Can Abu Dhabi's financial free zone attract the world's top asset managers to set up offices? George Mitton
interviews Steve Barnett, director of strategy and business planning.
Steve Barnett has the air of a man who recently gained the keys to a new house and is still trying to decide where everything should go.
This is understandable. The anvil-shaped headquarters of the Abu Dhabi Global Market (ADGM), the new financial free zone for the UAE capital, were built for a different tenant, the Abu Dhabi Securities Exchange. The exchange was expected to move its operations here in 2012 but never did, blaming “technical issues”.
Instead, Barnett, who is strategy and business planning director, has free run of the building, including what would have been its trading floor, a vast, circular, white room with a panel for stock prices running around the wall and black chairs where trading desks should go. Stand in the very centre of the room, and you hear your voice echo around the walls.
“As you can see, it’s a great space,” says Barnett. “There are lots of things we could do here.”
The builders even installed a state-of-the-art TV studio, which we peer at through darkened glass. Two video cameras are inside, presumably never used.
As Barnett is keen to remind me, ADGM is at the start of its journey. The idea is to create a financial free zone in Abu Dhabi that is governed by its own laws with its own court, where 100% foreign-owned companies can operate. The zone aims to attract banks, accountants, law firms and, of course, asset managers.
In essence it is the same project the Dubai International Financial Centre (DIFC) undertook. In the mid-2000s, the DIFC pioneered the ‘free zone’ concept. The law that made it possible, Federal Law No.8 of 2004, also underpins the ADGM.
ADGM itself was created by federal decree in February 2013. Last October, it appointed Richard Teng, former chief regulatory officer of the Singapore Exchange, as chief executive of its regulator. On January 7 this year, it published its first set of draft legislation for open market consultation.
Though Barnett says he follows Abu Dhabi’s tendency “not to shout about things until they’re real”, the time is coming when ADGM will promote itself in a big way. It has a desirable location, too. Its headquarters, the Financial Building (having occupied part of it, ADGM took out a lease for the entire building this June), sits amid some of Abu Dhabi’s newest and flashiest real estate.
Now called Abu Dhabi General Market Square – many people, taxi drivers included, still know it as Sowwah Square – the complex is the crowning piece of Al Maryah Island in the north east of the city.
Not far away are Reem, Saadiyat and Yas Islands, where the emirate is building everything from residential developments to museums such as the Louvre.
Barnett promises a Macy’s, a Bloomingdales and a Four Seasons are coming soon. Though few people are around during my visit, the design, vision and scale are certainly impressive.
The big question is whether ADGM can convince financial companies to set up operations in its new development. Barnett makes the point that “Abu Dhabi is an originator of wealth”, adding that “financial firms want to be close to where wealth is generated”.
This wealth is held by the likes of the Abu Dhabi Investment Authority (ADIA), one of the world’s largest sovereign wealth funds, whose headquarters is in a tower on Abu Dhabi corniche. Abu Dhabi is also home to numerous family offices and wealthy individuals.
Barnett argues asset managers will be attracted to ADGM, which has a regulatory and legal framework they are familiar with, not to mention world-class office space. From here, he says, these firms are only a short drive from their clients.
Abu Dhabi is also a convenient location for regional headquarters, he says, being roughly halfway between the time zones of Europe and Asia. “We’re looking to be the booking centre that fills the gap between Geneva and Singapore.”
All that sounds logical, though there are some reasons to be sceptical. ADGM’s proximity to Abu Dhabi’s financial institutions is a benefit, but then, the DIFC is hardly far away either – approximately a 90-minute drive. And the DIFC is far more established than ADGM. The DIFC had 1,225 active licensed companies at the end of 2014, including branches of 21 of the world’s top 25 banks. Some have questioned whether financial firms with operations in the DIFC would want or need a second UAE office.
Barnett answers that he does not plan to be in competition with the DIFC and holds that the centres can be complementary. “We are providing an opportunity for people to do business in the best way possible. For some, they’ll operate out of both centres. For some, neither.”
Then there is the question of cost. Some local media have published alarming claims suggesting rents in the ADGM will be multiples higher than what offices cost onshore in Abu Dhabi. (Tenants in the DIFC also occasionally grumble about comparatively high rents compared to prices onshore.)
Barnett says the media “scare stories” were exaggerated, though doesn’t deny that ADGM will be expensive, adding that companies will pay “a commercial price” for what he considers to be the best office space in the UAE.
The cost, he says, will be worth it for the advantages ADGM will provide, such as no restrictions on ownership or employment, and zero tax on personal and corporate earnings.
Barnett says a number of global asset management firms have expressed interest in the centre. ADGM recently attended the FundForum International conference in Monaco and held one-on-one meetings to explain its advantages to companies including Aberdeen Asset Management.
ADGM has also been at work forming ties with the UAE’s onshore regulators, by signing agreements with the UAE central bank and the UAE’s onshore regulator, the Securities and Commodities Authority.
In June, ADGM began accepting its first applications for licences, beginning with non-financial firms. Financial firms are scheduled to begin applications later this year.
It is clearly an exciting time to be working for the centre. Barnett has seen the scheme develop from the start. A former consultant with Deloitte who was advising on the project, he became ADGM’s first employee when he joined in 2013. Now he has 70 people working with him.
The tasks and challenges involved with building a financial centre from scratch have clearly energised him.
“In this job I’ve done things I never expected to do,” he says. “I never expected I would be involved with writing legislation, or interviewing for the role of chief justice, or have my boss ask, ‘Are you here on Tuesday? I want you to do a presentation for the king of Spain.’
“To be at the heart of a development like this is something you’ll only do once in your career.”
©2015 funds global mena