By Aditya Gupta – Global Client Partner, ONS Finserv
The Dubai Financial Services Authority’s (DFSA) latest consultation on the Dubai International Financial Centre (DIFC) Collective Investment Funds framework is far more than a routine technical review. It signals a fundamental shift in regional fund regulation: a move away from rigid product labels and towards a practical, substance-based assessment of what a fund actually does, the risks it creates, and how those risks are managed. This regulatory evolution reflects a maturing ecosystem that prioritises operational reality over administrative compliance.
For years, private funds have been structured within tightly defined classifications, such as private equity, credit, venture capital, or money market funds. While these categories provide initial structural certainty, they can become highly restrictive when managers operate modern hybrid strategies. A contemporary fund may combine elements of private equity, structured credit, and co-investments within a single mandate, yet under legacy frameworks, it is still expected to fit neatly within a single regulatory box. Therefore, the DFSA’s proposal to remove certain specialist classifications for Exempt Funds and Qualified Investor Funds represents a commercially significant milestone. It will allow managers to design complex strategies around genuine commercial objectives rather than artificial regulatory labels.
Increased flexibility, elevated responsibility
However, this proposed direction is not deregulation. In practice, it will require managers to explain their fund strategies in much greater detail. Instead of relying on a predefined label such as “Credit Fund” or “Private Equity Fund”, managers must demonstrate how they deal with the real, day-to-day risks of their specific strategy—including leverage, liquidity, valuation, borrowing, counterparty exposure, and conflicts of interest.
This shift represents the most critical part of the entire regulatory review. Ultimately, a flexible regulatory regime only succeeds when the internal governance surrounding the fund is equally robust. The investment strategy itself may be broad, but the corresponding valuation policy, risk management framework, accounting treatment, and investor disclosures must remain absolutely clear, transparent, and consistent.
The proposed changes to the Credit Fund regime illustrate this delicate balance. Removing the requirement for 90 per cent of a fund’s property to be used specifically for lending makes the launch of hybrid credit strategies far more feasible. Concurrently, reducing the capital and fee burden will enhance the competitive edge of the DIFC for private credit managers. Additionally, the proposal to allow a first reporting period of up to 18 months represents a highly pragmatic adjustment. Many funds are formally registered months before they receive their first subscription. Requiring an audit after only a short period of real activity often adds unnecessary administrative costs without delivering genuine value to stakeholders.
The fund administration perspective
From an operational perspective, the correlation is clear: the more flexible fund structures become, the more critical the underlying operating model becomes. Modern fund administration has evolved far beyond basic net asset value (NAV) calculations, registries, and subscriptions. The administrator acts as the vital operational backbone connecting the manager, directors, external auditors, banking partners, custodians, regulators, and investors.
A hybrid private credit and equity fund, for example, demands diverse valuation methodologies, complex income recognition approaches, and highly detailed reporting across multiple asset classes. While legal documents may permit a complex strategy, the books, internal controls, and reporting systems must remain flawless. Furthermore, the proposed removal of the External Fund Manager regime will be closely watched. Requiring overseas managers to establish a fully regulated DIFC presence to manage Domestic Funds increases the commitment required, but it ultimately strengthens the market by bringing genuine substance, oversight, and local decision-making into the Centre.
A positive direction for the DIFC
At ONS FinServ, this consultation is viewed as an invaluable opportunity for managers and service providers to look beyond initial licensing and think more seriously about how funds are actually supported after launch. The next phase of growth in the DIFC fund market will depend on more than attractive structuring. Success will be determined by clean onboarding, reliable records, credible valuations, timely reporting, and seamless coordination between all parties.
Ultimately, the DFSA is steering the Centre in the right direction. While the regime is set to become more flexible, the expectations surrounding governance and accountability are becoming higher. That balance matters. The strongest fund jurisdictions are not those with the fewest rules, but those that allow innovation while giving investors complete confidence that the underlying structures are impeccably run.
