Hedge funds are racing to set up in Abu Dhabi and Dubai. It’s not only about the money.

Millennium, Brevan Howard, Schonfeld, and ExodusPoint are just a few of the funds that have put roots down in either Abu Dhabi or Dubai. Meanwhile, Bridgewater’s Ray Dalio bought a penthouse in Abu Dhabi as he compliments the country’s policies.

From the outside, the driving force for this migration would appear to be the trillions in sovereign wealth capital these countries are dangling in front of founders. But the reason many funds are opening offices in the region is for a different, and possibly more valuable, commodity: Talent.

Austen Smart, a managing director based in Dubai for recruiting firm Tighe International, said he gets several cold calls a week from portfolio managers looking to relocate. In 2022, the first year he was based in the region, they might hear from a curious portfolio manager once a month, Smart said.

Last year, it was once a week, and “this year’s gone crazy,” he said.

For some traders, a potential move is a simple tax play. While Americans still have to pay taxes to their home country, Brits and other Europeans enjoy a near tax-free existence in special districts in the Middle East. Recruiters in the region also say Indians appreciate the proximity to family — a flight from Abu Dhabi to Mumbai is three hours compared to a nine-hour trek from London.

London’s long been the home of star macro traders, with names like Alan Howard and Greg Coffey making bets around the world, but the UAE time zone has proven to be the best for investors who want to play in all markets. A trader in Dubai can begin their day at 7 a.m. and trade Korean markets for hours before Europe wakes up — and still be on for the start of the UK’s trading day.

Millennium, Business Insider reported, opened its Dubai office in part to land index-rebalancing PM Pratik Madhvani. And for Dymon Asia, the $2.3 billion firm’s new Dubai office is for the PMs who kept asking about moving there.

“It’s primarily a talent business. If they’re telling you that they need this to do better, you accede to that request,” said Danny Yong, the manager’s cofounder.

The lure of the Middle East

For many managers — who are fighting for capital as the largest in the industry hoover up assets and allocators turn their attention to fields such as private credit — the Middle East can be a chance at a lifeline that’s too good to pass up.

“Some might say it’s the new Switzerland. It’s a place where everyone from around the world can come and do business,” said Doug Greenig, the founder of the $2 billion systematic macro fund Florin Court Capital, which opened an office in Abu Dhabi in 2021.

The region has become so important for the industry that, even as the conflict in nearby Gaza rages on, with body counts rising, hostile neighbors like Iran growing more bold, and college campuses across the Western world splintering, billionaires come and mingle with its key stakeholders.

At Morgan Stanley’s inaugural investment conference in Abu Dhabi at the end of February, Point72’s Steve Cohen and Viking Global’s Andreas Halvorsen gave keynotes. The typically press-shy British billionaire Howard has sung the praises of the region publicly several times now as he has moved dozens of his team to the country.

The total number of hedge funds in Dubai grew 125% in 2023 compared to the year prior, according to the Dubai Financial Services Authority, while Abu Dhabi had more than 100 funds registered with its regulatory authority at the end of last year.

For many, the prize is an allocation from the country’s three main sovereign wealth funds: $993 billion Abu Dhabi Investment Authority, $276 billion Mubadala Investment Company, and $200 billion ADQ.

But raising money from a sovereign wealth fund is not a quick process, despite what government officials pitching relocation on the ground might say.

“These funds are investing for eternity — they’re OK missing out on a fee discount you’re offering if they’re unsure,” said one executive of a midsize multi-strategy fund who has visited the region several times over the last 12 months in a fundraising push.

There is value in patience, according to fundraisers who have gone through the yearslong cycle before.

“The door is never closed with them,” one person who has raised money in the region said.

Don’t have to move to get the money

If you’re setting up an office in the region to satiate antsy PMs, it makes sense. LPs certainly aren’t bothered by investors moving out of New York or London like they were once.

“Once upon a time, if a PM moved to Palm Beach, we’d flip out. Now, it’s pretty routine. I think the same is the case for the Middle East,” said Craig Bergstrom, the CIO of Corbin Capital, a New York-based allocator that doesn’t have an office in the Middle East.

But moving just for the capital might not be worth it. For one, it can take years, if any money ever comes at all.

When one US-based hedge fund fundraiser met with Abu Dhabi officials late last year, he didn’t expect much to come of it. He and his colleagues had been in Europe shopping around their recently launched firm and stopped at the Abu Dhabi Global Market offices to chat with officials about possibly setting up a tax-friendly offshore structure in the UAE.

The benefits of doing so quickly turned to items that places like the Cayman Islands or Jersey can’t promise — a “wink wink on if you set up here, money will flow, especially if you hire locals,” this person told Business Insider.

The US fundraiser, who spoke anonymously because his firm may eventually return to raise capital in the region, said that as great as the offer from local officials sounded, it was taken with a grain of salt because they knew from other funds that “it is a long process” before the sovereigns rain any capital on a new manager.

Plenty of funds also have money from Middle Eastern sovereigns — and no interest, currently, in starting at an outpost.

For example, a person familiar with Citadel’s thinking said the Miami-based firm has no immediate plans to open an office in the Middle East, despite ADIA’s long-standing investment with the firm. Freestone Grove, a Citadel spin-out based in San Franciso, and Bobby Jain’s yet-to-launch multi-manager fund both raised Middle Eastern money, but have no plans currently to expand to the region, people close to the managers confirmed.

Lifestyle pitch

Of course, the region offers something very valuable for all funds based in Europe or Asia: Leverage.

A friendlier business environment in a country club wrapper is a great thing for disgruntled British or Hong Kong founders to have in their back pocket.

“This place stands on its own merit regardless of the capital,” said Florin Court’s Greenig. He lauded everything from the Louvre outpost in Abu Dhabi to the warm weather to the responsiveness from government officials.

While Riyadh, Saudi Arabia’s capital, still lacks some Western comforts, Dubai and Abu Dhabi constructed their cities to match the needs of ex-pats. A Bloomberg story on Abu Dhabi notes that it’s fast-tracking country-club admissions for new wealthy immigrants.

The business-first atmosphere was “refreshing” after living in the UK and the US, Greenig said.

“They play well with everyone on the playground. The leaders here are thinking for the long term,” he said.

“I voted with my feet.”