Dubai’s private equity market grew by 24% in 2021, outpacing global growth rates and creating a thriving platform for new ventures. If you want to establish a private equity firm in this environment, clearly understanding the legal framework, fund structures, and best practices for team-building and fundraising is paramount. Below is a detailed guide that outlines the key steps to help you set up and operate a private equity firm in one of the world’s most dynamic financial hubs.
Legal Framework and Licensing
DIFC and ADGM Overview
The Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) are two major financial free zones in the UAE. Each has its own regulator:
- DIFC: Regulated by the Dubai Financial Services Authority (DFSA)
- ADGM: Regulated by the Financial Services Regulatory Authority (FSRA)
In both, private equity funds can be established as investment companies, partnerships, or trusts, although the investment partnership model is the most common. The general partner must be licensed to act as a fund manager, ensuring professional oversight in accordance with DFSA or FSRA regulations.
Required Licences and Permits
In the wider UAE (beyond the DIFC and ADGM), private equity funds must comply with rules set out by the Securities and Commodities Authority (SCA). The SCA requires:
- Approval for Formation and Marketing: You must secure permission from the SCA before creating or marketing a private equity fund. The application is supported by documentation such as a partnership agreement, details of the general and limited partners, and confirmation of capital.
- Annual Licence Renewal: A licence must be renewed each year, subject to continued compliance with SCA regulations.
- Minimum Capital Requirement: Fund managers must have at least USD 1.36 million (AED 5 million) in share capital. Additionally, managers and affiliated entities cannot own 30% or more of the units in the funds they manage.
Compliance with UAE Laws
The general partner is fully liable for the fund’s obligations, while limited partners’ liability is restricted to their investment. Private equity funds have a separate legal personality, which is in line with the UAE Commercial Companies Law.
Regulations also mandate the appointment of a custodian (a ‘safe custodian’ in the UAE or an ‘eligible custodian’ in the ADGM) to safeguard fund assets. Fund managers must:
- Manage in accordance with the fund’s prospectus and legislation
- Observe fiduciary duties and avoid conflicts of interest
- Uphold integrity, exercise due care, and ensure fair treatment of unitholders
The DFSA and FSRA each maintain public registers of licensed funds. The SCA also publishes a register of licensed or authorised entities under its remit.
Structuring Your Private Equity Firm
Choosing the Business Model
In the UAE, private equity funds commonly use a general and limited partnership framework. The general partner (often an SCA-licensed fund management company) bears unlimited liability, while limited partners’ liability ends with their contributions. This approach clearly delineates responsibilities.
Partnership Agreements
A good partnership agreement underpins a successful fund. It defines the roles and rights of general and limited partners, outlines capital contributions, and stipulates how profits are allocated. Importantly, it also clarifies what activities limited partners can undertake without jeopardising their limited liability status.
Fund Structure Options
Within the DIFC and ADGM, a private equity fund may be designated as an exempt or qualified investor fund, each with its own investor qualification and minimum subscription requirements. Private placements are standard, targeting professional clients. These structures grant fund managers flexibility to meet different risk and return objectives.
Corporate Governance
Sound corporate governance underpins investor confidence. Fund managers must act in the fund’s best interests, maintain transparent operations, and uphold fair dealing. The SCA, DFSA, and FSRA each have rules covering everything from conflict-of-interest policies to the appointment of custodians, ensuring investor safeguards remain robust.
Fundraising Strategies
Identifying Potential Investors
Dubai’s strong economic growth and sector diversification (spanning real estate, technology, energy, healthcare, and more) attract both local and global investors. Private equity firms can draw on this pool by aligning deals with the interests and objectives of different investor groups.
Crafting a Persuasive Investment Thesis
Capital-raising efforts benefit when the investment thesis clearly shows how the fund will seek returns. Highlight how your firm plans to harness Dubai’s focus on economic diversification, emphasising portfolio strategies that target long-term performance and immediate financial outcomes.
Networking in Dubai’s Financial Ecosystem
Face-to-face engagement with financial institutions, attendance at sector events, and relationships within Dubai’s close-knit business community can facilitate introductions to potential investors. Collaboration often leads to deeper market insights and an enhanced profile for your firm.
Engaging Family Offices and Sovereign Wealth Funds
Family offices and sovereign wealth funds are major investors in the region. Their preference for long-term, multigenerational investments aligns well with private equity timelines. Approaching these groups with a clearly structured proposal, sound track record, and transparent governance can secure substantial commitments.
Building Your Team
Key Roles and Responsibilities
Typical private equity roles include Analysts, Associates, Senior Associates, Vice Presidents, Principals, and Managing Directors.
- Analysts: Build financial models and conduct detailed research
- Associates: Help execute deals, refine models, and offer insights
- Senior Associates & VPs: Oversee multiple deals, manage processes, and guide junior staff
- Managing Directors: Shape the firm’s long-term direction and make top-level investment decisions
Recruiting Talent in Dubai
Thanks to Dubai’s global reputation, firms can hire from a diverse and highly qualified talent pool. Many candidates have investment banking or consulting backgrounds. Academic credentials in finance or business, MBAs from leading institutions, and certifications such as the CFA are common among successful applicants.
Compensation Structures
Private equity remuneration typically features a base salary plus a performance bonus, with senior team members eligible for carried interest. The well-known “2 and 20” framework (2% management fee, 20% performance fee) covers operating costs and drives bonus allocations.
Company Culture and Compliance
Cultivating a collaborative, meticulous culture helps retain staff in this demanding industry. Dubai’s labour laws require formal employment contracts, health insurance provisions, and the correct visas for expatriates. Firms must comply with these regulations to maintain a stable workforce.
Operational Considerations
Office Space and Infrastructure
Securing a presence in one of Dubai’s financial free zones—especially the DIFC or ADGM—provides advantages such as a low-tax environment and straightforward access to international talent. Modern facilities, proximity to other financial firms, and a strong regulatory ecosystem all contribute to operational efficiency.
Technology and Data Management
Effective technology solutions streamline deal sourcing, compliance, investor relations, and data analysis. Before upgrading or adding new systems, assess existing infrastructure for any inefficiencies or security vulnerabilities. Given evolving cyber threats, establishing robust cybersecurity protocols is a priority.
Risk Management Protocols
Monitoring changing regulatory standards and potential operational risks is vital. Document a risk management plan that identifies likely threats, sets out controls for mitigation, and details an incident response process. Review it regularly, and conduct due-diligence risk assessments on prospective portfolio companies—reassessing whenever significant changes occur.
Exit Strategies and Portfolio Management
Clear exit strategies ensure investors can realise returns at the appropriate time. Whether your firm plans IPOs, sales to other investors, or other exit routes, it pays to consider factors such as market conditions and the specific dynamics of each portfolio company. Aligning with local market practices can also attract sovereign wealth funds and other key regional investors seeking transparency and a strong performance history.
Final Thoughts on Launching Your Dubai Private Equity Firm
Starting a private equity firm in Dubai can offer a rewarding path, thanks to the city’s prime location, robust economy, and well-regulated financial centres. By navigating local regulations carefully, selecting the right partnership model, and cultivating a strong team, you set the stage for success.
Building relationships with influential investors, embracing effective technology, and fostering a diligent culture further strengthens your credibility. A private equity firm can thrive in this multifaceted market with thoughtful planning and alignment with the UAE’s broader economic vision.
