This episode is also available as a blog post: https://10leaves.ae/publications/difc/credit-funds-in-the-difc

What is a credit fund?

Credit funds are collective investment funds that use fund property (i.e., investors’ money) either to originate, or to purchase, loans, or both. The limited options for borrowing from banks in certain markets have led to the increase in the opportunity for fund managers to provide private credit, through specialize credit funds.

Fund managers have been able to obtain access to reliable deal flow directly from targeted market segments, making use of underlying collateral, as well as gaining access to lending transactions with banks and purchasing loan portfolios from banks and other loan originators.

What does DFSA consider a Credit Fund?

Credit Funds are a specialist class of funds in the DIFC, in which investor’s money can be used for the direct purchase of loans or purchase of loan portfolios. To be a Credit Fund, at least 90% of the Fund Property should be used for either loan origination or loan portfolio acquisition. These funds can be Exempt Funds or Qualified Investor Funds, but not Retail Funds. They can be set up as Investment Companies or Limited Partnerships. The Investment Trust structure is not permissible for Credit Funds in the DIFC. Also, such funds would have to be closed-ended, with a maximum tenure of 10 years, and cannot have leverage of more than 10% of the Fund’s Net Asset Value.