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Dubai may have had its success built around the oil industry, but over 90 percent of its GDP comes from other sources like private equity. The private equity firms channelize capital from pension funds, affluent individuals, and other sources towards businesses that have huge growth potential. Owing to a booming economy, Dubai is now attracting private equity investments from all over the world.
What Are The Major Trends In The Private Equity Market?
Although the equity markets are facing the impact of global financial uncertainty, the entire UAE stands apart from the crowd. The region owes its success to the availability and stability of investible companies and hence leads the equity market.
What Are The Activity Levels of Private Equity in the Recent Years?
Fundraising
UAE is continuing to intensify its efforts in creating a diversified economy. As such, it has become a star performer and has retained its status as the centre for private equity in the region. There has been a steady rise in fundraising activities. Investment houses are now implementing creative ways to structure their offerings to investors. Overseas investors are also being educated about the regional geopolitical factors.
Investment
The region is trying to lessen its dependence on traditional sectors like oil and gas. The newest trend is the consumer-driven sectors like retail, education, healthcare, food, and beverage. This action has resulted in value-added opportunities for investment with a regulated private equity firm in Dubai.
Transactions
Dubai and other parts of the UAE have witnessed a tremendous rise in the number of transactions in the recent years. This is truly significant considering the historical low volumes that were plaguing the markets over the previous years.
Exits
Recent years have also witnessed many exits despite a drop in the oil prices. Some of these exits were known to be through foreign exchanges. Secondary markets and trade sales that have seen a growth spurt are also attributed for most exits.
How Does Funding Come By For Private Equity Funds?
A regulated private equity firm in Dubai can obtain its funding from companies, banks, pension funds, government institutions, and insurance companies. Funding can also be obtained from wealthy local family businesses and high net-worth individuals, family investment offices, and sovereign funds from the Gulf Cooperation Council (GCC).
What about Tax Incentives to Boost Investment in Unlisted Companies?
The legislation of Dubai income tax decree 1969 is in place in the UAE. This regime is however, not enforced apart from the branches of foreign banks operating in the UAE and companies in the hydrocarbon industry. Also, Dubai International Financial Centre (DIFC) is a free zone in the Emirate of Dubai.
The Dubai Financial Services Authority (DFSA) regulates and supervises those activities that are conducted from or in the DIFC. There is also an independent regulatory, legal, and court system in the DIFC. The DIFC imposes a zero rate of interest for corporate and personal tax for 50 years since the inception of DIFC. This period can be further extended for a period of 50 years
What Are the Legal Structures Used As Instruments for Private Equity Funds?
Outside The DIFC
An eligible sponsor must establish a local mutual fund. The sponsor may be companies licensed by the SCA or Securities and Commodities Authority in the domain of securities. The funds can also be managed by foreign and local banks that are authorized by the UAE central bank.
Foreign companies with branches in the UAE can also manage funds, provided they are licensed by The International Organization of Securities Commission (IOSOCO). They must also be operational in the UAE for a minimum duration of five years. The sponsor must own a minimum share capital of AED five million and is not eligible to own more than 30 percent of the fund units.
UAE funds are often established through a contractual relationship between a sponsor and its investor. Every investor will maintain an entry in the balance sheet in the fund administrator’s account.
Investing through the DIFC
Three corporate entities can establish a domestic fund in the DIFC: Investment partnerships, investment trusts, and investment companies. While investment partnerships are used for private equity funds, trust structures take care of property funds. An investment partnership is often a limited partnership that is registered with the DIFC and comprises of limited and general partners. The DFSA must authorize the general partner to act as a fund manager.
Exempt funds and public funds are the two kinds of funds that can be established with the DIFC. Private equity funds are predominantly exempt funds that are available only for professional clients. They are required to make a minimum subscription and cannot have more than 100 investors. Exempt funds are not offered to the public either.
Investing can sometimes be very intimidating. Opting for a private equity firm in Dubai gives you access to new markets and new possibilities. Their industry expertise will help you maximize profits despite high risks.
