backOn 24 November 2025, the Financial Services Regulatory Authority (“FSRA”) of the Abu Dhabi Global Market (“ADGM”) issued Consultation Paper No. 12 of 2025 setting out proposed enhancements to its framework for Funds and Fund Managers and inviting feedback on targeted aspects of the current regime. The consultation forms part of a holistic review of the FSRA’s funds framework, with this first paper focused on private Funds, namely Exempt Funds and Qualified Investor Funds (“QIFs”), and their managers. A second consultation addressing additional private fund proposals and enhancements to the Public Funds framework is expected in 2026.
Objectives and Scope
The proposals aim to enhance proportionality and clarity, align the regime with international best practices and reflect supervisory experience while supporting the ADGM’s growth as a global fund management centre. The consultation paper’s focus is on streamlined regimes for smaller managers and managers targeting institutional investors, facilitation of employee investment into private funds via Employee Investment Vehicles (“EIVs”) and tightened controls for Foreign Fund Managers (“FFMs”) overseeing Domestic Funds.
Streamlined Framework for Fund Managers of Smaller Funds
The FSRA is proposing a new “Sub‑Threshold Fund Manager” (the “STFM”) framework, inspired by elements of the EU Alternative Investment Fund Managers Directive sub‑threshold regime but adapted to the FSRA’s licensing model. The framework would apply proportionate requirements to managers of smaller private funds without limiting eligible asset classes.
Eligibility would be restricted to managers that meet the following criteria:
- maximum Committed Capital across all Funds of $200 million;
- manage only closed-ended QIFs or Exempt Funds (or equivalent Foreign Funds); and
- are not “host” Fund Managers.
The FSRA also seeks views on whether to introduce a leverage cap at 100% of Fund NAV.
Under the proposed STFM framework, managers would benefit from a streamlined authorisation process and selected dispensations broadly aligned with the FSRA’s current Venture Capital Fund Manager (“VCFM”) licensing model. Key features include:
- a USD 50,000 Base Capital Requirement (“BCR”) with no Expenditure‑Based Capital Minimum (“EBCM”);
- a requirement to maintain Professional Indemnity Insurance (“PII”);
- no mandatory Finance Officer appointment nor internal audit function, with explicit senior executive officer responsibility for prudential compliance in the absence of a Finance Officer;
- clear disclosure to investors that the manager operates under the STFM framework and is not subject to certain requirements applicable to full-scope managers; and
- creation of the STFM category via restrictions or conditions on the Financial Services Permission as opposed to changing the description of Managing a Collective Investment Fund.
The FSRA also sets out its preferred approach to unify the VCFM regime within the STFM framework as a sub‑category, applying the USD 50,000 BCR and preserving venture‑specific dispensations via guidance. Targeted VCFM clarifications are proposed, including applying the commitment limit across all Funds managed (raised to USD 200 million on a committed capital basis) and requiring VCFMs in master/feeder structures to manage the master Fund rather than only a feeder.
Streamlined Framework for Managers of Funds Targeting Institutional Investors
A separate streamlined framework is proposed for Institutional Fund Managers (“IFMs”) – managers overseeing QIFs (or equivalent Foreign Funds) targeting exclusively institutional investors. Eligibility would require a minimum subscription of USD 5 million and prohibits natural persons as Unitholders, thereby narrowing the investor base to sovereign wealth funds and similar institutions. The FSRA seeks views on the appropriateness of this threshold and eligibility criteria. It is possible that this proposal will not be received well as this part of the world is home to many high-net-worth individuals that can meet the minimum subscription requirement but would nonetheless be excluded. An alternative solution would be to allow sophisticated natural persons and family offices to participate given their prevalence and ability to take absorb risk.
IFMs would benefit from dispensations similar to STFM/VCFM on governance (no mandatory Finance Officer nor internal audit) but would be subject to a higher prudential overlay than STFMs to reflect the potential scale and liquidity risk of their Funds. The prudential requirement would be the higher of a USD 50,000 BCR and an EBCM of 6/52 of annual audited expenditure. This represents approximately half the EBCM applicable to full‑scope Fund Managers and IFMs would be exempt from holding PII. The FSRA also invites feedback on extending IFM‑style exemptions. At this stage, these would likely not result in legislative changes and would instead be limited to a narrow subset of investment managers with Managing Assets permissions who act only for affiliated Fund Managers, target exclusively institutional investors, and do not hold client money or assets.
Facilitating Employee Investment in Private Funds via EIVs
Responding to industry requests, the FSRA proposes to facilitate employee participation in Exempt Funds and QIFs through EIVs by:
- expressly excluding them from the definition of a Fund;
- offering an exemption from minimum subscription requirements; and
- carving them out from the client classification rules under COBS,
provided participation is limited to staff with direct involvement in the investment process.
Furthermore, participation criteria would restrict EIV investors to employees or directors of the Fund Manager or of any delegated investment manager/advisor to the underlying Fund who are directly engaged in executing the investment strategy or advising on asset selection at the time of investment. Additionally, the following requirements would be imposed on Managers:
- pre-disclosing the terms of the EIV terms and providing details of the Fund;
- due diligencing each participant’s knowledge and experience; and
- obtaining written risk acknowledgments.
Admission of ineligible participants would cause the vehicle to lose EIV status, triggering Fund treatment and associated subscription and client classification obligations.
Revisions to the Foreign Fund Manager Framework
To strengthen oversight and create a stronger ADGM nexus for Domestic Funds managed by FFMs, the FSRA has proposed a number of additional controls and requirements. For example, the following requirements would be imposed on FFMs:
- limitation to managing closed‑ended QIFs;
- appointing a UAE‑resident director for Investment Companies (or a UAE‑resident director of the general partner for Investment Partnerships);
- appointing an ADGM‑based Fund Administrator and an ADGM‑licensed Corporate Service Provider for service of process and regulatory filings; and
- subjecting themselves to ADGM laws and the jurisdiction of the ADGM Courts for activities relating to the Domestic Fund.
The FSRA further proposes to prohibit FFMs from operating as “host”1A “host fund manager” is an authorised firm that is appointed as the legal fund manager and holds the regulatory permission in ADGM, but delegates the day‑to‑day investment management to another firm (often the sponsor) under a delegation or advisory arrangement. Fund Managers. However, it is worth noting that transitional relief would apply for Domestic Funds launched prior to implementation of certain requirements.
Separately, the FSRA proposes discretion to relieve FFMs of the obligation to appoint an Eligible Custodian where disproportionate or impractical given the nature of the Fund’s assets, aligning with treatment of authorised Fund Managers and existing operational practice. The FSRA notes potential future streamlining of Recognised Jurisdiction and Zone 1 lists in the 2026 consultation, which may impact the FFM framework.
Feedback Sought on Specialist Fund Classes and Private Real Estate Investment Trusts (“REITs”)
The FSRA invites feedback on whether recent specialist frameworks remain fit for purpose, including Private Credit Funds and the scope and attestation model for ADGM Green Funds and ADGM Climate Transition Funds, as well as the private REIT regime. Broader comments on the Funds framework and current ADGM Fund vehicles are also welcomed ahead of further proposals in 2026.
Practical Implications and Next Steps
The proposed STFM and IFM frameworks would introduce a more risk‑based and proportionate regime for smaller managers and those targeting exclusively institutional investors, with simplified governance and streamlined authorisations balanced by tailored prudential requirements. The EIV proposal would codify a workable pathway for employee alignment while maintaining investor protection through participation criteria and manager obligations. In addition, the FFM changes would materially increase the ADGM nexus and accountability for Domestic Funds managed offshore.
Fund Managers, Foreign Fund Managers, authorised persons with Managing Assets permissions, applicants, and professional advisers are advised to review the proposals in detail in order to assess eligibility and operational impacts. In particular, they should review the consequences to capital, governance, disclosure and other structural considerations.
The consultation closes on 30 January 2026. The FSRA invites relevant parties to submit reasoned feedback on threshold calibrations, leverage limits, prudential metrics, institutional investor definitions, EIV participation criteria, and FFM nexus requirements. The regulator will consider responses and proceed to enact final amendments thereafter. Managers should not act on the proposals until the relevant rules are amended as they may be subject to change.
The Investment Funds and Financial Regulations teams at King & Spalding, with experience in the region spanning close to two decades, are actively engaging with the FSRA and will be submitting responses to the consultation paper that reflect client feedback as well as practical experience of fund structuring.
Clients and prospective clients seeking guidance on these regulatory changes or are interested in submitting a response to the FSRA are invited to contact our lawyers for assistance.
Additional contributors: Jasen Pomakov