DIFC looks to Europe for bigger fund role

The agreements with European regulators will allow managers based at DIFC, above, to tap into a vast pool of investors that dwarfs the number based in the region. Lee Hoagland / The National

Dubai's financial free zone is seeking to attract European fund managers as capital floods into the Dubai and Abu Dhabi stock exchanges and returns outpace most other markets worldwide.

The Dubai Financial Services Association has signed agreements with 27 European states including the United Kingdom, Norway and France, allowing regulators to help each other to supervise fund managers operating in Europe and the Dubai International Financial Centre.

The latest agreements, negotiated with the European Securities and Markets Authority, will allow wealth managers in the DIFC to market alternative investments, such as hedge funds, private equity funds and real estate funds to European investors, potentially allowing them to tap into a much bigger pool of capital.

"The DFSA's efforts to improve cross-border opportunities will further facilitate investment flows and will benefit investors and the funds industry," said Ian Johnston, the DFSA's chief executive.

"In addition, it reflects the DFSA's commitment to enhance the economy of the UAE and Dubai, furthering Dubai's position as a prominent financial centre."

The announcement follows a decision by the European Commission to grant "equivalent status" to the DFSA. The move signals that the Dubai free zone's audit controls are equal to those in Europe.

Recent regulations on investment funds from the Securities and Commodities Authority, which oversees markets outside of the financial free zone, have strengthened onshore laws.

But the new regulations have also created difficulties for DIFC-based asset managers in marketing financial products elsewhere in the UAE.

The agreements with European regulators will allow DIFC-based managers to tap into a vast pool of investors that dwarfs the number based in the region.

"This is a segment of growth for the DIFC," said Jahangir Aka,the managing director at SEI Investments, the asset manager. "There are already a number of European hedge fund organisations, who because of the regulatory environment and tax reasons will be looking to set up their operations in DIFC and use Dubai as a hub. This will accelerate that."

The European Fund and Asset Management Association, an industry group, estimates that the industry accounted for around €15.4 trillion (Dh75.7tn) of assets under management in Europe last year.

The Mena Investment Management Survey, co-sponsored by the DIFC Authority, identified US$90 billion managed by funds in the Middle East as of June last year.

Local bourses have rallied substantially as the Emirates economy recovers from the property crash of the past few years. Rising tourist arrivals and liquidity from around the region flooding into the UAE's banking system and property market have also boosted the economy.

The Dubai Financial Market General Index has rallied 69.3 per cent so far this year, with the Abu Dhabi Securities Exchange General Index up 50.5 per cent during the same period.

The two have consistently been among the top five exchanges worldwide since the start of the year. Only Venezuela's stock exchange has performed better globally this year.

Shares in Dubai rose 1.7 per cent yesterday to 2,748.27, the highest level since November 2008, at a time when global central banks were fighting to prevent the collapse of Lehman Brothers from spilling over into the wider financial system.

The UAE and Qatar were upgraded to "emerging market" status by the index provider MSCI in June.

HSBC expects that move will bring around $800 million in passive inflows alone when the two countries are added to the most widely followed benchmark of developing market stocks next June.