Abu Dhabi Global Market plans private credit fund regime

Details of the proposals have been released in a consultation paper (9-page / 294KB PDF) by the ADGM’s Financial Services Regulatory Authority (FSRA). The regulator is looking to expand the current range of funds available in the ADGM under its existing regulatory framework for collective investment funds to include private credit funds.

The new framework is designed to capitalise on the growth of the global private credit market and respond to the increasing number of asset managers shifting their focus to the private credit market, which is seen as a fast-growing asset class. According to the paper, the value of the global private credit market has tripled in the last 10 years, from an estimated $300 billion to almost $900bn.

Financial services expert Tom Bicknell of Pinsent Masons said the move “shows how serious the UAE is about developing its domestic funds industry”.

“The introduction of a bespoke regime for private credit funds which provides key exemptions to certain regulatory requirements will reduce barriers to entry for set-up,” he said. “This will be attractive to market participants looking to develop more innovative and less capital/compliance intensive structures whilst still operating within the structure of a managed fund.”

The popularity of such investment strategies has grown with the opportunity to invest in loans on terms which may be comparably attractive when compared to other asset classes, and are driven in part by difficulties faced by smaller, growth-stage companies that fall below lending thresholds for traditional bank financing, the FSRA said in its consultation paper.

While recognising the increasing popularity of these investment strategies and the financing needs of start-ups and small-to-medium-sized enterprises (SMEs), the regulator also sees the need to address the risks associated with investing in such funds and sets out appropriate safeguards as a result.

It plans to take a risk-proportionate, ‘wait and see’ approach to the imposition of constraints that are found in some jurisdictions with a larger, more developed credit funds industry. However, there would be certain specific operating restrictions on private credit funds in the ADGM, addressing conflicts of interest, concentration risk, disclosure, reporting, stress testing and leverage.

Fund managers operating in the region should note that there are differences between the restrictions and requirements for ADGM credit funds and for credit funds based in the Dubai International Financial Centre (DIFC), Bicknell said. In June 2022, a new credit fund regime took effect in the DIFC to allow and bring regulatory clarity to this specialist investment scheme.