10 Leaves

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/investment-company-in-risk-capital-sicar-in-luxembourg

What is a Luxembourg SICAR?

The investment company in risk capital (SICAR) is an investment fund structure in Luxembourg. It is governed by the SICAR Law of 2004, and can mainly invest into risk-bearing assets, without the requirement of spreading or diversifying the risk. The SICAR is only open to qualified investors.

A Luxembourg SICAR is regulated by the CSSF. Currently there are over 250 SICARs setup in Luxembourg, with over EUR 58 billion of assets under management.

What assets can the SICAR invest in?

Usually, SICARs invest in unlisted companies, whether in the form of equity or debt. They can also invest in any geography, not just the European Union. Investments into listen companies can also qualify in some instances, for example, when the investment aims to finance a new line of business.

There is no requirement for the SICAR to diversify it’s risks.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/setting-up-representative-office-in-the-adgm

The ADGM is an upcoming financial centre in the MENA region for business and fintech. The quality of ADGM’s independent regulator, the prevailing common law framework, excellent infrastructure and tax efficiencies make it the perfect base to take advantage of the rapidly growing demand for financial and business services in Abu Dhabi and the greater MENA region.

The ADGM offers a low-cost alternative for firms that wish to explore the market. It allows for the marketing of one or more financial services or financial products which are offered in a jurisdiction other than the ADGM. These products are usually of a head office that is based in a different jurisdiction.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/comprehensive-guide-to-spvs-in-the-adgm

The Abu Dhabi Global Market (ADGM) has been open for business only since October 2015, but it has already garnered much praise and respect over its efforts to differentiate itself through unique offerings. It pioneered the FinTech Abu Dhabi summit, attended by over five hundred global Financial Technology (FinTech) personalities; and has launched a series of collaborations with different companies such as Temenos, Al Ansari, and Mastercard to help forward its FinTech initiative.

Another such initiative is the Special Purpose Vehicles (SPV) regime. The SPV regime is open to a wide variety of uses, from investor-friendly holding structures, to asset separation and transfer.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/venture-capital-in-the-middle-east

The Middle East in general, and United Arab Emirates and Saudi Arabia in particular, has seen a number of government-led initiatives for technological innovation in recent years. A large untapped market for Arabic-based content, a very young population and excellent technological connectivity makes the region a hotbed for enterprising entrepreneurs who are hungry for success.

VC firms from more mature markets also bring much-needed technological expertise and vast experience in funding and management, both of which are required to grow the ecosystem here.

Co-investment with locally-based venture capital fund managers also makes sense, given their regional expertise. Deals abound in the innovation centres that have been created, and prices are lower than what would be typically available in say Europe, the States or India. Having a local presence and tying up with VC Fund managers here would help create a deal pipeline that can be interesting.

So how does one go about it?

VC Fund Managers who are interested to enter the region, can consider the DIFC as a viable option.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/special-limited-partnership-in-luxembourg

What is a Special Limited Partnership, or Luxembourg SLP?

The SLP is an unregulated Alternative Investment Fund, that can be incorporated in Luxembourg by:

one General Partner (GP) – the fund manager; and

one Limited Partner (LP) – the investor

The Luxembourg SLP structure has been modelled on partnerships that can be setup in other jurisdictions such as United States, United Kingdom and the Cayman Islands. Their strategies are usually illiquid, and typical investments are made in real estate, PE or the debt markets. However, there are no restrictions on the asset classes, or on the fund strategies.

A Limited Partnership Agreement governs the functioning of the SLP and gives the fund the contractual flexibility to organise the fund structure. An SLP is not restricted to any asset class, nor is it subject to risk diversification rules.

There are more than 2,600 SLPs that were set up in Luxembourg between 2016 and 2019.

Who manages a Luxembourg SLP?

The Luxembourg SLP appoints a General Partner, usually a private limited company also established in Luxembourg, to manage and monitor the fund on behalf of the investors, or Limited Partners. A GP has unlimited liability for all obligations of the Luxembourg SLP, and hence it is usually a distinct legal entity.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/setting-up-a-regulated-fintech-license-in-the-difc

Firms interested in carrying out fintech activities from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The DFSA, for the purposes of authorisation and supervision, categorises fintech activities based on the type of activity being carried out, and the minimum base capital required.

Consequently, fintech activities can form part of Category 3 and Category 4 licenses, which various related activities such as advising and arranging investments, portfolio management (discretionary and non-discretionary), money service businesses and digital/robo advisory activities.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/guide-to-aisp-and-pisp-licensing-in-the-difc

Money Services Businesses cover a wide range of money-related activities, starting from payment processing companies to investment services, from individuals and startups to major global enterprises. They can include providing account information services, payment initiation services or analytics on client and corporate accounts. Other core money services can include issuing payment instruments, providing money transmission, payment processor services, operating payment accounts and issuing stored value. Transferwise, Nymcard, Paypal and Revolut are  examples of money service businesses.

Firms interested in carrying out money services business activities from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The DFSA, for the purposes of authorisation and supervision, categorises money services business activities based on the type of money services being carried out, and the minimum base capital required.

The DFSA categorises the range of activities that comprise the Money Services Business into two groups: 1) Arranging and Advising on Money Services and 2) Providing Money Services.

Arranging and Advising on Money Services :

These include firms that provide open banking services, such as Account Information Services, Payment Initiation Services and other advising and arranging services.

Account Information Services – These firms are authorised to retrieve account information data from banking and other financial institutions such as lenders, mortgage providers, and credit card issuers. Such firms cater to both individuals, and institutions (mostly SMEs). Account Information Services come under Open Banking activities.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/cost-of-setting-up-a-regulated-firm-in-the-difc

DIFC is one of the world’s top ten onshore financial centers and offers a secure and efficient platform for businesses and financial institutions to reach into and out of the emerging markets of the region. The quality and independence of DIFC’s regulator, the prevailing common law framework, excellent infrastructure and tax efficiencies make it the perfect base to take advantage of the rapidly growing demand for financial and business services in the MENASA region.

DIFC fills the time-zone gap for a global financial centre between the leading financial centres of London and New York in the West and Hong Kong and Tokyo in the East.

Why setup a financial services firm in the DIFC?

The DIFC is a leading financial hub in the region. Besides offering a wide range of financial service activities, the centre also provides an integrated environment and world-class standard of living. It is well regarded in the international community as well.

There exist opportunities for startups as well. The recent focus on fintech led to the DIFC Fintech Hive initiative, that serves as an accelerator for fintech firms to test their products and pitch it to prospective investors. Sarwa is one such success story.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/advantages-of-setting-up-a-business-in-the-difc

The Dubai International Financial Centre, or DIFC, is a leading financial hub in the region for business, fintech, and lifestyle. Setup in 2004, the DIFC has grown to be one of the top 10 onshore financial centres in the world. It brought in a paradigm change in the region, by adopting a Common Law framework, with an independent regulator (DFSA) and an independent English language Common Law judiciary – DIFC Courts.

Since then, the DIFC District has matured into more than just a place to work – it is now a lifestyle destination, with retail outlets, cafes and restaurants, art galleries, residential apartments, public green areas and hotels dotting the landscape.

Why setup in the DIFC?

The DIFC is one of the only two financial free zones in the UAE. It offers 100% foreign ownership, as opposed to establishing a financial services firm in the Dubai mainland, where only part foreign ownership is permitted.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-as-a-destination-for-indian-fund-managers-difc-company-formation

India and the UAE have shared warm relations going back centuries. The recent high-level visits of UAE and Indian leaders demonstrate the proactive nature of decision-making between the two countries. Another reason for the greater depth in relations is the rigorous structure of various committees that have been set up following the high-level visits.

In addition, there are enormous possibilities from the $75-billion fund announced  in 2015 by Indian Prime Minister Shri. Narendra Modi and His Highness Shaikh Mohammad Bin Zayed.

With a 3.2-million-strong population, the Indian expatiate population in the UAE is the largest in the world, and is growing on a year-on-year basis. Over 1,000 flights operate between the two countries, and recent years have shown a significant increase in the number of tourists traveling from India to the UAE.

In 1982, foreign trade figures between the UAE and India were at around 180 million. In 2016-17, these numbers crossed $52 billion, thus making India the second largest trading partner of UAE, and UAE became India’s third largest trading partner.

At US$ 6.5 billion, India is the third-largest source of FDI in the UAE. Indians are the largest foreign investors in Dubai real estate, amounting to over US$ 5.7 billion, or 13% of the total.

The DIFC is one of the only two financial free zones in the UAE. It offers 100% foreign ownership, as opposed to establishing a financial services firm in the Dubai mainland, where only part foreign ownership is permitted. The DIFC is the preferred gateway for Indian investors to access the Middle East, Africa and South Asia (MEASA) markets on one side and Europe, Asia and the Americas on the other – a region worth an estimated USD 7.4 trillion in annual trade.