Manuel Pellegrini has revealed Financial Fair Play (FFP) did not allow Manchester City to sign Angel Di Maria earlier in the summer.
The Argentine international was told his services were no longer required at Real Madrid, despite his Man of the Match winning performance in the Champions League final against Atletico Madrid.
City's local rivals Manchester United signed Di Maria for a British record transfer fee of £59.7m in August. The Chilean manager says FFP restricted the Citizens from spending heavily in the summer transfer window.
"I think it is very easy. We have an important restriction about the budget this year. We cannot spend the money that United paid for Di Maria," Pellegrini explained.
"We have an important restriction on the amount of players we can have this year and also the amount the amount of money we can spend."
The former Real star will line up for United when Louis van Gaal's side take on the Premier League champions in the Manchester derby at the Etihad on Sunday. Di Maria has already scored three goals and registered four assists in seven league matches.
Pellegrini is aware of the threat the 27-year-old will pose for City. However, the Etihad club's manager believes United have several quality players who can trouble the English champions on Sunday.
"I think he is a very good player but not the only good player Manchester United has. But he is a very good player," the City manager added.
Di Maria joins Marcos Rojo as the two Argentine players at Old Trafford. Meanwhile, City have Sergio Aguero and Pablo Zabaleta and the four are teammates with the national side.
United's record summer signing says there will be no friendship when the 20-times English champions face City at the Etihad in the derby clash.
"We've got good friendships over the years and no matter what the colour of your shirt, you still see each other socially," Di Maria said.
"But once you're on the field, you forget all that. Everyone is fighting for the shirt. When we see each other in the tunnel before games, I think it's right to say 'Hi' and greet each other – whether it's an ex-team-mate or a good friend.
"That's normal, as long as you remember that you fight for the club and the shirt once the 90 minutes start," the former Benfica man concluded.