Setting up a fund in ADGM

Enquiries usually arrive as "how much does it cost to set up a fund in ADGM", which cannot be answered because it merges two things with different costs, timelines and authorities.

Registering a limited partnership is a Registration Authority matter, priced on the published schedule, measured in days.

Authorising the manager is an FSRA matter, priced in a separate rulebook, requiring regulatory capital and a compliance function, and measured in months.

You can do the first without the second — but the vehicle cannot take third-party money until the second is resolved. Anyone quoting a fund setup on Registration Authority fees alone is quoting a fraction of the exercise.

From ADGM's own entity list[ADGM RA — Schedule of Fees]:

• Limited Partnership — general partner manages, limited partners are liable only to the extent invested. The default private capital structure.
• Investment Company — a public company limited by shares, private company limited by shares, or private company unlimited with shares which carries on the business of investing the pooled capital of investors in financial securities. Open Ended or Closed Ended.
• Protected Cell Company / Incorporated Cell Company — umbrella structures with segregated sub-funds.

ADGM applying English common law directly[ADGM Courts — English common law] matters here more than in most contexts: LP agreements, waterfalls and side letters are drafted against a body of law that fund counsel already knows.

Before anything else about vehicles or managers, decide which class of fund you are building. The FSRA's Fund Rulebook recognises three categories of Domestic Fund — Public Fund, Exempt Fund and Qualified Investor Fund[FSRA — Fund Rulebook (FUNDS)], and the choice sets your entire compliance burden.

A Domestic Fund may be constituted as an Exempt Fund or a Qualified Investor Fund only if it satisfies all of the conditions for that class[FSRA — Fund Rulebook (FUNDS)]. These are not labels you select — they are tests you either meet or fail.

Exempt Fund

A Domestic Fund is an Exempt Fund if[FSRA — Fund Rulebook (FUNDS)]:

• its Units are offered only by way of private placement;
• all its Unitholders meet the criteria to be classified as Professional Clients; and
• the initial subscription to become a Unitholder is at least USD 50,000.

Qualified Investor Fund

A QIF has the same first two conditions — private placement only, all Unitholders Professional Clients — but the initial subscription must be at least USD 500,000[FSRA — Fund Rulebook (FUNDS)].

That is the whole distinction at the gate: USD 50,000 against USD 500,000. A tenfold difference in the minimum cheque, in exchange for a lighter rulebook at the QIF end.

Public Fund

The third category is the one whose Unitholders include Retail Clients[FSRA — Fund Rulebook (FUNDS)]. It carries the heaviest requirements, and it is the only class whose Units may be the subject of a public offer.

What this means in practice

Your investor base decides your class, not your preference. If you cannot commit to every investor being a Professional Client, neither the Exempt Fund nor the QIF route is open, and you are building a Public Fund with everything that follows.

You cannot market these. The FSRA is explicit that a firm will generally not be able to undertake mass marketing activities for Units of Exempt Funds or QIFs, because such marketing would not meet the private placement requirement and would be likely to amount to a public offer — which can only be made in respect of a Unit of a Public Fund[FSRA — Fund Rulebook (FUNDS)]. Plan distribution as private placement from day one; a fund raised on the assumption of open marketing has a structural problem, not a marketing problem.

You can move up. An Exempt Fund may convert to a Qualified Investor Fund provided it meets the conditions applicable to a QIF[FSRA — Fund Rulebook (FUNDS)]. The path exists if your minimum subscription rises.

Inherited units do not break the class. A Fund does not cease to be an Exempt Fund or a QIF merely because Units are registered to someone who does not meet the criteria, where that results from inheritance from a registered Unitholder, or legal action brought for or against a registered Unitholder[FSRA — Fund Rulebook (FUNDS)]. A death or a court order in the register does not collapse the structure.

The definition of Professional Client sits at Rule 1.2.1 of the Fund Rulebook[FSRA — Fund Rulebook (FUNDS)], and Exempt Funds must also meet the requirements common to all Domestic Funds[FSRA — Fund Rulebook (FUNDS)]. Both are matters for your FSRA counsel rather than this page.

ADGM's specialised fee column covers Investment Partnerships, the General Partners of Investment Partnerships, and Open Ended and Closed Ended Investment Companies[ADGM RA — Schedule of Fees] — USD 1,900 to register, USD 1,400 a year, against USD 5,800 and USD 5,300 for a standard entity.

Note that it covers the general partner vehicle as well as the partnership, which is where a fund structure would otherwise pay the higher rate twice.

Two incentives sit alongside[ADGM RA — Schedule of Fees]:

• Venture Capital Fund Managers — USD 1,500 for three years, for FSRA-approved applicants. See the VC route.
• Carried Interest Vehicles — USD 1,900 initial, USD 1,000 renewal.

Taken together, ADGM has priced the components of a fund structure deliberately. That is a genuine and quantifiable advantage — and it is the part of the cost that is knowable in advance.

Managing a fund, advising on investments and marketing a fund are financial services under the Financial Services and Markets Regulations, modelled on the UK's Financial Services and Markets Act 2000[FSRA].

We have deliberately not set out ADGM's fund categories, offering restrictions, professional-client thresholds, minimum subscription levels or prospectus requirements on this page.

That is not an oversight and it is not coyness. Those rules live in the FSRA's Fund Rules and COBS[ADGM Legislation], we have not read those rulebooks in full, and a fund page assembled from secondary summaries is precisely the kind of confident, unsourced content this site exists to be an alternative to. On a subject where getting a threshold wrong means an unlawful offer, a plausible-sounding number is worse than no number.

What we can tell you with confidence: the FSRA comes first[ADGM RA — Schedule of Fees], ADGM directs applicants to contact the FSRA to start the process and arrange a meeting[FSRA], and the fund's structure should be settled with counsel who has done it here before, not chosen from a comparison table.

1. Settle the strategy and the investor base. Who can be offered the fund determines which rules apply, which determines everything else.
2. Engage the FSRA early. Pre-application meetings are the norm[FSRA].
3. Choose the vehicle with fund counsel — LP, investment company, or cell structure.
4. Resolve manager authorisation: permissions, regulatory capital, compliance officer and MLRO.
5. Then register the vehicles through the Online Registry Solution[ADGM RA — Registration & Incorporation], taking the specialised fee treatment where it applies.

We are not a licensed provider and we do not prepare FSRA applications. What we can do is tell you whether ADGM is a sensible home for the structure and introduce you to people who do this work.