Domestic Manager) or in an equivalent jurisdiction with an External Fund Manager licence.
Because Exempt Funds limit participation to experienced investors, the FSRA removes certain retail safeguards, thereby reducing time to market and ongoing costs.
Who qualifies as a Professional Client?
The FSRA recognises three routes to professional status: service‑based, assessed and deemed.
Service‑based Professionals
They already hold licences or approvals under which they provide investment services; examples include banks, brokers and insurers.
Assessed Professionals
They are individuals or entities that satisfy a net‑asset test, generally US $1 million of liquid assets or more, and demonstrate competence to understand the fund’s strategy and risks.
Deemed Professionals
These people encompass governments, sovereign entities, central banks and supranational bodies.
Importantly, the onus lies on the manager to record evidence of professional status during onboarding and to maintain that documentation for FSRA inspection.
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Why choose the Exempt route?
Accelerated launch timetable
The FSRA operates a fast‑track review for Exempt Fund applications, typically completing registration within ten to twelve working days once a near‑final Private Placement Memorandum (PPM) and Fund Constitution are uploaded. That speed enables managers to capture investor interest and deploy capital without the months often associated with public funds or offshore launch cycles.
Lower capital and staffing burdens
A Domestic Fund Manager that limits activity to Exempt Funds needs minimum paid‑up capital of US $50,000, compared with US $250,000 for a manager of retail funds. The FSRA expects a lean yet competent organisational chart rather than duplicated control functions. A compliance officer, a senior executive officer and a finance officer normally suffice; independent oversight such as a fund administrator remains optional for most closed‑ended strategies.
Marketing flexibility within a global investor base
While the offer must be private, nothing prevents a manager from targeting professional investors worldwide. A PPM tailored to international standards, backed by ADGM common‑law enforceability, often proves more acceptable to European or Asian allocators than an unregulated offshore structure.
No constraints on asset class or strategy
Exempt Funds may pursue private equity, venture capital, infrastructure, real estate, credit, Sharia‑compliant strategies or conventional listed securities. Leveraged structures are allowed provided risks are disclosed, and the FSRA does not impose diversification rules beyond what the manager articulates in the PPM.
Forming the manager: Domestic versus External
Every fund operating in ADGM must appoint an Authorised Fund Manager from the public register. Promoters have two options.
Domestic Fund Manager
A new ADGM entity that undergoes the full licencing process with the FSRA. This route suits start‑ups and first‑time teams building local substance. Application packs comprise a detailed regulatory business plan, three‑year financial projections, compliance policies, technology‑risk framework and key‑person information. Interviews with the FSRA assess fitness and propriety. Once authorised, the Domestic Manager can establish multiple Exempt Funds under a single licence.
External Fund Manager
An existing manager licenced in a recognised jurisdiction (for example, the UK, Luxembourg, Singapore or the Cayman Islands) may apply for approval to manage an ADGM fund without establishing a staffed presence on the island. The FSRA reviews the home licence, regulatory history and delegation arrangements to ensure investor protection standards remain equivalent.
"Both Domestic and External Fund Managers require a Fund Administrator registered in ADGM or a jurisdiction considered equivalent, unless the FSRA grants a waiver for certain closed‑ended funds."
Documentation: Private placement memorandum and constitution
The PPM acts as the contract with investors. It must address, in plain language, investment objective, strategy, target returns, key risks, valuation policies, fee schedule, subscription and redemption procedures, leverage limits, conflicts of interest, related‑party transactions, and distribution policy. The FSRA reviews the draft, not to dictate commercial terms, but to ensure full, fair and accurate disclosure.
The Constitution varies by fund form. An investment company uses Articles of Association; a partnership adopts a Limited Partnership Agreement; and a unit trust employs a Trust Deed. Regardless of legal wrapper, the document must define voting rights, appointment and removal of the manager, unit‑holder meetings, issue and redemption of units, valuation rules and winding‑up procedures.
Set‑up workflow for an ADGM Exempt Fund
Pre‑filing preparation begins with feasibility analysis: asset class, target investors, domicile comparison, tax advice. Once the team elects to proceed, they draft the PPM, Constitution and compliance manuals. Parallel incorporation of the manager (if Domestic) and liaison with an audit firm, administrator and prime broker take place.
Portal submission involves uploading KYC for shareholders and directors, signed PPM, Constitution, business plan and financial projections. The FSRA acknowledges receipt, then schedules a clarification call within a week.
Regulatory queries typically examine valuation methodology, segregation of assets and conflicts policy. Timely, transparent replies speed final approval.
Final registration sees the RA issue a Fund Registration Certificate; only then may the manager accept subscriptions and close the first draw‑down. Banking, escrow and brokerage accounts open once the certificate is produced.
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Ongoing obligations: A balanced regime
Annual accounts
Audited by an ADGM‑approved auditor, delivered to investors and filed with the RA within six months of year‑end.
Periodic reporting
Managers submit semi‑annual fund reports to the FSRA summarising NAV, material changes and risk events.
Licence renewal
Both manager and fund pay renewal fees on the anniversary of authorisation; failure triggers late penalties and, ultimately, suspension.
Material change approval
Alterations to investment strategy, fee structure or service providers require FSRA pre‑clearance and investor notice.
AML and counter‑terrorist financing
Although investors are professional, the manager must conduct full customer due‑diligence, screen against sanctions lists and file suspicious‑transaction reports where applicable.
Valuation frequency
Open‑ended Exempt Funds calculate NAV at least quarterly, while closed‑ended funds follow the schedule disclosed in the PPM. Valuation must be either by an external administrator or an internal function independent from the portfolio‑management team.
Economic substance and tax residency for fund vehicles
The UAE’s Economic Substance Regulations list fund management among relevant activities; however, an investment fund itself is a “non‑relevant entity”. That means the fund vehicle escapes the substance test, while the Domestic Manager must meet core‑income‑generating requirements: adequate employees, offices and operating expenditure in the UAE. A well‑staffed manager easily satisfies those thresholds, and the fund benefits from UAE tax‑residency certificates to claim treaty relief on dividends and gains.
Typical cost profile
A manager budgeting an Exempt Fund launch should factor:
FSRA application and first‑year licence
US $5,000 for the fund; US $10,000 for a Domestic Manager (varies by business lines).
RA incorporation fees
US $1,000 for the manager’s company, plus US $300 confirmation statement annually.
Legal drafting
PPM, Constitution and service agreements typically run US $30,000–50,000 depending on complexity and counsel selection.
Administrator
6–12 basis points of net asset value or a fixed retainer if closed‑ended.
Audit
US $7,000–15,000 pa, rising with asset size and valuation complexity.
Office and visas
Approximately US $35,000 a year for a small fitted suite and three staff visas.
While not negligible, these totals fall well below the cost of establishing a full retail fund in Dubai and compare favourably with Cayman when one adds local substance and directors.
"Total setup and operational costs are significantly lower than retail funds in Dubai or traditional offshore funds like Cayman, especially when substance is required."
Misconceptions dispelled
“Exempt Funds never need oversight.”
The FSRA can demand appointment of an independent custodian or trustee if the asset class or leverage profile justifies additional investor protection.
“Only GCC investors may participate.”
There is no geographic limitation; any professional client, irrespective of domicile, may subscribe, subject to local private‑placement rules in their home jurisdiction.
“Closed‑ended funds escape audits.”
All funds, open or closed, must file audited accounts. The closed‑ended fund simply enjoys flexibility over valuation frequency.
“A Cayman manager can act without FSRA approval.”
External managers still need FSRA recognition, though the process is streamlined when the home regulator is on the recognised list.
Step‑by‑step checklist for promoters
- Engage advisers to confirm strategy, investor class and tax position.
- Select manager route, Domestic or External, and incorporate if required.
- Draft PPM and Constitution to FSRA disclosure standards.
- Choose bank, administrator, auditor and legal counsel.
- Upload application via the ADGM digital portal, pay fees.
- Respond promptly to FSRA queries; finalise service agreements.
- Obtain Fund Registration Certificate; activate bank and brokerage accounts.
- Launch capital‑raising roadshow under private‑placement rules.
- Maintain governance calendar: quarterly board meetings, semi‑annual FSRA reports, annual audit, licence renewals and AML refreshers.
Adhering to this sequence minimises surprises and demonstrates to allocators that the manager embraces institutional discipline.
- A licensed fund manager is required, either based in ADGM or from a recognised jurisdiction with FSRA approval.
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The fund itself is not subject to UAE Economic Substance Regulations, but the manager must maintain real UAE presence and meet substance rules.
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Setup and running costs are lower than other fund jurisdictions, with legal, licensing, audit, and office expenses kept manageable for launch.
Aston VIP’s role in your licensing journey
Selecting ADGM Exempt Funds as your vehicle is the first milestone; navigating documentation, regulatory interviews, substance planning and banking is the true test of execution. Aston VIP delivers a start‑to‑finish solution. We evaluate your strategy, craft a tailored regulatory business plan, draft plain‑English PPMs, liaise with the FSRA for expedited approval, secure office space, arrange experienced resident officers and steward annual compliance. Post‑launch we provide outsourced finance, AML and investor‑relations functions, allowing portfolio managers to focus on alpha generation rather than paperwork.
Begin your fund formation today by contacting our ADGM desk through the Aston VIP contact page. One of our senior consultants will respond within one working day with a roadmap that converts your investment thesis into a fully licenced, capitalised and banked Exempt Fund on Al Maryah Island.
