The FSRA proposed two new fund manager categories in late 2025: Sub-Threshold for managers under $200M, and Institutional for those targeting $5M+ tickets. Here is what changes and why it matters.
In November 2025, the FSRA published Consultation Paper No. 12 of 2025, and it is the most important regulatory development for emerging fund managers in ADGM since the jurisdiction opened. The paper proposes two entirely new fund manager categories: the Sub-Threshold Fund Manager for smaller managers with up to $200 million in committed capital, and the Institutional Fund Manager for firms exclusively serving large institutional investors [1][2]. If these proposals are finalised as drafted, the cost and complexity of launching a fund in ADGM drops considerably.
The consultation closed on January 30, 2026, and implementation is expected during 2026 [1][2]. I have been tracking the consultation process closely and advising managers on how to position for the new rules. Here is what the proposals actually say, who they help, and where the remaining uncertainties lie.
The Sub-Threshold Fund Manager framework
The STFM designation targets managers with maximum committed capital of $200 million across all closed-ended funds [1][2][3]. For a first-time VC or PE manager, that ceiling is rarely a constraint, since almost all debut funds fall well below that figure.
Here is what STFM managers would get:
- Capital requirements cut to the floor. The Expenditure-Based Capital Requirement is eliminated entirely. STFM managers need only the $50,000 fixed base capital, with no need to lock up thirteen weeks of operating costs [1][2]. For a manager with $400,000 in annual expenses, that saves $50,000 in regulatory capital.
- Governance simplification. The mandatory Finance Officer role is removed. The internal audit function requirement is also dropped [1][2][3]. These are positions that full Category 3C managers must fill, adding to headcount costs or requiring expensive outsourced appointments. Under STFM, you still need a compliance officer, MLRO, and senior executive officer, but two fewer mandatory seats is a real cost reduction for a small team.
- Professional indemnity insurance. The consultation does not explicitly remove PI insurance requirements for STFM managers, but the overall regulatory burden is set to be much lighter than full-scope Category 3C.
- Expedited authorisation. The FSRA has signalled faster processing for STFM applications, recognising that smaller, simpler businesses should not wait as long as complex global managers [4].
The Institutional Fund Manager framework
The IFM designation is designed for managers exclusively targeting large institutional investors with minimum $5 million subscriptions per investor, with no natural persons permitted as investors [1][2]. The appeal is different from STFM: it is about investor sophistication, not fund size.
What IFMs would get:
- Reduced capital requirements. The EBCR calculation changes from 13/52 to 6/52 of annual audited expenses [1][2]. That is roughly six weeks of operating costs instead of thirteen, less than half the current requirement.
- PI insurance exemption. IFMs would be exempt from professional indemnity insurance requirements [1][2]. For some managers, PI insurance premiums are a real annual cost, so this matters.
- Simplified compliance. Similar governance simplifications apply, the rationale being that a fund whose investors are exclusively pension funds, endowments, and sovereign wealth entities does not need the same protective regulatory framework as one accepting $50,000 cheques from assessed professional clients.
The catch is the $5 million minimum subscription. That is a high bar. For a $30 million first fund, it means at most six LPs at the minimum, and realistically you want commitments well above the minimum. IFM only makes sense if your fundraising strategy is built around a small number of large institutional relationships.
International precedent: the AIFMD influence
The FSRA explicitly drew on the EU Alternative Investment Fund Managers Directive when setting these thresholds [1][2]. AIFMD uses EUR 100 million (leveraged) and EUR 500 million (unleveraged with five-year lockups) as its boundaries for sub-threshold registration. The $200 million STFM threshold falls between these benchmarks, which puts ADGM in line with European standards while keeping its own character.
The consultation paper also sought feedback on whether to impose leverage caps (potentially 100% of NAV) for STFM-managed funds [2]. This would mirror the AIFMD approach of applying lighter rules only to managers who do not use much leverage, which aligns naturally with most VC and PE fund strategies where fund-level borrowing is minimal.
What happens to the existing VCFM regime
ADGM currently offers a Venture Capital Fund Manager licence with zero base capital requirements [5]. The consultation proposes absorbing VCFM into the STFM category [1][6]. Existing VCFMs would transition to STFM with a $50,000 base capital requirement.
This is a real change for managers who chose ADGM specifically for the zero-capital VCFM pathway. $50,000 is still modest by global standards (the EU requires EUR 50,000 for sub-threshold AIFMs), but it represents a new cost that existing VCFMs need to budget for. The transition timing will be important, and I expect the FSRA to provide a reasonable adjustment period.
On the positive side, STFM absorbs certain VC-specific flexibilities that currently exist under VCFM [6]. The intent is to simplify the regulatory architecture (fewer categories, clearer rules) rather than to make things harder for venture managers.
Foreign Fund Manager reforms running in parallel
The same consultation paper proposes strengthening the Foreign Fund Manager framework [1][2][7]. Managers based outside the UAE who manage ADGM-domiciled funds would face new requirements:
- Mandatory ADGM-based fund administrator: physically present in the jurisdiction, not just FSRA-licensed.
- Mandatory ADGM-licensed corporate service provider.
- UAE-resident directors on fund entities.
These requirements apply to all FFMs, regardless of whether they qualify as STFM or IFM. The policy message is clear: if your fund is domiciled in ADGM, the FSRA expects genuine local presence, regardless of where the manager is headquartered. There is no grandfathering for these service provider mandates, and existing funds would need to comply [1].
Quantifying the savings
For a typical first-time VC manager with $300,000–500,000 in annual operating expenses, the combined effect of the STFM proposals translates to:
- $25,000–75,000 in reduced regulatory capital, the difference between the EBCR and the $50,000 fixed minimum.
- $30,000–60,000 per year in governance cost savings, removing the Finance Officer and internal audit function requirements.
- Faster time to market: expedited FSRA processing means you could be operational weeks or months earlier, which matters for fundraising momentum.
Over a ten-year fund life, these savings compound. A manager who launches under STFM instead of full Category 3C could save $300,000–600,000 in total costs. That is real money for an emerging GP.
Remaining uncertainties
The consultation is not a done deal. Several questions remain open:
The $200 million threshold. The FSRA asked for feedback on whether this is the right number. Industry participants have suggested both higher and lower figures. The final threshold could shift.
Leverage caps. Whether STFM funds face a leverage ceiling, and at what level, remains to be finalised [2]. For most VC managers, this is academic (venture funds rarely use much leverage), but for PE managers running LBO strategies, it could matter.
Transition mechanics. How existing VCFMs migrate to STFM, including the timeline for meeting the $50,000 base capital requirement, is not yet specified in detail.
Implementation timing. The FSRA has said 2026, but has not committed to a specific date. Managers planning to launch in Q2 or Q3 2026 need to decide whether to apply under current rules or wait for the new framework.
My advice: start preparing now
If you are planning an ADGM fund launch in 2026, do not wait for the final rules to start your preparation. The regulatory business plan, team recruitment, service provider selection, and fund documentation work is the same regardless of whether you end up under STFM or full Category 3C. Start now, and pivot to the lighter framework when the rules are finalised.
How Infra One supports managers through the ADGM licensing process
We help emerging managers with the operational setup that the FSRA evaluates during the licensing process: fund administration infrastructure, investor onboarding systems, regulatory reporting, and the operational documentation that demonstrates substance and readiness. Our fund administration platform is built for managers at this stage: lean, first or second fund, focused on getting operational without unnecessary overhead.
We are tracking the Consultation Paper No. 12 process closely and advising our clients on positioning for the new rules. If you want to discuss how the proposed reforms affect your ADGM launch plans, get in touch.
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