Jamie: [00:00:11] Hello and welcome to another episode of Hedge Fund Huddle with me, your host, Jamie McDonald. So today's topic is on the Middle East. What's it like to do business there? Why are so many people moving there? And what's really driving the very meaningful growth in assets under management. Now as a parallel, we're going to be talking about and referencing the continued attraction of domiciling in the Cayman Islands and the trends that we continue to see there. And to help me chat through this episode, we have three great guests today Chude Chidi-Ofong from Montague Square, Rob Thomas from Centralist Group, and Jim Backhouse from our very own London Stock Exchange Group. Gentlemen, welcome to the podcast.
Jim: [00:00:54] Thank you.
Rob: [00:00:55] Pleased to be here.
Jamie: [00:00:56] So we're going to start with a few quick introductions. So Chude perhaps if we could start with you.
Chude: [00:01:01] Thanks, Jamie. So, Chude Chidi-Ofong, I'm a Director of Montague Square Advisors, which is an asset management advisory business which helps hedge funds, PE funds, all aspects of the alternatives industry. Participation here is relevant because I've been working in hedge funds for the last 25 years and focusing mostly on Cayman domiciled funds. So the traditional Cayman master feeder structure working with US and UK managers.
Jamie: [00:01:26] And Jim?
Jim: [00:01:26] I suppose I'm the Middle East contact. So I've been with LSEG, Thomson Reuters, Refinitiv since 2017, arrived in the region in 2009 and I've seen a real transition in the markets here in the Middle East from really having no hedge funds in the Middle East to ramping up to the position where we are, where we've got any number of hedge funds coming in. So hopefully some insight that I can add on that side of it.
Jamie: [00:01:54] And, Rob?
Rob: [00:01:57] Hi I'm Rob. I’m an independent fund director with the Centralis Group based in the Cayman Islands. I have over 25 years experience in offshore financial services, the last 13 of which have been an independent fund director, and my background is one of a legal having practised as a solicitor in the late 90s in the UK.
Jamie: [00:02:15] Great. I was going to start with some numbers because I was looking at assets under management and how they've been changing over the past 20 to 25 years. Very roughly speaking, if we go back to 2007, in the Middle East, we were looking around $1.8 billion. By 2011, it was around three. But there's numbers I see quoted in 2024 are around 700 billion. And I think most of that has been since 2020. So the rise in capital and assets flowing to the Middle East has been a very recent phenomenon. And we're going to go into all those topics. But if you look at Cayman, it's basically steadily been growing since the 90s. In 2006, it was around 1.3 trillion, up to 3.6 in 2015, and now we're seeing numbers between 8 to $10 trillion. So Chude, perhaps I could start with you. I'd like to look back and see over the past 20 to 25 years in Cayman what the tax advantages are, what we mean by a tax neutrality versus the tax haven, what it means for a manager to be domiciled there when the assets are domiciled in the US. So if you could just give us a bit of a quick intro into why the hedge fund started moving there in the 2000s and why these trends are continuing.
Chude: [00:03:28] So I'll go around the houses a bit on this, but I think, it's interesting mentioning assets to start off with. I don't think assets are the panacea when it comes to looking at the respective jurisdictions, because if you look at the Middle East in particular right now, in some of the free zones, which we'll talk about later on, there's over one and a half, 2 trillion of money if we look purely at assets. But if we're somewhat myopic, looking at the fund space. So the Cayman Islands got a head start. And I think we can't underestimate proximity to the US as well because institutional investors historically, if you look “in quotes” at the best institutional investors and the longest tenure, they've been US and so the Cayman Islands benefited from that, benefited from the fact that it operated effectively under English common law and benefited from first mover advantage. So historically, whether you were a US manager or UK manager and I think something will come to you as well, probably a bit later on, is the difference between the managers and the funds, because I think very often these are blurred. But it's important, especially when we're talking about what's happening in the Middle East now as to what exactly we're talking about. But if we look at a jurisdiction where managers were comfortable for their funds to be domiciled, the Cayman Islands offered tax free environment, as in there is.
Chude: [00:04:55] And I'll defer to Rob later on in this. But there is no tax. No income tax, no capital gains tax, no corporation tax. And I think if you applied as part of the application process, if you apply to the government, you were given the most corporates. I think it was 20 years in some cases up to 50 years, minimum of tax-free status. So if we start off with that, that was a pretty compelling reason to domicile your funds in the Cayman Islands. And so what that meant in practice was that you as an individual or as a corporate investing in the funds would only have to bother about dealing with your own local income or corporation tax, depending on the way your, local jurisdiction calculated your taxes. So in some situations you'd pay your tax once you crystallised your gain and in others you'd pay your tax based on the theoretical gain even though you hadn't crystallised. But ultimately, you wouldn't be paying taxes twice because you could be comfortable that you were, that your funds were in the internationally recognised, legally sane and consistent jurisdiction that was the Cayman Islands.
Jamie: [00:06:07] So when it came to actually paying tax, it was only when any money got repatriated back to the US or Europe or wherever you were. You're paying tax at that point. But as it stands on the island, you're paying none.
Chude: [00:06:18] Historically. So if you take it to its nth degrees, let's say you're a resident of one of the Middle Eastern countries where there is no personal income tax or corporation tax. Your investments would be both tax free at Cayman level and tax free ultimately when you repatriated them. So that's the ultimate, I suppose.
Jamie: [00:06:35] And Rob, I mean, kind of the same question to you, but I also want to touch a little bit on the credibility side of things. I mean, perhaps because of the English common law, there was already an infrastructure in place, and allocators were very happy putting money towards hedge funds domiciled there. But do you want to also comment a little bit of how Cayman has continued to be such a strong attraction for hedge funds being domiciled.
Rob: [00:06:58] Sure, I'd like to just come back to one of the points that Chude made, and it's the distinction between, I think, hedge fund managers and hedge fund structures, because I think Cayman’s been very successful in becoming the market leader in hedge fund structures, less so, I think, in providing a domicile for Cayman-based managers who actually want to locate there. And that's where I think Dubai will probably have more of an advantage. But and then coming back to obviously the whole basis of the hedge fund structure, I mean, we're talking about collective investment schemes here. You've got like a hedge fund manager who has a great idea for an investment strategy, you've got 100 investors who all want to invest with him, say they've all got 1 million each, he couldn't put in 100 separate traits for each of those investors. So he pulls all their money's together into an eclectic investment scheme, which more often or not, is either going to be a corporation or a partnership. Now, if that corporation or partnership is domiciled onshore, such as the UK or anywhere else where the manager was based, there'd be corporation tax to pay at that level. And so your investor would not only have to take a bite at the collective investment scheme level at corporation tax, but they'd also end up paying income tax, capital gains tax when the monies come out of that collective investment scheme. So what Cayman offers is a tax neutral environment where that intermediate structure is not facing any taxation, no income taxes, corporation taxes.
Rob: [00:08:27] So it's an efficient way for investors really to maximise their returns on their investments. The reason why I think Cayman has been so successful is because at the end of the day, it comes down to, I think, regulation, you need to balance the need for operational freedom, but also the adherence to international standards of what regulation is. Cayman, again, as Chude said, had the benefit, I think, of a market leader in that it's offshore financial services industry started really in the 60s, but really started to grow and gain traction in the 90s. And for that, we've been very lucky. We've got a number of experts in their field who do live in the Cayman Islands, and they were able to work, I think with the government. So you had really, I think an interactive private and governmental organisations coming together, helping draft the legislation and it comes back again to the legal system, as Chude said, it's a Common Law jurisdiction. It's based on English law. And there's comfort in that. I think for investors knowing that it's a stable environment to invest in, there's that ease of operational ease of using a Cayman hedge fund. And for that reason it was able tobecome, I think, the leading jurisdiction for hedge funds.
Jamie: [00:09:49] So if I'm right in understanding with Cayman, if you're a US hedge fund, even if your managers of the money are domiciled in the US, why wouldn't you be domiciled in Cayman then?
Rob: [00:09:58] Well, you've got a US manager, and what they would do is they'd set up a Cayman hedge fund structure. So it's slightly different. And this is why the distinctions are quite important. The US manager say you've got ABC partners in New York, who have 5 billion under management. They've got a long-short equity strategy that they feel is going to be of interest to some of their investors. So they set up a Cayman hedge fund for that reason. The Cayman Master usually with a feeder, an onshore feeder, an offshore feeder, and then they will go out and market that to their clients, their investors. There isn't the need for the manager to actually move to the Cayman Islands, because there are enough outsourced individuals such as myself, who are based in Cayman, who can help work with the manager to put a corporate governance framework in place.
Chude: [00:10:46] If I could add as well, Rob, there's the regulation. So whether you're a US manager or a UK manager or a French manager. Consider your domestic regulator. So traditionally for the US SEC, FCA or FSA as it used to be in the UK. So in the jurisdiction where the manager is conducting investment business, so actual decision and placing of the funds, they're regulated. The funds themselves in Cayman depending on type of funds, but most of them are regulated by CIMA, the Cayman Islands Authority, for regulation of funds as well. But the primary regulation. So when it comes to all the things that you all the bad stuff you hear about, insider dealing and all that type of thing is done by the regulators in the country in which the investment manager is based and for a variety of reasons. If you're a London manager, do you want to move from London to the Cayman Islands? You might do you might not want to, but you can manage your funds from London, as Rob has illustrated, the actual fund structure itself will be sitting in the Cayman Islands.
Jamie: [00:11:51] Got it and Jim, if we could come to you as our Middle Eastern correspondent, I guess. When did I mean, obviously in particular talking about Abu Dhabi and Dubai, but when did those two reasons really become viable for as a place to set up hedge funds?
Jim: [00:12:05] I think it's been very gradual. If you saw the time when I moved out here in 2009, it was the back end of the financial crisis. I wouldn't say Dubai was on its knees, but there were definitely things which, saw an improvement. And so from that point forward, it's been a steady growth. And things have changed in the market. So, when I arrived here, the ADGM wasn't even a thing. It didn't exist. The DIFC had set up a couple of years previously, but for the for the reasons that, have been mentioned earlier in the ,cast there are certain advantages that the DIFC proffered to the market, the DSA proffered to the market with the fact that it was English law. There was a regulatory structure which was beneficial for managers to come over here. But it's something which has grown over time. And if we're talking specifically about funds and fund managers, then I think it's only just recently that, those choices are being made where, we have had this this influx, if you go back even as short time as, 2023, probably 2020, I think they first mooted in the local market that they were going to allow short selling and that was covered short selling, they never had anything like it simply because there were, it wasn't Islamic.
Jim: [00:13:36] It was Sharia law. So if you were investing, that shorting a position wasn't allowed. And then as time moved on, then, okay, we're going to allow this. And so 2023. I think the regulations were updated in the local market. But again, if you're a hedge fund coming into Dubai, you're not going to be trading in the local market. And the reason why you're not going to be trading in the local market is because the majority of the listings are perhaps family offices, and they've got a very, very small free float. And you just don't get the volume of trades that you would need to actually create some kind of depending on what kind of investor you are to take advantage of those markets. So I think one of the things that really changed is that it's the way that other regimes treat the people who are in their countries. So, for example, if you are in the UK, there are a lot of fantastic upsides to being in the UK - culture, restaurants, multitudes of things.
Jim: [00:14:37] Dubai has caught up on that. So the same restaurants that you've got in London, the same shops that you've got in London, the same shows that you're seeing in the West End are now in Dubai. But also you're getting advantages of being in Dubai where there isn't the crime that you have in London. Again, the tax implications and what we're talking about, we're talking about a market where, the best hedge fund managers, you've got to attract them to come to your fund and giving them the opportunity to work in a tax free environment where you have 360 days of sunshine a year, you've got an environment where it's safe. Then you add on top of it, you've got the restaurants, you've got the culture, which is building here, but then also the schooling for your kids. There are a lot of advantages if you want to encourage people to come over here as opposed to other jurisdictions, whether that be the rest of Europe or London, for example.
Chude: [00:15:35] And Jim mentioned a financial crises. And I think you can't underestimate the transformative impact these have had on the region. So I think if we look back to 2008 initially, and you look at what was happening in Dubai, all the problems with property. The DIFC came out of that remarkably well. We've talked about the stability of law and in the world where there's massive misunderstanding and misinformation about what goes on or what doesn't go on within Middle Eastern countries, from a legal standpoint, having somewhere which had that stability of English law. And if you if you have a court case in the DIFC, chances are your judge would be a former High Court or a Singapore or Australian judge. So, it came out of that very, very well. Despite all that, hedge funds as we know them in the DIFC were pretty much non-existent back then. So the other thing, which was transformative is that they didn't try and reinvent the wheel, and they looked at what worked. And so if you look at the regulator for the DIFC, it's a DFSA, the rulebook for the DFSA. If you've ever worked under the FCA, it's 90% the same. And so what they did was they went and they effectively got some people from the FCA and copied what worked.
Chude: [00:16:59] So that then again gave you more stability, more certainty. Ultimately then that still wasn't the big push. And then Covid happened I think with Covid, you had a combination of all the stuff that Jim has talked about in terms of the lifestyle, the non-financial parts had caught up, but Dubai opened for business and a lot of people came to Dubai to work. Whether it's for a year, for a prolonged period of time, in an environment where they could get out. And that, to me, was the truly transformative part. Now, if you then ally that with the fact that the regulator had had the best part of ten years to improve, to become on the same level as other internationally recognised regulators. And then you had people from the big multi-manager platforms moving over here because ultimately where an industry of lemmings and if Dubai and Abu Dhabi, if it's good enough for some of these very large names which we ought in millennium. Brevan Howard Balyasny, all those guys, who we all know about. And that in itself gives it its badge of acceptability.
Jim: [00:18:11] Chude’s right. What happened during Covid, there were so many things while we were here which were different to other jurisdictions. I mean, the region had the money to vaccinate people straight away. And there was a regime where you went in, you got your vaccination and it was very smooth. So, while in lockdown, in the UK it went on for months. Here in the region, it was a couple of weeks and then we were back to normal and we were living our lives and people were vaccinated. And I think if you looked at the numbers, first of all, the number of people being vaccinated was a lot higher than any other jurisdiction where you could set up. But because of that, that attracted people into Dubai. And again, if you were wanting to work and you were mobile and you had the money and you were able to do that, Dubai was the destination. Obviously you had to be vaccinated before you came in, but it was a fantastic opportunity and Dubai took advantage of that. Abu Dhabi took advantage of that. And being able to draw those people into the region. It was a fantastic opportunity for them to do that.
Jamie: [00:19:19] I should just quickly mention, for those listening who may not know the terms, the DIFC is the Dubai International Financial Centre and the ADGM is the Abu Dhabi Global Market. Just to make clear to anyone listening. But it is really interesting what you're both saying, because it feels like the region itself is proactively trying to make the environment and the culture more attractive to people to move there, and they're willing to be flexible. It just sounds like from a regulatory point of view, they're trying to attract people. So maybe Jim and Chude, I'd love to hear you as well. The basic question of how easy is it to set up a hedge fund in the Middle East? Today is a question I want to ask. And secondly, how attractive is it, the sovereign wealth funds, I'm absolutely not an expert in this way. But if you're trying to get access to that kind of money, is it boots on the ground? Is it people you know, if you could comment on those.
Chude: [00:20:10] So setting up a hedge fund. So look I think we've mentioned the Middle East. Realistically speaking if you're going to set up a hedge fund as we know it. So let's say you're a manager running a Cayman Mastery feeder structure. Rob talked about collective investment schemes. There's really only two places you can do it for me right now, and it's Dubai and Abu Dhabi. Without naming names, some of the other regulatory environments aren't as established yet, and I don't think the regulators are ready yet and understand the business well enough to give both you the manager and your investors comfort that you're operating from the right environment. Now, in terms of setting up the fund itself. So if we're looking at the license to manage that Cayman Master feeder structure that we're talking about. And then just to add a bit more to the structure, just in case people don't understand the master fee, the structure. So you have the master fund, which is the fund which holds all the assets and which has the contracts with the prime brokers you deal with and your auditors. Etc, etc. And you have two feeder funds.
Chude: [00:21:16] One is a US feeder, traditionally where the US investors will invest into. And all that fund is feeds money into the master. And you have an international feeder, which would tend to be in the Cayman Islands, where international investors or non-US investors would invest their money into and invests into the master. And so that's the Cayman structure that we've been talking about. So the manager itself, which I mentioned earlier on, which is the entity which needs to be regulated. This is the entity which you would typically base in London or New York, where in this situation we're talking about being based in Dubai. So you'd go through the application process, which wouldn't be dissimilar to any other international jurisdiction, and it would take you realistically 4 to 6 months, I think, to get to get fully authorised to manage what in Dubai and Abu Dhabi to manage funds under a Cat three C licence if you want to get technical about it. It would take 4 to 6 months. Now it could be quicker. And sometimes you hear about it taking a couple of months.
Jamie: [00:22:16] And in terms of actually getting visas for people to go and work there and run money, how easy is that?
Chude: [00:22:22] No that's all part and parcel of.
Jamie: [00:22:24] That’s all part of it.
Chude: [00:22:25] All part of the process. So with the DIFC and ADGM they are zones. They are free zones. Your employment contract would be under the laws of that free zone under the wider laws of the UAE. And you'd be applying for a visa as part of your employment contract, which gives you the ability to come and live in the UAE and also bring your family over. Etc, etc, etc.
Jim: [00:22:47] It sounds like I'm trying to make Covid the pivotal point, but there are a lot of things that changed around the time of Covid about people coming into the region, about the length of time that you had on your visa. So, I mean, if you can imagine, you can't come and live in the UAE unless you have a job, unless you have a visa. So you can't just come and set up. So you absolutely, 100% need to do that. Traditionally that might be somebody coming in. What you would do is you would work for a foreign company, and that company would sponsor your visa. It could be that you're working for a local company and that that local company would sponsor your visa. And generally those visas would only last between 2 and 3 years, depending on where you were working. And then suddenly you got into Covid. And what they wanted to do is they wanted to encourage people to come to Dubai and to take advantage of what we were doing in the region. And so the introduced the golden visa where you could come in and then introduced where you could come in and you could actually have a visa for ten years. And then there are different rules around, if you're setting up. There were different regulations that you would have to partner with a local.
Jim: [00:23:57] And some of those rules have been relaxed now. So you can, set up your own, have your own business. And so all these changes, they encouraged it. They made a case for people to come in and feel more comfortable. I think there was always a feeling before that if you lost your job, then you'd be on the first flight home because that's what it was like. Nowadays, if you're unfortunate enough to lose your job or you're closing down business and opening a business, you've got plenty of time to resettle yourself and refocus and move on. And there's not as much personal risk as there was previously. So as a government and as Sheikh Mohammed's master plan. What he's done is he's created the perfect environment to encourage. And it's not just about high net worth individuals, but it's about, academics. It's about doctors. It's about if you look at our industry quants, etc. it's all about talent. And that's what they want to do. They want to bring the talent into the region and build on that talent. And it's a place where you're given an opportunity to work. And if you work hard, you're going to be successful in the region. And that's why it's now so attractive to people.
Rob: [00:25:11] And it's critical just to add, which it's absolutely critical to attract those high calibre people to the jurisdiction, because that's what Cayman was so successful in doing in the 70s and the 80s and they're the grandfathers of the financial services industry that we have. We're able to get people to move there. And I said they've formulated the laws and the business that we now do and as the industry grew, the lifestyle became very good. You were able to attract the teachers, the doctors, which make living a lot better. And that's you can see it in Dubai. That's what they're being so successful in doing is attracting those high calibre candidates. So I think, they're going to be very successful as a financial services centre.
Jamie: [00:25:57] Rob, sticking with you. That's an interesting point. You make that in some ways the Middle East feels like it's maybe using the Cayman playbook. But along the way, I know there have been a few scandals along the way but are there any mistakes that Cayman have made which you think the Middle East need to be aware of? When it comes to allocators, obviously credibility is an issue, and I don't think credibility is too much of an issue right now. But were there ever moments where, credibility was an issue and how did Cayman navigate and what should the Middle East be thinking about?
Rob: [00:26:29] Yeah, I think, Cayman, I don't think is really going to be able to compete against Dubai as a jurisdiction for attracting hedge fund managers. And it's just really an issue of scale, Cayman, at the end of the day, it's 22 miles long, 11 miles wide, with a population of 80,000, the level of infrastructure we have there is it can't be compared to, to that of Dubai. So to attract, someone who has worked all their life in London or New York or used to the bustle of a city, coming to a what is a fairly sleepy Caribbean island is just not going to be attractive to them, given that, it's a 13-hour plane journey away from London. It's four-hour plane ride from New York. Logistically it's very difficult. Have there been scandals along the way? I mean, sure, I think with any growing industry, there are going to be lessons to be learned. And it's all about, I think, finding the right balance between overregulating, but also allowing, I think, business to operate in a free environment, I guess. where I see it, from the very outset you mentioned numbers. And if we look at Cayman's numbers, in 2005, there were probably 6,000 registered hedge funds.
Rob: [00:27:48] Now there are double that, say 12,500. But what Cayman did in 2020 was they also introduced a new category, private funds, which captured all the private equity funds that were I think, falling off the radar a little bit. And I think to bring those under the private fund regime was also a shrewd move, it allows allocators, the comfort that there is some regulation there, but obviously still benefiting from the ease of doing business in the Cayman Islands. So it's, as I said, rather than focusing on the scandals, it's always been able to adapt to the environment. And that's what I think Cayman does very well. I think it's able to read the room when it comes to regulation. It if it needs to increase its regulatory touch, it will do so, but not to the point, I think, where it strangles business. And I think that's something that Dubai will need to feel its way through. I think at the outset of any growing up industry, there's always a feel that the regulation might be a light touch, but it's important to make sure that any regulator does have, I think, sufficient teeth to, I think give the investors and the allocators that the comfort they're looking for from their regulator.
Jamie: [00:29:06] So just on that regulation side of things. So when it comes to money laundering, protection, funding terrorism, anything along those lines. Has regulation picked up in Cayman over the last 5 to 10 years? Or is it always been pretty solid and same question to the Middle East.
Rob: [00:29:24] Yeah I mean Cayman has always been, I think very solid on the AML regulations. And I think it gets an unfair press. I think we've been used as a whipping post for too long. I've lived there for 22 years and it's always had the highest standard of AML regulations. However, for reasons we ended up being on the FATF grey list, but we worked hard as an industry to get ourselves off there. And so in October 2023, the FATF removed the Cayman Islands from the grey list. So we are now fully compliant, and I think you'd be hard pushed to find any jurisdiction which has as stringent and well, I'd say thought out AML regulations as Cayman.
Chude: [00:30:03] Yeah. I couldn't agree more with what Rob has said on that front. I'm a big fan of not reinventing the wheel. And I think that's what they're doing in the Middle East here, in that they're taking experts from other jurisdictions, bringing them in. The UAE was on the grey list as well. It's come off as well. So there are distinct parallels there.
Jamie: [00:30:23] When was that?
Chude: [00:30:24] Oh, it came off a couple of years ago, I think if top of my head was it 18 months ago.
Jim: [00:30:29] Well, it actually only went on a couple of years ago. And then it came off and it very, very quickly came off. And it was one of the things that, again, the central bank here. I mean, I think that they were quite shocked that FATF put them on the grey list in the first place, and then they did everything that they possibly could because that's a stain on their character. And they saw that as a huge insult. And so they did everything that they possibly could to have themselves removed from the list. And that was actually, again, a huge marker or a stake that they put in the ground saying, look, we're willing to look at this and we're willing to move mountains to make sure that we actually meet international standards and do the best thing for the people who want to come and work here and so they can feel safe in an environment which is well regulated.
Chude: [00:31:20] I think Rob mentioned not being complacent. And I think that's the key here as well. Regulatory engagement is also something which I found fantastic. So I think to me Cayman a gold standard when it comes to corporate governance. And as Rob said you get such a ridiculous press sometimes. You think about a number of Hollywood films where you, hear someone talking about, oh, yeah, I've just got transferring some cash to Cayman bank account. Rob can talk better about this than I am, but most of my friends who live in the Cayman Islands struggle to even get a bank account open for their kids.
Rob: [00:31:57] I was going to say the last bank account I tried to open for a client in the Cayman Islands to just the best part of a year.
Chude: [00:32:03] So, they are as tight as you can get. And so, I look at the Middle East generally, and I think corporate governance is something which I think the regulator has a focus on it. But that's where if you're ultimately going to give people the greatest levels of comfort, you need to be sure that your guardian. So, Rob is an independent director, that you have the right guardians looking after your funds, who because frankly, you got the manager on one side and your representative from the fund is your independent corporate governance person whose your director. Well, the final thing I'll say on this is what has struck me. So the reason I got to know the regulator quite well in Dubai was I was helping a client move over. And I won't bore you with the minutiae, but there was something which I felt the regulator was getting wrong, and I threw my toys out of the pram about it. And then I was offered the chance to meet the regulator, and I had a coffee with him. And, before I had the chance to wind myself up and start going at it, he said, I understand where you're coming from. It's all sorted. Took me through it and it was sorted. And so this was probably about four years ago, and I reckon I have met that chap now maybe 30 or 40 times. Every single time I go to Dubai, I have a conversation with the regulator, I have a coffee with him and we chat about what they're doing. And, in 25 years of working in the UK, I've never had that relationship with FCA, SFA, IMRO or any of the regulators there, so they are very open to feedback and they're also very open to having a conversation with you so you can understand what they do and they'll take from you how you view the environment. So I think that's also transformative.
Jim: [00:33:52] So of the 6,000 you mentioned 6,000. You said it doubled to 12,000 funds. How many actual managers for those 12,000 are based in the Caymans. Because again, that's a huge distinction between, what's happening in the Middle East and Cayman, right?
Rob: [00:34:10] Yeah. I mean, a handful I'd say, Jim, to be honest with you, I know of a few managers who perhaps have a few PMs there, do a bit of trading, but really it's just not a big industry. You don't hear of any big names who have set up in Cayman with a satellite office there. It just doesn't exist. There may be some that I'm just not aware of, but it really isn't, I don't think prevalent in the Cayman Islands.
Chude: [00:34:34] But also, they're targeting different buckets. So Cayman has never really targeted managers. And to Rob's point, the infrastructure.
Rob: [00:34:43] It's just not going to be attractive. You just know you'd be fighting a losing game if you were really going for that kind of business.
Jim: [00:34:50] And I'm going to put you on the spot here. Sorry, Jamie. I feel as if I'm taking your job, mate. I'm sorry about this, but I think this is a question as well. So if we if we say that at the beginning of this year there was, say, 90 hedge funds that have set up in the Middle East, obviously there's different sizes, different funds doing different investment strategies. We say that 75 of those are in Dubai. How many managers here in Dubai actually have structures in the Cayman Islands? Because that's interesting to you as well, right?
Chude: [00:35:20] I'd say the majority.
Rob: [00:35:21] Yeah, I would too.
Jim: [00:35:22] Exactly.
Chude: [00:35:23] Because look I think it's not Dubai or the Cayman. I would say they work in parallel. I think a more realistic question is what threat does Dubai hold to London, to Paris, to New York, to Singapore for the domicile of the managers. Cayman is pre-eminent for the structures, and that's frankly not going to change. We've alluded to a lot of the non-financial parts and that's often the transformative decision-making point for the manager as to whether to live in London or Dubai or Milan or wherever.
Jamie: [00:36:02] This is very interesting. And believe it or not, we haven't got too much longer left. But I want to focus in on trends we're seeing today. Rob, you already mentioned private equity, seeing growth in that area. But for Chude and Jim in the Middle East kind of what's next in terms of people moving their more private funds, wealth funds, banks, insurance companies, what could happen next?
Chude: [00:36:22] So this is actually a bit of an obsession of mine. So look, I think right now the UAE is a great place to live. It can be expensive, but it's safe. We've talked about all of that stuff. And so when you read that 80% of the top ten hedge funds in the world, have an office in Dubai or Abu Dhabi, I frankly go, and, because you're convincing 80% of the richest people in the world to live in a jurisdiction which is absolutely fantastic, especially if you got money. So there is no surprise there. What I think needs to change is for the smaller funds. So you alluded to earlier on about asset raising. It's never been harder to raise money. Just generally, in the hedge or PE landscape. And I think it's even harder right now in the Middle East for smaller funds and new managers. We hear all these big funds moving to the region and they get allocations because there are massive mega funds. But I think for it to truly prosper is you need to start seeing your 100 to $300 million type fund where you might have the future millennium or Brevan or whoever tomorrow.
Chude: [00:37:35] You need to have a realistic prospect of raising assets in the region. And what I've been seeing recently is people coming over, meeting sovereign wealth funds, and meeting families and not really raising anything. Now, part of that is, I think as an industry, one of the biggest issues we have is people never put their hand up and tell you they don't know and they don't understand. And so you have a huge number of people. There's $1.5 trillion worth of wealth in the DIFC. I would say that a lot of that is real estate-based. And if you're a real estate person, what do you know about hedge funds? So I think a lot of what we need to do as an industry is educate the wider market that you need to have, or ideally, optimally, you should have an allocation of your portfolio within the alternatives, whether it's hedge or PE. I think if that starts happening, then I think it's here to stay.
Jim: [00:38:33] I think there's also a perception, isn't there, in the region that Middle East money is easy money and it's flowing and it's the land of milk and honey. And I know a lot of guys who go to the sovereigns, wanting an allocation. And it just doesn't happen like that. It's not flowing in. So if you're a manager and you're coming in and you're expecting, one of the big sovereigns to, like, lump a load of cash into your fund, they're not going to do that. And the reason why they're not going to do that is it may not be because of your investment strategy, but what you need to do is you need to prove a track record because these are mature investors. ADIA has been running money for decades. So it's not new to the game. So they will kick the tires on every fund that comes in and they'll give you a meeting. And it's the culture of the region that you're in, the oasis, you can come down and you can have a chat with us and we'll talk to you. But it doesn't necessarily mean that we're going to put money into your into your account.
Chude: [00:39:35] I would go a step further, though, Jim, because I've seen managers with excellent track records come over and not raise. And I think it's a relatively dangerous time right now in the, when we were younger, the old cliche was no one lost their job investing in IBM. And I think the danger is you don't want to have a world where within the sovereigns, people take the view that, well, the safe option is I'm going to give it to one of these big multi managers. And I think and I worry that we're veering a bit towards that because if it's Rob and I who've just come out of some fund and we have no track record to market and we raise no money, I completely understand that. But I've seen enough managers with 5 or 6 year track records come over and do a pretty decent tour. And raise nothing. Or the hurdles are so high and that you might have a sovereign wealth fund who says well, we only allocate in sizes of half 1 billion or 1 billion, and we don't want to be more than 10% of your total AUM. So that minimises the number of funds that you can invest in, literally to a handful. So I think it's a dangerous time from that point of view. I mean, look, I think it's a success, but if you want to make it a long term success, I think there has to be a way of rewarding younger or developing managers.
Jamie: [00:41:00] Yeah. Well, gentlemen, this has been an absolutely fascinating discussion. I think anyone who's listening would probably they've been fascinated by what they've heard. They'd love to get in touch. So if I could go around and ask for you to, any concluding comments, but also just to mention how people might be able to get in touch with you. Rob, if we could start with you, perhaps.
Rob: [00:41:19] Sure. I mean, just closing comments. I think, financial services, hedge funds are here to stay. I think it's an exciting time for the industry as a whole. I don't think we always need to pit the jurisdictions against each other. I think there's a way of working Cayman with Dubai. And I think, it's exciting times. By all means. Contact me. You find me on LinkedIn. And also obviously on the Centralist website as well.
Jamie: [00:41:43] Thank you. Jim?
Jim: [00:41:44] Yeah, I'm based in Dubai. I work out of the LSEG office here. Again on LinkedIn. More than happy to speak to anybody. Go out for a coffee if you're here in the region and share my knowledge of being here for us. Well, since 2009. Happy to meet up.
Jamie: [00:42:03] I feel like you've also got a role for you at the Dubai Tourism Board as well.
Jim: [00:42:07] Well look, I wouldn't have stayed here if I didn't like it. And the region has been very good to me. It's been very good to my family. So, I'm going to shout from the rafters it's my home.
Rob: [00:42:23] Sorry not to outdo Jim, but obviously, if anyone's in the Cayman Islands, I'm happy to buy them a mudslide rather than a coffee.
Jim: [00:42:30] Who is upping the game? Upping the game. What are you offering now, Chude?
Jamie: [00:42:36] Chude. We've still got Chude to go.
Chude: [00:42:39] Oh, God. No. Is this where I offered to buy some Manchester Brown ale or something? No. Look, I think we'll be looking at jurisdictions working in parallel, and they're very complimentary. From the manager point of view, I see all roads leading to the Middle East myself right now. I think that's where the action is going to be in the short to medium term for sure. And in terms of contacting me, like the others, I'm on LinkedIn and yeah, do feel free to reach out.
Jamie: [00:43:09] Chude, Jim. Rob, this has really been great fun. Thank you so much for your time.
Jim: [00:43:13] Cheers. Thank you.
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