Dubai is rapidly establishing itself as a leading global hub for hedge funds, drawing managers who value the city’s stability and flexible financial regulations, according to a recent report on Investment Monitor. The city benefits from the growing wealth of individuals and institutions in the region, and during the COVID-19 pandemic, the UAE became a preferred destination for high-net-worth investors.
Based on current trends, Dubai is set to rank among the top five global centers for hedge funds. The number of hedge funds being established at the Dubai International Financial Centre (DIFC) is significantly outpacing regional averages.
In 2023, the DIFC saw a remarkable 125% year-on-year growth in the number of hedge fund managers setting up their firms, according to the annual report from the Dubai Financial Services Authority (DFSA). By May 2024, Dubai and the DIFC were home to over 50 hedge funds, placing the city among the world’s top 10 hedge fund centers.
Following the government’s exemplary handling of the COVID-19 crisis, many global hedge funds recognized that although the Middle East is an emerging market, Dubai offers an optimal environment for growth.
Dubai alone hosts more than 72,000 millionaires—over three times the number in any other city in the region—and ranks third in the BRICS grouping for the number of wealthy individuals.
The DIFC recently highlighted that the continuous migration of hedge funds from other global and regional financial centers strengthens Dubai’s position as a leading financial hub and business capital of the region. This also reflects Dubai’s ability to attract top talent and provide access to substantial pools of public and private capital.
Private wealth in the UAE is estimated at approximately $996 billion, and the number of high-net-worth individuals in the country is projected to grow by 40% by 2031. This growing wealth attracts hedge funds in large numbers to Dubai. In November 2023, the DIFC licensed 10 new hedge funds to operate within its jurisdiction.
New York and London Hedge Funds Expand in Emerging Markets
Hedge funds based in New York and London—which experienced capital outflows in 2022—are now expanding into emerging markets as operating environments in their home markets become increasingly challenging.
Currently, about two-thirds of hedge funds in the DIFC are from the US and UK, including two of the world’s top 10 largest hedge funds.
Nadim Najjar, Executive Director for Central and Eastern Europe, the Middle East, and Africa at Refinitiv (a London Stock Exchange Group company), stated: “Hedge funds are increasingly interested in Dubai as a gateway to the region and are looking to establish a presence in the DIFC — an emerging global center for alternative investments and hedge funds.”
This trend is expected to continue, as demonstrated in May 2024, when 200 senior leaders, including representatives from more than 120 hedge funds, gathered in Dubai for the region’s largest hedge fund conference. A survey of attendees revealed nearly 60% have established or are establishing a presence in the region, while 36% are still exploring options.
Ease of Doing Business
Conference participants who relocated to Dubai cited ease of doing business, streamlined visa procedures, access to top talent, favorable time zone advantages, and quality of life as key factors attracting their attention.
Furthermore, sovereign wealth funds and state-owned institutional investors worldwide are increasing their allocations to alternative investments such as hedge funds, which tend to perform better in volatile markets. The Middle East holds the highest share of sovereign wealth funds invested in hedge funds globally.
Sovereign wealth funds raised their investments in hedge funds by 11% to $498 billion in 2022, with the average portfolio allocation increasing to 2.2%.
A Growing Hub
Hedge funds based in the US, UK, and Europe (including offshore centers) dominate the global hedge fund landscape, controlling 94.3% of assets at the end of 2022.
Currently, the Middle East accounts for less than 1% of total global hedge fund assets under management; however, with increasing interest, the market is growing rapidly. The DIFC hosts more than 370 wealth and asset management firms, making it the largest market in the region.
Over the past two decades, Dubai and the DIFC have become the premier financial and investment centers for the Middle East, Africa, and South Asia.
The total industry size at the DIFC in 2022 was approximately $800 billion, with $450 billion in wealth and assets under management. Nearly 4,400 firms were registered with the DIFC in 2022 alone.
Dubai leads financial centers in the region according to the Global Financial Centres Index published in March 2023 and has consistently ranked in the top quartile of the world’s best financial centers over the past five years.
This success is attributed to factors including Dubai’s strategic location as a gateway to the region, a world-class legal and regulatory framework, and fast, flexible business setup options. These advantages have attracted portfolio managers eager to live in Dubai, build teams, and leverage the DIFC’s broad growth ecosystem.
