TOKENISED FUND UNITS IN ADGM AND DIFC: STRUCTURING, INVESTOR ACCESS AND SECONDARY TRANSFERS > NEWS

- Soham Jethani and Gazal Gupta

Two years into a five-year property fund, an investor wants their money back. Their holding appears as tokens in a digital wallet, but the buildings remain unsold. Can they sell the tokens, or must the fund pay them?

The business setting up the fund, known as the sponsor, needs an answer before launch. Tokenisation may improve how investments are recorded and transferred, but it does not itself create withdrawal rights or willing buyers. Its value depends on improving the investment process without promising more than the fund can deliver.

To answer the investor’s question, we first need to understand what they own. That determines who can buy the investment, how it is held and what must happen before the investor can receive their money back.

Explain what the investor is buying

Let’s begin with the fund itself. Consider a hypothetical fund that buys rental properties through separate companies and plans to sell the properties after five years. Investors buy units entitling them to fund returns after expenses, under the fund’s terms. The companies own the buildings; investors hold interests in the fund. Where, then, do tokens come in?

Simply put, tokens are a way of recording those units. The investment remains a fund interest. Tokenisation represents the units on a blockchain, a shared electronic ledger. This differs from directly tokenising rights in a property and from a fund investing in cryptoassets, which describes what the fund buys. Our fund still invests through property-owning companies.

With that distinction established, the sponsor can consider where and how to set up the fund. Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) both accommodate tokenised units. Their regulators are the Financial Services Regulatory Authority (FSRA) and Dubai Financial Services Authority (DFSA), respectively. The DFSA treats tokens representing units as Security Tokens. Companies, partnerships and trusts are available fund vehicles, subject to fund-specific restrictions.¹ Within either jurisdiction, the next question is which category of fund can accommodate the investors the sponsor wants to reach.

Smaller tokens do not remove entry conditions

The starting point is investor eligibility, which tokenisation does not change. Both jurisdictions offer Exempt Funds and Qualified Investor Funds (QIFs), which are private, regulated funds for investors who qualify as Professional Clients. Eligibility depends on the investor’s status and the applicable financial and experience criteria; in this case, meeting the minimum investment amount alone is not enough.

An Exempt Fund ordinarily requires an initial investment of at least USD 50,000 per investor; a QIF ordinarily requires USD 500,000 and has fewer detailed requirements. Exempt Funds therefore accommodate smaller eligible commitments, while a private fund meeting the QIF criteria falls into that category. Neither is a route to retail fundraising.² These minimum investment amounts apply to each investor, regardless of how many tokens represent their holding.

Issuing more tokens does not, by itself, allow the sponsor to admit more investors on smaller commitments. Representing one investor’s USD 50,000 holding with 1,000 tokens does not allow 1,000 people to invest USD 50 each. This division into smaller interests, called fractionalisation, leaves the entry conditions in place. A sponsor seeking investments from the general public would need to consider a Public Fund structure.³ Once the sponsor has identified a suitable fund category for its investors, it needs to establish who will manage their money and whether that manager can operate under the proposed structure.

Choose a manager who can deliver the plan

If the sponsor already has an eligible overseas manager, DIFC’s External Fund Manager route may suit an Exempt Fund, subject to supervision, DIFC legal requirements and a locally licensed administrator or trustee. ADGM’s corresponding route permits only closed-ended QIFs, whose investors cannot demand redemption, meaning payment by the fund in return for their units.⁴ The DFSA’s July 2026 proposal to remove its external-manager route does not itself change the existing rules.⁵

A sponsor establishing its own smaller manager could instead consider ADGM’s Sub-Threshold Fund Manager category. It limits aggregate commitments across all managed funds to USD 200 million, excludes retail investors and investor redemptions, and reduces certain staffing requirements. That could fit our five-year property strategy if investors accept that they cannot require the fund to buy back their units. It would not fit a proposition promising that withdrawal right.⁶

The manager is only one part of the operation. A locally authorised manager needs permission covering the proposed fund, while providers marketing units, safeguarding assets or facilitating trading need permissions appropriate to their roles. If investors are approached overseas, the offer must also comply with each target country’s rules. The sponsor should therefore assess its distribution plan alongside its choice of fund and manager.⁷

Connect the digital balance to the investor’s rights

Once the fund and its providers are in place, the subscription process connects an investor’s payment to their holding. In our example, the investor should receive the investment documents and complete eligibility, identity and anti-money laundering checks before acceptance. After payment clears, the administrator, which maintains the fund’s records, should reconcile the money received, units issued and token balance. The documents should explain how tokens correspond to units or fractions and the voting and payment rights attached to them.

Those records remain important throughout the investment. When the property companies generate income and the fund makes a payment to investors, known as a distribution, it needs to identify who is entitled to receive it. Both systems require Exempt Funds to maintain a register identifying investors and their holdings.⁸ The sponsor must establish under the fund vehicle’s law whether the blockchain constitutes that legal register or supports a separate one.

This becomes especially important if the investor sells shortly before a distribution. The documents and records should establish when ownership passes and whether the seller or buyer receives that payment. Linking approved investors to their wallets helps the administrator connect each token balance to the person entitled to exercise the rights.

Safeguard both the assets and access to the units

Knowing who owns the units is one part of protecting the investment. The sponsor must also arrange for the fund’s assets to be safeguarded. Our fund owns shares in property-holding companies, so its custody arrangements must address those shares. DIFC’s conditional exception allowing Exempt Property Fund managers to safeguard real property themselves does not cover them. QIFs have separate exceptions with different conditions in each jurisdiction. The way the fund holds its properties therefore affects its safeguarding arrangements and costs.⁹

Having tokens also raises the possibility of losing access to them. Protecting the fund’s company shares does not automatically protect an investor’s tokens or private keys, the credentials used to authorise token transfers. The investor may control those keys personally or use a provider. Contracts should identify who is responsible for security, theft, lost access and disputed transfers, and explain how recovery will be reconciled with the legal ownership record.

Because investors rely on the platform to access and transfer their holdings, its reliability is also a management concern. DIFC requires an annual independent audit of compliance with applicable technology resources and governance requirements for authorised managers of funds with Security Token units.¹⁰ Using a technology provider does not remove the manager’s audit obligation; the sponsor needs to account for that continuing work when selecting the platform.

Make the exit promise credible

We can now return to the question at the start: can the investor sell their tokens in year two? A secondary sale transfers the holding to another eligible investor, who supplies the purchase money. Required consent and buyer checks still apply, and secondary purchases should not be assumed to avoid entry thresholds.¹¹ Trading platforms need appropriate authorisation. Neither platform trading nor a negotiated sale guarantees a buyer or a price matching the fund’s valuation.¹²

Selling to another investor and being paid out by the fund are different ways of leaving. Redemption requires the fund itself to provide the money. Our example offers no withdrawal on request, although private property funds can permit redemptions under suitable fund and manager arrangements. If withdrawals are offered, notice periods, payment dates and permitted limits or suspensions need to reflect how cash will be available while the properties remain unsold.¹³ For the sponsor, the potential benefit lies in making ownership and permitted transfers easier to manage within these constraints.

Decide whether tokenisation earns its cost

Now comes the question: Is tokenisation worth the additional work? That depends on the problem it is meant to solve. A well-designed system may simplify ownership records, reduce repeated reconciliation between service providers, automate certain transfer checks and give investors clearer access to their holdings and transaction history. It may also make permitted transfers quicker to process. These benefits must be weighed against the costs of technology, key security, legal coordination and, for the DIFC managers described above, the annual audit. Those costs should be assessed against the improvements the sponsor expects to achieve.

A conventional register may suffice where investors expect to hold until the buildings sell. If transfers are central to the proposition, the sponsor needs a workable process for eligible buyers to acquire the investment. Before proceeding, the sponsor should answer five practical questions to establish whether the proposed structure can deliver those benefits for its investors.

Five decisions before launch

1. Who can invest, and how much must they commit?
2. Which fund structure, jurisdiction and manager fit that plan?
3. Who safeguards the investments, tokens and private keys?
4. How do token transfers change the legal ownership record?
5. How can investors exit, and does tokenisation improve that process enough to justify its cost?

About this article

This article is for general information only and does not constitute legal, regulatory, tax, financial or other professional advice. Readers should not act, or refrain from acting, based on this article without seeking advice from suitably qualified counsel on their specific circumstances.

Septten Advisors is a UAE-registered legal consultancy advising founders, investors, technology companies, financial services businesses and virtual asset market participants on legal, regulatory, transactional and strategic matters. The content reflects our general views as at 26 October 2026 and may not reflect later legal, regulatory or market developments. No advisor-client relationship is created by reading this article. To the fullest extent permitted by law, Septten Advisors accept no liability for any reliance placed on it.

References

1. FSRA, Getting Started Guide with FSRA, “Funds”; DFSA, Collective Investment Rules, CIR 12.1 Guidance, paragraph 2, and CIR 13.4.1. FSRA, Guidance on Regulation of Digital Securities Activities in ADGM, VER02.240220, paragraph 14 table and paragraphs 15–18; DFSA, General Module, GEN A2.1.1–A2.1.2 and accompanying Guidance, paragraph 3. FSRA guide; CIR; CIR 13.4.1; FSRA guidance; GEN App 2 [Accessed 21 October 2026]. ↩
2. DIFC, Collective Investment Law 2010, Article 16(4)–(6); FSRA, Fund Rulebook, FUNDS 3.2.1 and 3.3.1–3.3.6, VER13.160926, pp. 6–8; DFSA, CIR 12A.2 Guidance. Professional Client classification: FSRA, Conduct of Business Rulebook, COBS 2.4.1, 2.4.2, 2.4.4 and 2.6.2, VER24.160926; DFSA, Conduct of Business Module, COB 2.3.7. These provisions distinguish fund entry thresholds from client classification. Article 16; FUNDS VER13.160926; CIR 12A.2; COBS classification; COB 2.3.7 [Accessed 21 October 2026]. ↩
3. DIFC, Collective Investment Law 2010, Article 16(4)–(6); FSRA, Fund Rulebook, FUNDS 3.3.3–3.3.6, VER13.160926. Article 16; FUNDS VER13.160926 [Accessed 21 October 2026]. ↩
4. FSRA, FUNDS 7.1.1–7.1.2, VER13.160926; DIFC, Collective Investment Law 2010, Article 20(1) and (5); DFSA, CIR 6.1.2–6.1.3. Additional eligibility and local arrangements apply. FUNDS 7.1; Article 20; CIR 6.1.2; CIR 6.1.3 [Accessed 21 October 2026]. ↩
5. DFSA, CIR 6.1.2–6.1.3 (existing External Fund Manager conditions); The DFSA proposes significant updates to its Collective Investment Fund framework, 7 July 2026, Consultation Paper No. 173 (proposed removal of that regime). CIR 6.1.2; DFSA announcement [Accessed 21 October 2026]. ↩
6. FSRA, Glossary Rulebook, definition of Sub-Threshold Fund Manager, VER29.160926, pp. 82–83; General Rulebook, GEN 5.5(1) and (3), VER15.160926. The recommendation concerns the stated operating model, not an assurance of eligibility or authorisation. The definition also restricts the manager’s other permitted activities to specified co-investment advice and arranging. FSRA, 16 September – FSRA Rules (Funds), paragraphs 1–3, 16 September 2026, made and published the implementing rules. The accompanying announcement provides a transition until 31 March 2027 for the new rules applying to existing Venture Capital Fund Managers and Foreign Fund Managers; it is not a blanket postponement of the reforms. The notice states no separate universal commencement date. GLO definition; GEN 5.5; FSRA notice; FSRA announcement [Accessed 21 October 2026]. ↩
7. FSRA, Digital Securities Guidance, VER02.240220, paragraph 14 and paragraphs 87–92; DFSA, Collective Investment Rules, CIR 6.1.2–6.1.3 and chapters 14–15. DIFC, Collective Investment Law 2010, Article 20(1)(a) (permission for the particular fund type or specialist class). FSRA guidance; CIR 6.1.2; CIR; Article 20 [Accessed 21 October 2026]. ↩
8. FSRA, Fund Rulebook, FUNDS 12.7.1(1)–(5), VER13.160926, printed pp. 50–51; DFSA, Collective Investment Rules, CIR 8.7.1(1)–(5). FUNDS 12.7.1; CIR 8.7.1 [Accessed 21 October 2026]. ↩
9. DFSA, Collective Investment Rules, CIR 13.4.2A and accompanying Guidance (Exempt Property Funds: real property, not Property Related Assets), and CIR 12A.3.1(2)–(4) (QIFs). FSRA, Fund Rulebook, FUNDS 15.3.1(1)–(2) and Guidance, VER13.160926, p. 81. DIFC’s Exempt Property Fund exception requires the manager (or specified platform company) to act as custodian and protect the real property from its creditors on insolvency. CIR 12A.3.1 provides a separate exception for Property QIFs, with insolvency safeguards where the manager holds assets. In ADGM, for a QIF that is not an Investment Trust, exemption from registering legal title with an Eligible Custodian requires compliance to be impracticable and disproportionate given the fund and assets, plus effective protection from the manager’s creditors on insolvency. CIR 13.4.2A; CIR 12A.3.1; FUNDS 15.3.1 [Accessed 21 October 2026]. ↩
10. DFSA, Conduct of Business Module, COB 14.5.1(1)(d)(i) and (2), introduced by RMI311/2021. The independent report must be submitted to the DFSA within four months of the authorised manager’s financial year end. COB 14.5.1 [Accessed 21 October 2026]. ↩
11. DFSA, Collective Investment Rules, CIR 12.1.1(1)–(3) and 12A.1.1(1)–(3); DIFC, Collective Investment Law 2010, Article 16(4)–(6); FSRA, Fund Rulebook, FUNDS 14.1.1(1)–(3) and 15.1.2(1)–(3), VER13.160926. CIR 12.1.1; CIR 12A.1.1; FUNDS 14.1.1 and 15.1.2 [Accessed 21 October 2026]. ↩
12. FSRA, Digital Securities Guidance, VER02.240220, paragraphs 41–50 and 87–89; Fund Rulebook, FUNDS 5.1.2 and Guidance, VER13.160926; DFSA, Conduct of Business Module, COB 14.1–14.2. FSRA guidance; COB 14; FUNDS 5.1.2 [Accessed 21 October 2026]. ↩
13. DFSA, Collective Investment Rules, CIR 8.6A.1 and CIR 13.4.1(1); FSRA, Fund Rulebook, Guidance to FUNDS 13.2.1, paragraph 4, VER13.160926, pp. 60–61 (open-ended Exempt Funds and disclosed redemption procedures). DIFC CIR 13.4.1(1) exempts Exempt Funds and QIFs from the mandatory closed-ended Property Fund structure. ADGM guidance contemplates open-ended Exempt Funds; manager-specific restrictions, including the Sub-Threshold category’s prohibition on investor redemptions, remain relevant. CIR 8.6A.1; CIR 13.4.1; FUNDS 13.2.1 Guidance [Accessed 21 October 2026]. ↩