The Opportunity For CLOs In The Middle East

9fin recently interviewed Amanjit Fagura and Colin Sharpsmith, partners in Dechert's financial services group, to discuss the rise of alternative managers in the Middle East and the legal complexities of attracting regional investors to CLOs. The Middle East is becoming an increasingly important hub for the CLO market, with reports of a major CLO manager planning to open an office in Abu Dhabi and events like the DealCatalyst conference on 9 October bringing diverse market participants to Dubai.

This article was originally published in 9fin on 16 October 2025.

Click here, to read the full article on where the opportunity lies for CLOs in the Middle East.

9Questions — The opportunity for CLOs in the Middle East (9fin)

1. Are there any legal or regulatory barriers for Middle Eastern investors looking to invest in CLOs?

Sharpsmith: There are two types of regulatory barriers to consider when approaching Middle Eastern investors regarding CLOs, which are also applicable generally in the region and not just to CLOs:

• Cross border marketing restrictions; whether a local promoter is required in the particular jurisdiction or if the CLO can be offered on a cross-border basis in reliance on exemptions; and
• The investor's own regulatory requirements – particularly if they are subject to Shariah rules, or if they are subject to particular regulatory capital requirements – this will be the case with banks and insurance companies

2. Do CLO investments need to comply with Shariah law, and how is that typically structured?

Fagura: In short, no, unless the target is a Middle Eastern investor that is required to invest in a Shariah compliant manner. Further, a typical CLO will generally not be Shariah compliant, as it will pertain to interest bearing instruments/loans which are prohibited under Shariah principles as riba. Islamic investors may access economic exposure to CLOs via Shariah wrappers or, more recently, structured solutions that are more in line with Shariah principles (e.g. commodity murabaha/tawarruq feeders, wakala/mudaraba structures) subject to Shariah board approval. These solutions are bespoke, typically structured in offshore jurisdictions and can be complex.

3. Are Shariah-compliant wrappers or special purpose vehicles commonly used to access CLOs?

Fagura: For those investors that are required to invest in a Shariah compliant manner and are not considered 'Shariah-light', the only method by which to access CLOs is through a structured solution which will be developed depending on the Shariah requirements of the relevant investor; no one size fits all, although some commonality does exist.

4. How do Middle Eastern investors typically approach structured credit products like CLOs?

Sharpsmith: The extent of due diligence and requirements of the investor can vary considerably depending on their internal process – however, if a Middle Eastern investor expresses interest in credit (which is increasingly popular) they are usually amenable to some sort of structuring solution. An additional layer of complexity arises where we are also considering Shariah matters.

5. What legal or regulatory support do US or European CLO managers need to consider when marketing to investors in the UAE or Saudi Arabia?

Sharpsmith: In the first instance, care needs to be taken as to how to manage the marketing to provide requisite level of regulatory coverage and to ensure that no laws governing promotions in those countries are breached.

Particular care needs to be taken if a manager is considering proceeding without engaging a local promoter (e.g. in response to reverse enquiries only or targeting certain government and government owned investors).

Even when a local promoter is engaged it is important to ensure that the promoter has the relevant permissions in the relevant jurisdiction(s) where promotion is to take place, and for the manager's own sales team to understand the dos and don'ts to be followed in order to avoid tripping-up over local restrictions.

6. Why are so many international asset managers and credit funds opening offices in Dubai and the wider GCC right now?

Sharpsmith: Proximity to significant asset allocators, including the sovereign wealth funds, institutions and large family offices both within the UAE and the wider GCC and Dubai's connectivity within the region are the primary drivers for establishment.

Closely associated with that is the relatively large talent pool and availability of service providers in Dubai compared to some other regional locations (although we are seeing growth throughout the region) as well as the clear, navigable and business-friendly regulatory environment (particularly in the financial free zones) and low tax burden.

Another factor has been driven by managers looking to manage (rather than merely market) strategies from the DIFC or ADGM, which can be attractive both from a personal as well as corporate tax perspective, with increasing numbers of portfolio managers and decision makers now based in or relocating to the UAE. Lifestyle, educational and safety considerations make the region an increasingly popular destination for leading talent.

7. What role do DIFC and ADGM regulations play in facilitating access to CLOs for regional investors? Are there restrictions on the types of CLO tranches investors in the region can buy?

Sharpsmith: The DIFC and ADGM are valuable and popular regional hubs, from which many international managers are able to operate on a cross-border basis. There are also an increasing number of family office investors within the DIFC and ADGM, who can generally be marketed to on the basis of exemptions within the relevant financial promotions regimes

The regulatory regimes within the DIFC and ADGM and relative speed to market make them popular destinations from which to conduct business in the region, however care still needs to be taken by such managers when operating on a cross-border basis with clients outside the DIFC and ADGM.

8. What legal structures are typically used when international managers set up offices in the UAE to target regional capital?

Sharpsmith: Within the ADGM and DIFC (which is where we see most international managers establish offices within the UAE) there are a range of legal structures available, including partnerships and limited liability partnerships. However, the most popular structure is either to establish a branch of an existing entity within the manager's own group, or to set up a subsidiary as a private company limited by shares (there was previously a concept of "limited liability company" or "LLC" in the DIFC, however this was removed by a change in the law in 2018, at which point all existing LLCs were converted into private companies).

Outside the ADGM and DIFC there are a number of structures available in other free zones (popular destinations for financial services businesses outside the ADGM and DIFC include Meydan Free Zone, Dubai Multi Commodities Centre (DMCC) and Dubai Commercity). These are typically established as limited companies designated either Free Zone Enterprise ("FZE") which is a subsidiary with one shareholder – typically an offshore parent) of Free Zone Company ("FZCO") which can have multiple shareholders. These businesses are licensed by the UAE Securities and Commodities Authority ("SCA") rather than the ADGM or DIFC regulators (the FSRA and DFSA respectively).

An SCA licence provides these businesses with more flexibility to engage with a broader range of investors in the UAE, including retail investors, but is generally more onerous and time-consuming to obtain than authorisation in the ADGM or DIFC.

9. Have you seen any recent regulatory developments that impact how structured credit products are offered in the UAE or wider GCC?

Sharpsmith: There has been regulatory reform and increasing focus on the offer of structured products by licensed financial institutions ("LFIs") in the UAE over the last few years, primarily focused on products targeting retail investors – local banks are required to obtain a "no objection certificate" from the Central Bank of the UAE before launching structured products.

Furthermore, LFIs offering Shariah compliant structured products need to disclosure the approval of their Internal Shariah Supervision Committee ("ISSC") for the products to investors. Overseas managers looking to utilise the services of a local promoter to offer products being promoted as Shariah compliant should take care to ensure that the local promoter has the appropriate Islamic finance endorsement on their licence.

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