Fund structuring discussions have a tendency to start with jurisdiction: Saudi Arabia or Cayman; onshore or offshore; ADGM or DIFC; Luxembourg or another European domicile.
That is almost always the wrong starting point.
A fund structure should be designed around two things: the investors from whom capital is being raised, and the investments into which that capital will be deployed. Jurisdiction is a consequence of that analysis, rather than an objective in itself.
From the fund manager’s perspective, this should mean remaining broadly jurisdiction-agnostic. The costs and inefficiencies of a structure (establishment expenses, ongoing operating costs, tax leakage, and regulatory friction) are ultimately borne by investors. The fund manager’s objective should therefore be to identify the structure that provides the most efficient route between the target investor base and the intended portfolio, while delivering the required governance and regulatory framework.
Put differently, the analysis should begin with the capital, not the vehicle.
Good fund structuring is, in the end, an exercise in following the capital, in from investors, out into investments, and letting jurisdiction fall out the other end.
I. Start with the investor base
The first question is who will invest.
Different investor groups bring different requirements. Saudi institutional investors, sovereign investors, family offices, and international institutions may have different regulatory constraints, tax considerations, governance expectations, and internal approval requirements.
Those requirements can materially affect the appropriate fund structure.
Where the investor base is predominantly Saudi, for example, a CMA-regulated fund may provide a familiar regulatory framework and a straightforward route for domestic participation. Where a material portion of the investor base requires an offshore vehicle, Cayman or another offshore jurisdiction may provide a more suitable access point.
The answer does not, however, necessarily need to be binary. If the requirement for an offshore vehicle relates only to a subset of investors, it may be more efficient to accommodate those investors through a feeder or parallel vehicle rather than structuring the entire fund around that requirement.
The key is to distinguish between requirements that are fundamental to the capital raise and those that can be addressed through a more targeted solution.
II. Then consider where the fund will invest
The second part of the analysis is the investment side of the structure.
Where the underlying portfolio business operates is the wrong question. The right one is where, and through what entity, the fund actually makes its investment.
This distinction is particularly important in Saudi-focused venture capital and growth transactions. A business may conduct substantially all of its operations in Saudi Arabia while its ultimate holding company is incorporated in Cayman, BVI or ADGM. The fund may therefore obtain its economic exposure through an offshore entity notwithstanding that the underlying business is Saudi.Conversely, we are seeing greater use of onshore holding vehicles where there is a commercial or tax rationale for holding Saudi operations onshore.
The structuring analysis must therefore follow the actual investment chain.
An onshore fund should not be selected merely because the investment strategy is described as “Saudi-focused”. Equally, the existence of offshore holding companies within the target portfolio does not of itself establish the case for an offshore fund. What matters is how the fund is expected to acquire, hold, and realise its investments across the portfolio as a whole.
III. Jurisdiction comes next
Once the investor base and investment strategy have been mapped, the jurisdictional analysis is largely mechanical.
The relevant considerations typically include:
(i) investor accessibility and regulatory treatment;
(ii) tax, withholding and capital gains implications, and foreign investment restrictions;
(iii) governance and enforcement;
(iv) establishment and operating costs and service-provider requirements; and
(v) execution timetable.
No single factor should be considered in isolation.
A structure that achieves a marginal tax advantage but materially increases establishment and operating costs may not be efficient. A jurisdiction offering extensive contractual flexibility may add little if the investor base neither requires nor values that flexibility. Conversely, a more expensive or complex structure may be entirely justified where it unlocks a material pool of capital or is necessary to execute the investment strategy efficiently.
The appropriate analysis is therefore comparative rather than jurisdictional: what does each proposed structure solve, what friction does it introduce, and who bears the resulting cost?
IV. Governance should be assessed on substance
The relative maturity of different legal regimes is also relevant, but should not become a proxy for the structuring decision.
Cayman fund structures benefit from well-developed market practice and jurisprudence around GP powers, indemnification, exculpation, investor defaults, excuse and exclusion rights, conflicts, and other private funds concepts. For certain investor bases, that familiarity is itself valuable.
However, the commercial mechanics of an institutional fund are not necessarily dependent on an offshore domicile.
A properly drafted CMA-regulated closed-ended fund terms and conditions can incorporate many of the mechanics familiar from international private funds, including investor default remedies, excuse and exclusion provisions, key-person protections, advisory committee governance, and sophisticated distribution arrangements.
The relevant question is therefore whether a particular jurisdiction provides substantive advantages required by the fund, rather than whether its documentation is more familiar to the market.
V. Use additional vehicles sparingly – and let jurisdiction follow the analysis
Feeders, parallel funds, alternative investment vehicles, and deal-specific SPVs exist precisely because investor and investment requirements do not always line up – a Saudi vehicle as the principal fund with an offshore parallel or feeder for the investors who need it is a common and sensible pattern. Each additional vehicle needs a reason to exist, since every entity adds its own constitutional documents, service providers, accounts, and reporting and governance obligations that sit within the fund’s economics.
Complexity should solve an identified problem, not simply preserve optionality.
The same discipline applies to reusing a prior fund’s structure: familiarity has real execution benefits, but the analysis should be run fresh for each fund, asking who the investors are, where the fund will actually invest, and which structure answers both questions with the least unnecessary friction.
The answer may be a Saudi fund. It may be a Cayman partnership. It may be another jurisdiction entirely. It may also be a combination of vehicles.
From the manager’s perspective, the jurisdiction itself should be secondary. What matters is whether the structure facilitates capital formation and execution of the investment strategy efficiently.
Once that analysis has been done properly, jurisdiction tends to become the answer rather than the question.
This article is for general information only and does not constitute legal advice. It does not describe, and should not be read as referring to, any specific client, transaction, or matter.
