According to the Gulf News, the fund management industry in the Gulf is expanding like never before. The reasons are: rising wealth from the states, fast growing economies, regulatory reforms, and increasing investor appetite for the region.
In the past 18 months, significant levels of foreign investment have flowed into the GCC stock exchanges, as international investors look for insulation from global economic turbulence. The MSCI GCC composite index has risen by 40.5 percent since the start of 2007, outperforming the MSCI World index by 38.0 percent and the Emerging Markets Composite by 8.7 per cent. Over the same period there has been a rush of fund managers going into the region to chase a slice of the lucrative market, which comprises of Saudi Arabia, Kuwait, Qatar, Bahrain, Oman, and the UAE.
Total managed assets of foreign and domestic investment managers were more than USD $1.6 trillion in 2007. More than 90 percent of foreign fund managers' businesses are institutional, focusing largely on sovereign wealth funds and, to a lesser extent, on family offices.
The region's small market, but growing mutual fund market was estimated to be worth $100 billion at the end of last year, and is expected to grow by 15 percent over next five years. Certainly, the asset management industry is young, but it is growing rapidly.
Access for foreign investors to the region's equity markets is difficult and exposure to a specific company or sector can be limited, while in Saudi Arabia the equity market is closed to international investors.
Rasmala, which has $1.3 billion assets under management, is launching a fund of funds that it plans to list on AIM this month. It is the first fund of funds focusing on the Gulf to list on the London Stock Exchange, and aims to raise capital of $200 million.
The GCC Equity Opportunity Fund, which will invest in GCC equity markets through locally-managed funds, will give foreign investors exposure to equities in the region. It is aimed at endowments, pension funds, and family offices.
A new trend has emergerd amongst the local investors - local investors who have benefited from the oil wealth are now looking to invest in their own region rather than in abroad markets.
The six nations of the GCC earned $381 billion from their exports of oil in 2007, according to the Institute of International Finance. Since the terrorist attacks on the US in 2001, Middle Eastern investors have been repatriating their assets and reinvesting in the region, particularly in infrastructure.
The fund, which has raised $83 million since the end of March, is aimed at retail and institutional investors, and is invested in locally incorporated funds, mainly in equities with some cash.
Although the region is often perceived as a single jurisdiction by overseas investors, the level of regulation varies between the six states. The credibility of local fund managers has been enhanced by the establishment of local regulatory frameworks in Dubai and Qatar, and by the continued development of existing regulation in Bahrain, while the development of financial centres in the other GCC countries has been accelerating for the past four years.
For transparency, there is a well developed culture for asset management in Kuwait, and Dubai and Bahrain are just following. There are problems in Saudi where it is difficult to find good institutional fund managers.
One of the world's biggest money managers, Franklin Resources, which operates as Franklin Templeton Investments, has also been eyeing the region. Last September it took a 25 percent stake in Algebra Capital, a Dubai-based asset manager, to gain greater access to managing money in the region.
The strong interest in the region shown by foreign investors is likely to be sustained as long as the oil price does not take a huge dive, and as long as valuations do not rise too far above those of the other emerging markets.
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