The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) has introduced enhancements to its regulatory framework for Funds and Fund Managers, following industry consultation through Consultation Paper No. 12 of 2025.
The changes introduce new streamlined regulatory regimes for smaller Fund Managers, Fund Managers operating exclusively in the institutional market and certain Asset Managers managing assets for Institutional Funds. For eligible firms, the reforms may reduce certain regulatory, governance and capital requirements.
The reforms also make changes relevant to Venture Capital Fund Managers (VCFMs), facilitate certain employee investment in private Funds managed by their employer and make changes to the regime for Foreign Fund Managers (FFMs).
A new regime for smaller Fund Managers
The Sub-Threshold Fund Manager (STFM) framework provides a streamlined regulatory regime for managers of smaller, non-retail Funds.
To qualify, a Fund Manager must satisfy a number of conditions, including:
- aggregate Committed Capital across all Funds under management must not exceed US$200 million;
- its Funds must not be available to Retail Clients and must therefore be Exempt Funds, Qualified Investor Funds (QIFs), or equivalent Foreign Funds;
- all Funds under management must be closed-ended; and
- the Fund Manager must not operate as a "host" Fund Manager.
The FSRA describes a "host" Fund Manager as a Fund Manager appointed by a fund sponsor to manage a Fund, with the sponsor often acting as the delegated investment manager or as an investment adviser on the Fund's investment committee. In its consultation, the FSRA indicated that a Fund Manager, which delegates investment management to another party or appoints an investment adviser to assist with the selection of assets, would not be eligible for the STFM framework. This broadly captures a third-party or platform model where the regulated Fund Manager provides the fund management infrastructure while investment management or advisory functions are undertaken by a sponsor or other third party.
The restriction is an eligibility condition for the streamlined STFM regime, rather than a general prohibition on authorised Fund Managers operating a host model.
Eligible STFMs benefit from several regulatory concessions, including no requirement to establish an internal audit function or appoint a Finance Officer. STFMs are subject to a Base Capital Requirement of US$50,000 but are not subject to an Expenditure Based Capital Minimum. Other applicable prudential requirements continue to apply, including the requirement to maintain professional indemnity insurance.
Importantly, an STFM intending to accept capital commitments that would take it above the US$200 million threshold must apply to the FSRA to vary its Financial Services Permission (FSP) before accepting those commitments.
Institutional Fund Managers
A separate Institutional Fund Manager (IFM) framework has been introduced for Fund Managers operating exclusively in the institutional market.
To qualify, a Fund Manager must manage only QIFs, or equivalent Foreign Funds, which:
- have a minimum subscription of US$5 million; and
- do not have natural persons as Unitholders, subject to specific provisions relating to employee investments.
Unlike the STFM framework, the eligibility criteria for IFM do not contain an express restriction on operating as a "host" Fund Manager.
IFMs benefit from exemptions from the requirements to maintain an internal audit function, appoint a Finance Officer and maintain professional indemnity insurance. They are also subject to a reduced expenditure-based capital requirement.
The minimum capital requirement for an IFM is the higher of US$50,000 and 6/52nds of Annual Audited Expenditure, compared with the 13/52nds expenditure-based calculation generally applicable to a full-scope Fund Manager.
Institutional Fund Asset Managers
The reforms also introduce a streamlined framework for certain Institutional Fund Asset Managers (IFAMs). This complements the IFM regime by extending proportionate regulatory treatment to certain firms which manage the assets of Institutional Funds without themselves acting as the Fund Manager.
To qualify as an IFAM, an Asset Manager must be a member of the same Group as an IFM, and its investment management activities must be limited to managing the assets of Institutional Funds managed by that IFM. The distinction is therefore between the entity responsible for managing the Fund itself and a Group entity appointed to undertake investment management in relation to the Fund's assets.
Eligible IFAMs benefit from certain streamlined requirements reflecting the exclusively institutional nature of the underlying investor base. In particular, the framework provides regulatory relief in areas including governance and prudential requirements which would otherwise apply to an Asset Manager carrying on the regulated activity of Managing Assets.
The IFAM regime may therefore be relevant to institutional asset management groups which separate responsibility for the management and operation of their Funds from the entity responsible for portfolio or investment management.
What does this mean for Venture Capital Fund Managers?
Under the new framework, VCFMs operate as a specific sub-category of STFM and are therefore generally required to satisfy the STFM eligibility criteria. This includes the restriction on operating as a "host" Fund Manager described above. Their activities remain focused on managing VC Funds investing in early-stage businesses.
The framework also provides VCFMs with specific flexibility in relation to the experience requirements for certain Approved Persons. Relevant experience may include experience operating VC or private equity funds, or relevant industry expertise in the sectors in which the VCFM proposes to invest.
Depending on their business model, VCFMs may also seek additional permissions to advise on investments or arrange deals in connection with co-investments alongside a VC Fund.
Existing VCFMs will benefit from a transition period until 31 March 2027. The FSRA has indicated that it will contact affected firms regarding the applicable transition arrangements.
Employee investment
The reforms facilitate certain employees investing in private Funds managed by their employer. In the context of the IFM regime, the Employee Investment Vehicle provisions allow qualifying employee participation without affecting the Fund Manager's IFM status.
Foreign Fund Managers
The reforms also revise the regulatory framework applicable to Foreign Fund Managers (FFMs), being Fund Managers which are neither established in, nor operate from a place of business in, ADGM.
The revised framework introduces additional safeguards for FFMs managing ADGM Domestic Funds, including requirements for an ADGM-based Fund Administrator and Corporate Service Provider and, for relevant FFMs, a UAE-resident director and submission to ADGM laws and the jurisdiction of the ADGM Courts. Transitional arrangements apply to existing FFMs.
The reforms also separately address the use of the "host" Fund Manager model by FFMs. In its consultation, the FSRA proposed prohibiting an FFM from operating as a "host" Fund Manager, which it described in this context as delegating investment management. The FSRA explained that permitting this model would undermine its ability to oversee FFMs because it may lack a sufficient regulatory nexus through which to supervise the investment manager to which asset management activities have been outsourced.
This is distinct from the STFM restriction. For an STFM, not operating as a "host" Funder Manager is an express eligibility condition for access to the streamlined regime. For FFMs, the restriction forms part of the separate package of measures intended to strengthen the FSRA's oversight of FFMs managing ADGM Domestic Funds.
Existing FFMs will benefit from a transition period until 31 March 2027. The FSRA has indicated that it will contact affected firms regarding the applicable transition arrangements.
What should Fund Managers do now?
The New Rules provide an opportunity for existing and prospective ADGM Fund Managers to consider whether their business models fall within one of the streamlined categories and whether moving to the relevant regime would be commercially and operationally beneficial.
Affected firms should consider:
- whether they satisfy the eligibility requirements for STFM, IFM or Institutional Fund Asset Manager status;
- the potential regulatory and capital benefits of moving to a streamlined framework against any restrictions that would apply to their Fund structures, investor base and future growth plans;
- future fundraising plans, particularly where an STFM is approaching the US$200 million Committed Capital threshold;
- whether a variation to the firm's existing FSP is required and, if so, preparing the relevant application to the FSRA;
- whether Fund Prospectuses and other relevant documentation should be updated to reflect the firm's regulatory status and applicable FSP restrictions;
- for existing VCFMs, the steps required to transition to the revised framework ahead of 31 March 2027; and
- whether their operating model involves delegation of investment management or the appointment of an investment adviser in circumstances which could constitute a "host" Fund Manager arrangement and, in particular, affect eligibility for STFM status.
Key takeaways
The reforms represent a move towards a more proportionate regulatory framework for ADGM Fund Managers, with potentially significant efficiencies for smaller managers and firms focused exclusively on institutional investors.
However, eligibility for the streamlined regimes comes with specific conditions and restrictions. in particular, Fund Managers considering the STFM framework should assess whether delegation or investment advisory arrangements within their Fund structures could cause them to be regarded as operating a "host" Funder Manager model. Fund Managers should therefore consider both their current position and their future fundraising, investor base and growth plans before determining whether a change in regulatory status is appropriate.
Trowers & Hamlins' financial services and investment funds teams can advise Fund Managers, Asset Managers and investors on the application of the new framework, including eligibility, structuring considerations and applications to vary existing FSRA permissions.
