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A growing number of top hedge funds are setting up shop in Dubai, as the lure of low taxes and the region’s deep-pocketed investors cements the emirate’s status as an industry hub.
Quant investing giant AQR, and multi-strategy firms such as Sculptor and Lighthouse Investment Partners are among the hedge funds to establish a presence in the city over the past year, according to regulatory disclosures and industry sources.
The moves highlight how the aftermath of the Covid-19 pandemic has added impetus to the Dubai authorities’ two-decade push to become the regional base for the hedge fund industry. Of the 40 funds registered in the emirate as of July, more than a third arrived in the past 12 months, according to figures from the Dubai International Regulatory Authority. The majority are London or New York-based firms opening subsidiaries.
Executives and traders say the absence of personal income tax in the United Arab Emirates has left the city well-placed in an escalating war for hedge fund talent which has seen in-demand portfolio managers offered millions of dollars in signing bonuses.
But hedge fund executives also admit a local presence is as much a long-term business decision and signal to the region’s influential and wealthy state-backed investors.
“The sovereign wealth funds of Saudi Arabia and the UAE are an important source of capital for hedge funds so there has always been a need to travel there,” said Sean McGould, chief executive officer and chief investment officer at Lighthouse, which opened the doors of its Dubai office in April and has one employee based there. “It’s important to have an office there to show commitment on the ground.”
Industry insiders said the number of hedge funds in Dubai is nearing a critical mass that has made it feasible to hire from competitors in the region, rather than trying to attract talent from abroad.
“Dubai has reached a certain size and scale where there are now intra-hedge fund moves,” said an executive at a multibillion-dollar family office that has a base in Dubai.
Credit specialist hedge fund King Street Capital Management, which has $23bn under management, opened its Dubai office in March, though its presence is still small. Managing director Reda Zebdi is the only employee in the office for now but the hedge fund said it intended to grow “naturally” over the coming years.
“Since Covid, many firms, including King Street, have tried to move closer to investors in the region” he said. “When an ecosystem is building and building fast we want to be part of it.”
He added that in addition to supporting clients, the firm was looking at local investment opportunities.
Izzy Englander’s Millennium Management was one of the first big US hedge funds to move to the city when it hired a Dubai-based portfolio manager in 2020. The near $60bn-in-assets firm now has about 50 people working there, the majority of whom are investment professionals, said people familiar with the matter.
Millennium declined to comment.
The talent war among so-called multi-strategy firms — the hedge fund giants that increasingly dominate the industry — has led others to follow suit. Steve Cohen’s Point72 Asset Management, ExodusPoint Capital Management and more recently Balyasny Asset Management have all opened Dubai offices.
Balyasny, which has $21bn under management, plans to have 10 teams led by portfolio managers on the ground by the end of the year, according to a person familiar with the matter. However, not every member of the PM teams will necessarily move to Dubai.
But the shift to the UAE isn’t just about tax and raising capital. Dubai and Abu Dhabi are increasingly seen by wealthy hedge funders as attractive alternative cities to London, New York and Hong Kong after the pandemic.
Hedge fund firms say that they saw an increase in inquiries from employees keen to relocate to the Middle East during government-mandated lockdowns in Europe and the US. Dubai’s Covid restrictions were much less harsh compared with traditional hedge fund centres such as London and Hong Kong.
“We were actually open in Dubai because it had a very short lockdown stint and as a result we became an interesting option for a large number of portfolio managers,” said a senior employee at one large hedge fund.
The city is not the only one in UAE to benefit from the hedge fund rush. UK macro hedge fund Brevan Howard, which has $33bn in assets, announced earlier this year that it was opening an office in Abu Dhabi.
Co-founder Trifon Natsis and chief compliance officer Ryan Taylor have both moved to the city. The firm wants to hire more than 100 people there over the next 12 months, according to a person familiar with its strategy.
Dubai’s geographical position, straddling the European and Asian trading days, has helped.
“This is the perfect timezone,” said an executive at a large fund that has just opened an office in the UAE. “You can absorb what happened in Asia close and prepare very well for European open.”
Despite the rush to the Gulf, London and New York remain by far the largest centres of the global hedge fund industry, and so far no major hedge fund has moved its headquarters to the UAE. But for portfolio managers keen to maximise their earnings, it has become a popular alternative destination.
“It’s a compelling draw for people, especially if you’re used to constant strikes in London, a high tax burden and public services being severely impacted,” the executive added. “It’s exciting to see the real buzz and enthusiasm.”
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