middle east fund survey 2011
TRANSCRIPT
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Middle East Fund Survey 2011
WHITEPAPER
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TABLE OF CONTENTS
[03] Foreword
[03] 1. Facts
[05] 2. Top Issues
[07] 3. Business Development3.1 Long-term trends to guarantee success
[10] 4. Industry Challenges4.1 Effects of political unrest
[14] 5. Industry Opportunities5.1 Opportunities in each GCC country
5.2 Outsourcing opportunities
[20] 6. Current Allocation and 2011 Outlook
[22] ConclusionAbout MEED Insight
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ForewordResults from this survey of GCC and Levant investors, fund companies
and distributors reveal that the fund industry remains cautiously opti-
mistic in spite of the rising uncertainties surrounding the region today.
However, the ongoing geo-political unrest sweeping the region, if it
is not reined in, provides a very strong undercurrent which could
undermine such optimism. This is further complicated by the shortage
of experienced finance professionals and the lack of historical and
research data to guide industry players in formulating the right strate-
gies. Most importantly, the overall negative market sentiment among
investors, which easily outweighs the regions high liquidity arising from
increasing oil and gold prices, remains a hindrance that must be over-
come by the industry.
Such cautious optimism, however, is not entirely unfounded. Opportu-
nities include a largely untapped insurance market and the expected
rise in popularity of Islamic insurance funds (Takaful), the expected
boom in real estate and construction projects in Qatar, Saudi Arabia
and Abu Dhabi, the renewed interest in commodities, and the adop-
tion of more cohesive regulations governing the industry, among
others. Most of the respondents (52 per cent) project better business
performance in 2011 compared with 2010, and over 60 per cent plan
to hire new staff during the year. Furthermore, 87 per cent of fund
companies indicated that their companies will obtain net inflows in
2011. Over 30 per cent of respondents likewise indicated plans toincrease allocations in all asset types particularly equities, real estate
and cash.
In general, the findings of this survey point to a more commercially
active 2011 for the regions fund industry players, with a good proba-
bility that overall growth will be achieved if they undertake greater
diversification in terms of their investment portfolio and market and
products coverage. This will potentially lead to a recovery in market
confidence over the coming years, barring any worsening or significant
spilling over of the political unrest into key markets such as Saudi
Arabia and the UAE.
1. FactsA total of 111 investors, 25 fund companies and 34 distributors partici-
pated in Advent and MEED Insights 2011 Fund Survey. Of the respon-
dents which disclosed their location, about 45 per cent are located in
the UAE, 19 per cent in Saudi Arabia, and 7 per cent in Bahrain. The
rest are from Egypt, Lebanon and other non-Mena countries. The
majority of respondents have at least 50 employees, with some having
several thousand.
advent.com 03
This communication is provided byAdvent Software, Inc. for informationalpurposes only and should not be con-strued as, and does not constitute,legal advice on any matter whatsoever
discussed herein.
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Number of employees Share (%)
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Source: MEED Insight survey, based on responses from 11 fund companies
The majority of the respondent fund companies that disclosed the mar-
kets where they sell their funds cited the Mena (Middle East and North
Africa) region, primarily Saudi Arabia and the UAE. The rest indicated
selling their funds to non-Mena geographies as well.
More than a quarter of respondent investors said they manage all their
funds internally, compared with over 70 per cent, which have between
15 and 99 per cent of their funds administered by external managers.
Percentage of funds managed internally Respondents (%)
< 20 per cent 1420 to 50 1851 to 99 41100 27
Source: MEED Insight survey, based on responses from 22 investors
2. Top IssuesThe survey results indicate that capital inflow from both local and for-
eign sources, along with the political tensions and the burden of allo-
cating more resources to risk management, are among the major issuesthat fund companies in the Middle East region are most concerned
about in 2011. It should be noted that capital inflow issues among fund
companies started rising shortly after the global financial crisis began
in 2008. The political unrest which took hold in the first quarter of 2011
in key Mena markets only served to exacerbate the vulnerability of an
industry that was in the early stages of recovery from one of the worst
financial periods in recent history. Furthermore, nearly a quarter of the
respondent fund companies cited a lack of market research as well as
the weakness in the regions financial regulatory framework among
their top issues.
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64
918
9
0
20
40
60
80
100
Mena India Asia, Europeand NorthAmerica
Africa andRussian
IndependentStates
%o
frespondents
Active markets
In which markets are you actively selling yourfunds today?
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0 10 20 30 40 50 60 70 80
Proximity to customers outside home market
Outsourcing back-office operations
Shortage of finance professionals
Compliance with regulatory framework
Distribution
Weak and non-transparent regulatory framework
Market research
Capital inflow (foreign)
Political tensions in key Middle East countries
Risk management
Capital inflow (local)
Top-of-mind issues among fund companies
% of respondents
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Source: MEED Insight survey, based on responses from 25 fund companies
Meanwhile, half of the respondent investors cited the growing political
tensions in the region as a primary concern for 2011. A lower percent-
age (38 per cent) cited the overall economic outlook as a top concern,
followed by 37 per cent which cited real estate or property. Meanwhile,
about 36 per cent cited risk management and a weak regulatory frame-
work, and between 28 and 33 per cent included oil price fluctuations
and asset allocation in their list of top three most important issues in
2011. Respondents answers clearly indicate that macroeconomic
and regulatory factors tend to overshadow operational or strategicfactors such as risk management and asset allocation in their priorities
for the remainder of the year. The level of market confidence, which
is inevitably tied up to the perceptions of a countrys or a regions eco-
nomic and political stability, overrides all other factors including, in the
case of the Gulf Co-operation Council (GCC) states, higher oil and gold
prices, cited a fund manager respondent at a Bahrain-based bank,
whose investment portfolio is focused predominantly on the GCC.
A similar trend is noted among fund distributors, with macroeconomic
and regulatory concerns generally outweighing operational, research
and capital inflow concerns. However, one unique concern stands outamong some of the distributors, who highlighted long-term perform-
ance of fund companies as an issue. With a relatively young fund indus-
try across the Middle East region, finding local fund companies with a
good track-record can be challenging. The bigger fund distributors
often opt for multinational fund companies that have a presence in the
region and a long fund history elsewhere, in more developed markets.
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0 10 20 30 40 50 60 70 80
Management of external managers
Alternative asset classes
Shortage of qualified finance professionals
Oil price fluctuations
Asset allocation
Weak and non-transparent regulatory framework
Risk management
Real estate/property
Overall economic outlook
Political tensions in key Middle East countries
Top-of-mind issues among investors
% of respondents
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Source: MEED Insight survey, based on responses from 111 investors
0 10 20 30 40 50 60 70 80
Capital inflow (foreign)
Capital inflow (local)
Long-term performance of fund companies
Market research
Weak and non-transparent regulatory framework
Compliance with local and internationalregulatory framework
Overall economic outlook
Political tension in key Middle East countries
% of respondents
Top-of-mind issues among fund distributors
Source: MEED Insight survey, based on responses from 34 fund distributors
3. Business DevelopmentGenerally, the respondents overall prognosis of their business devel-
opment and growth in 2011 is positive, or better than in 2010. More
than half of overall respondents indicated that this year will be better
than last, while a minority (15 per cent) stated the opposite. The
remainder indicated that 2011 will be neither better nor worse com-pared with the previous year. Of the three groups surveyed, the
investors are generally less optimistic with one-fifth of them indicating
that business in 2011 will be worse than in 2010. Furthermore, just
under half said that this year will be better than the previous one.
However, this ratio is still three percentage points lower when viewed
against the overall average.
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How will your business develop in 2011 (compared with 2010)?
Investors (%) Fund companies (%) Distributors (%)
Better 49% 65% 56%
Same 31% 30% 38%Worse 20% 4% 6%
Source: MEED Insight survey, based on responses from 111 investors, 25 fund com-panies and 34 fund distributors
The relative positive overall outlook among the survey participants
comes on the heels of geo-political upheavals in several Mena coun-
tries such as Egypt, Tunisia, Syria, Kuwait, Bahrain and Oman. Citizen
protests or threats of protests have sporadically hampered business
activities in these countries during the first quarter of 2011.
The geography where investors and fund companies are focusing their
investment influenced their 2011 outlook to a large extent. Generally,companies that are focusing their activities towards Abu Dhabi, Qatar,
Kuwait and Saudi Arabia tend to have the same or better forecast
for their business in 2011. Investments made in global and emerging
markets also underpin the positive outlook expressed by some
investors. Growth in these regions is expected to compensate for the
softness of their home markets.
According to one respondent, the anticipation of a change in the pre-
dominantly parochial investment attitude among Middle East investors
is another reason for optimism among respondents.
Understandably, respondents that are in or focusing mainly on Egyptor Bahrain have a more pessimistic view of 2011. With demand and
productivity slowing down significantly, and the movement of goods
severely interrupted following the revolution, we cant afford to be
optimistic, explains a financial analyst at an Egypt-based fund company.
The ongoing unrest is not the only reason among those who said that
2011 will be a worse year than 2010. A Dubai-based investment com-
pany with major stakes in the real estate sector stressed that debts
must be cleared in order to reverse the recession. Another, Bahrain-
based investor explains that her view is based on the projected tight
liquidity across Mena and throughout Europe. Even if the fundamen-tals [in Mena] improve this year, and it is likely that they will because of
the demonstrated GDP growths, it will take time to improve market
confidence now that it has been shaken. Restoring investor confidence
is a primary issue that the Middle East region will have to deal with for
the rest of the year. This sentiment is echoed by a fund company that
focuses on property development, which said that even improved
liquidity among regional and local banks will not necessarily translate
into higher capital inflow. They [the banks] are not going to invest the
cash; they will hang on to it or use it for retail loans, primarily because
they need provisions for ongoing debt and to maintain sufficient funds
Worse15%
How will your business develop in 2011(compared with 2010)?*
Better
52%Same
33%
Worse15%
*Overall average
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for government spending. Generally, they will not be using cash to
obtain equities.
A leading international fund distributor with offices in Dubai foresees a
worse year for his business. He says that delays in the launch of newfunds, changes in regulations in some countries, and poor stock market
performance, which are all directly and indirectly related to the recent
geo-political unrest sweeping the Mena region, will ultimately result in
a more difficult business environment in 2011.
Do you plan to expand your staff?
Investors Fund Distributors OverallCompanies
(%) (%) (%) (%)
Yes, 14 people 34 43 34 35
Yes, 510 people 11 14 13 12Yes, more than 10 people 11 14 25 15No 43 29 28 38
Source: MEED Insight survey, based on responses from 111 investors, 25 fund com-panies and 34 fund distributors
Consistent with the relative optimism expressed by the survey partici-
pants, about 62 per cent indicated that they plan to hire new staff in
2011. A higher percentage of fund companies and distributors plan to
expand their staff compared with investors, with a quarter of distribu-
tors indicating that they plan to hire more than 10 people in 2011.
When it to comes to outsourcing the management of assets externally,there was very little difference between those that plan to and those
that are still hesitant about doing so, indicating a more limited market
potential for international companies wishing to play a more active role
in the management of the regions funds.
Do you plan to increase the share of assets managed externally?(% of investors)
Yes 49No 51
Source: MEED Insight survey, based on responses from 105 investors
3.1 Long-term trends to guarantee success
Investors provided a wide range of responses when asked about the
long-term trends that are fundamental to their success going forward.
These responses fall under two broad categoriesmacro-economic
and operationswith regulatory and product-related trends emerging
as third trend.
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In addition, fund companies cited very specific factors that are crucial
to their success. These include:
Better educated finance professionals with Western market
experience;
Availability of debt;
Market standardisation;
New markets and new clients;
Government incentives; and
Development of new products
Fund distributors, meanwhile, cited political and economic stability,
focused and well-planned strategies to address new markets, eco-
nomic growth in higher risk markets such as Yemen, Sudan and Libya,
long-term partnerships with current clients, and reliable government
decisions or measures as fundamental to future success.
4. Industry ChallengesChallenges faced by the young and nascent fund industry in the GCC
and the broader Mena region are varied and significant. These includevulnerability to the global financial crisis and the subsequent property
crash in Dubai, the shortage in finance professionals, and the lack of
market data.
A little over 20 per cent of the respondents acknowledged that the real
estate crash in the UAE, particularly in Dubai, severely impacted their
business. About one-third said the impact was manageable or moder-
ate, while the rest indicated that the property meltdown had very little
negative impact on their business.
Macro-economic
Rise in oil and gold prices Innovation Opportunistic volatility Investment in infrastructure (energy,
education, healthcare, consumergoods)
Real estate expansion Robust industrial growth Return of investors World Cup in Qatar Funds from GCC moving to
eastern hemisphere Funding of feasible commercial
development
Operations
Higher expectation of black swanevents, and therefore greater empha-sis on risk management and liquidity
Outsourcing Cost savings Hiring competent staff Investment in training and
development Optimisation of the revenue cycle
management chain Thin and lean focus on core
activities
Other (Regulatory and Product)
Emerging country funds REITS Regulatory correction Diversification in investments Food commodities, power,
energy
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21%
32%
Huge impact, we had major property investments
Moderate impact, we had a balanced portfolio
How did the property crash in the UAE, particularly inDubai, impact your business?
47%
0% 10% 20% 30% 40% 50%
Minimum impact, we did not have a significantproperty investment
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Source: MEED Insight survey, based on responses from 90 investors, 22 fund compa-nies and 32 distributors
Survey participants response to the economic crisis also showed major
variations. Half of the fund companies stated that they made no major
changes to their business operations or strategies, while 40 per cent of
investors said they had reduced their staff. A significant segment of dis-
tributors, on the other hand, cited increasing their use of outsourced
services as a means to cope with the challenging business climate.
Ironically, between 18 and 19 per cent across the three groups of
respondents reported undergoing some sort of general expansion in
spite of the crisis. Furthermore, a few respondents cited adopting other
measures that include stronger risk controls and end-to-end cost opti-
misation as a means to address the crisis.
Source: MEED Insight survey, based on responses from 90 investors and 22 fundcompanies
0%
20%
40%
60%
80%
100%
What changes did you introduce into yourbusiness following the 2009 economic crisis?
Investors companies Distributors Overall
Reduced staff Increased outsourcing
Reduced number of products General expansion
Have not made any major changes
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Approximately 68 per cent of respondent fund companies indicated
that they have allocated more resources to risk management following
the crisis of 2008, although 10 per cent more (78 per cent) stated that
their clients are now putting more emphasis on risk management.In fact, 88 per cent of investors and distributors stated that they have
become more conscious and therefore put more emphasis on risk man-
agement following the crisis, whereas only 74 per cent think that the
fund companies have indeed allocated more resources towards man-
aging and controlling risks in the wake of the economic crisis.
Meanwhile, the majority of the respondents indicated that the country
where they operate in the Middle East region has a reliable regulatory
framework to allow the fund industry to flourish. The remainder dis-
agreed; and disagreement came from every country from the UAE to
Egypt. For the most part those who indicated that the local regulatorymeasures are reliable and sufficient were largely influenced by the
major improvements that have been put in place over the past few
years. We are confident in the capability of the Dubai Financial Serv-
ices Authority (DFSA), says a Western respondent. An independent
court has been established by the Dubai International Financial Centre
(DIFC) to provide comprehensive legal redress in civil and commercial
matters within the DIFC. One respondent also explained that the
recent crisis including the political and economic volatility in the region
will serve to further strengthen the scope and implementation of laws
governing the fund industry across the GCC and the wider Mena
region.
Most of those who presented a dissenting opinion to the question are
influenced by their exposure and experience in more developed mar-
kets particularly in Europe. Areas of improvement particularly in terms
of clarity of certain laws remain, and admittedly were still far from
reaching the level of sophistication found in Western countries,
explained one respondent.
No
32%
Have you dedicated more resources torisk management following the economic
crisis?
Yes
68%
Source: MEED Insight survey, based onresponses from 22 fund companies
No
31%
Does the country where you operate offerreliable, transparent and enforceable
regulatory framework for the funds industryto flourish?
Yes69%
Source: MEED Insight survey, based onresponses from 91 investors, 22 fundcompanies and 31 distributors
Not important
Important
Very important
How important as an issue
is the lack of qualified
investment professionals
in the region? (%)
85240
How important as an issue
is the lack of qualified
Islamic finance specialists
in the region? (%)
194535
Source: MEED Insight survey, based on responses from 91 investors, 22 fundcompanies and 31 distributors
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The shortage of finance professionals that interpret the various regula-
tory measures and ensure proper compliance is a related issue. Com-
pliance with regulations goes hand in hand with the task of installing
risk management and controls, and both tasks are made more difficultby the shortage of experienced [finance] professionals, says one fund
company. The shortage of qualified and experienced manpower is an
endemic issue in nearly every sector particularly in the GCC states, and
more so in the fund management and distribution industries. Recruit-
ing world class finance professionals is always a challenge but it is not a
vacant market, added a manager at an Abu Dhabi-based fund com-
pany. We utilise international head-hunters to recruit the best talent.
4.1 Effects of political unrest
Most of the surveyed companies indicated that they are currently
reviewing the impact of the recent political and economic regimechanges in strategic Mena markets into their future strategy. A mere 11
per cent indicated that they are not making any changes while three
times as many respondents said that these changes require substantial
change in their market focus. Among the most common fears
expressed by respondents is the potential inflationary impact and gen-
eral instability that a change or a vacuum in political leadership could
create, as well as the inevitable reduction in capital inflow resulting
from negative investor sentiment. Conversely, about 30 per cent of the
respondents indicated that these changes could pave the way for more
lasting and profitable benefits, foremost of which is the eventual flour-
ishing of private investment as a result of a more democratic and trans-
parent conduct of business.
37%33%
30%
10%
15%
20%
25%
30%
35%
40%
What are the short- to long-term effects of thepolitical regime changes to the GCC fund industry?
0%
5%
Changes could triggerinflationary scenariosthat hinder investment
growth
Significant reduction incapital inflow
A more democraticregime is good forprivate investment
Source: MEED Insight survey, based on responses from 22 fund companies and 32distributors
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5. Industry OpportunitiesNotwithstanding the multiple and mounting challenges confronting the
Mena regions fund industry, opportunities still await market players. In
terms of factors that are expected to drive growth throughout 2011,
fund distributors are relying primarily on new client segments, while
fund companies are eyeing new products to deliver much needed
growth. Fund distributors are watching institutional investors such
as insurance companies to have a more actively managed portfolio in
the future. They are also expecting asset managers and mutual fund
companies to become more engaged in local markets. New products
would certainly include Islamic insurance (Takaful), which offer consider-
able opportunities. Said one Abu Dhabi based fund company: There
is a huge insurance market in the Arab world, and we have barely
scratched the surface. On the other hand, new markets could includethe emerging, less risky markets like those in Africa, according to an
Egyptian fund company. There is a really interesting story on these
underdeveloped but rapidly growing countries in Africa that will attract
investors.
One company must diversify if it wants to grow, cited a respondent
fund distributor based in Dubai. This respondent is focusing on the
traditional emerging markets (Brazil, Russia, India and China) as well as
on the new emerging markets in the Far East (Vietnam, Cambodia,
Taiwan and Thailand) and in Africa. A diversification in markets reduces
the risk of overexposure in a single market, while at the same timeallowing a diversification in products or sectors.
Two other factors, namely new markets and flows from existing clients
to existing products, are expected to further drive the industrys growth
at varying degrees throughout 2011.
New products
New client segments
Flows from existing clients to existingproducts
Main growth drivers in 2011
0% 10% 20% 30% 40%
New markets
% of respondents
Average Distributors Fund companies
Source: MEED Insight survey, based on responses from 23 fund companies and 33
distributors
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Based on the survey, there exists a wide gap between the asset classes
in which investors plan to make most of their new investments in 2011,
and which asset classes fund distributors expect to attract the most
inflow. Some 45 per cent of the respondent investors indicated thatthey will make most of their new investments into long-only equity in
emerging markets. A slightly smaller percentage said they plan on tar-
geting most of their new investments into property and fixed income in
emerging markets, while only a quarter indicated that they will be mak-
ing the most investment into sharia-compliant hedge funds. A minority
(8 per cent) said they will be making the most new investments into
other types of assets, which range from Europeanespecially Swiss
stock and currency marketsfood and medical-related assets, gold-
related products, green energy windmills, to options, futures and
derivatives.
Into which asset classes will you make the most new investmentsin 2011?
Asset class Investors (%)
Long-only equity (emerging markets) 45Property 40Fixed income (emerging markets) 34Fixed income (developed markets) 28Hedge funds (sharia-compliant) 25Hedge funds (non-sharia-compliant) 19Long-only equity (developed markets) 19Other*
8*Specified asset classes are: European (Swiss) stock and currency markets,food and medical, gold, green energy, options, futures and derivatives
Source: MEED Insight survey, based on responses from 96 investors
46%
39%
33% 33%30%
18%
9%
0%
10%
20%
30%
40%
50%
ofrespondents
What asset classes will see the most inflow in 2011?
Hedgefunds
(sharia-compliant)
Long-onlyequity
(developed
markets)
Long-onlyequity
(emerging
markets)
Fixedincome
(emerging
markets)
Fixedincome
(developed
markets)
Property
Hedgefunds(non-
sharia-compliant)%
Source: MEED Insight survey, based on responses from 33 fund distributors
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On the contrary, nearly half of the respondent fund distributors (46 per
cent) expect sharia-compliant hedge funds to see the most inflow
among all types of asset classes in 2011. Another 39 per cent see the
most inflow towards long-only equity in developed markets. Moreover,non-sharia compliant hedge funds and property or real estate are
expected to attract less inflow throughout the year, although a varia-
tion in outlook is noted depending on the focused geography.
The difference in the preferred assets by investors and the fund distrib-
utors projected best performing asset classes in terms of net inflow is
most likely due to the diversification efforts of resident (Middle East)
investors in terms of new markets.
Furthermore, the fund distributors predisposition to expect long-only
equities and sharia-compliant hedge funds to attract the most net
inflow in 2011 can be attributed to the absence of active secondarymarkets and local currency dominated bonds in the Middle East,
according to one respondent who is involved in securities services. And
although less risky asset classes such as long-only equities are a good
investment vehicle for any company looking for growth opportunities,
diversification will be the key in attaining decent returns in future. The
commodity sector ranging from oil and energy to agriculture and food
apparently offers excellent opportunities. One respondent explained
that: The shift in the manner in which we create food. . . it now takes
7kg of grain to produce 1kg of meat.. . and all the related changes in
the food consumption patterns across the globe mean that engaging
the commodities sector, particularly in agriculture, in emerging marketswill be profitable in future.
However, the fact that there are nearly three times as many investors
than distributors that participated in the survey indicates that investor
behaviour will likely exert a stronger influence than that of the distribu-
tors over the manner in which capital investments will be distributed
throughout 2011 between the specified asset classes.
38%
29% 29%24%
19% 19%14%
10%
0%
10%
20%
30%
40%
50%
%o
frespondent
s
Which types of products are you planning to launch?
Fixedincome
(emerging)
Fixedincome
(developed)
Property
Other(privateequity,
ETF,multi-asset
classes)
Long-onlyequity
(developed)
Long-onlyequity
(emerging)
Hedgefunds(sharia-
compliant)
Hedgefunds(non-
sharia-compliant)
Source: MEED Insight survey, based on responses from 21 fund companies
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Approximately 86 per cent of respondent fund companies also
expressed plans to expand their product range during the course of
the year. About 38 per cent are considering introducing fixed-income
products in emerging markets, 29 per cent would introduce fixed-income products in developed markets as well as new property prod-
ucts, whereas about a quarter said they plan to introduce other types
of products including exchange traded funds (ETFs), private equity or
multi-asset class products.
The relative attractiveness of the property segment, in spite of the mas-
sive volume of stalled, delayed or cancelled construction projects in
the emirate of Dubai, hinges on the expected boom in property proj-
ects in selected areas within the region, particularly in Abu Dhabi and
Saudi Arabia. In the bigger scheme of things, Dubai [property market]
is just a small slice of the pie. The property market will remain attractive
for the rest of Mena and globally, explained one fund company.
And while ETFs are considered to offer a bright opportunity by a few
fund companies, some distributors are not as excited about them sim-
ply because they are new and relatively untested. A new product like
an ETF always takes time to gain the right investor sentiment, explains
one distributor. It should be noted that the Middle East ETFs that cur-
rently exist are listed and traded overseas.
In addition, half of the respondent fund companies had stated that the
retail segment would offer the most opportunities throughout 2011,
while only 36 and 14 per cent cited institutional and wholesale clients,
respectively. This means that fund companies generally expect institu-
tional investors such as sovereign wealth funds or government pension
funds to remain relatively risk-averse throughout 2011. Even commer-
cial banks will remain reluctant to invest in high-risk markets to protect
their liquidity, explained one respondent. Hence, the retail segment
comprising individuals who purchase stocks or equities through the
banks will remain the most interesting segment for 2011.
14%
36%
Wholesale
Institutional
What client segment will offer mostopportunities in 2011?
0% 10% 20% 30% 40% 50% 60%
% of respondents
Source: MEED Insight survey, based on responses from 22 fund companies
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For about a third of respondents, the GCC equities market offers good
opportunities in 2011, or at least better opportunities than the previous
year, in spite of the ongoing political unrest within the region. A quar-
ter of the respondents expressed the opposite view, with investorsagain holding out a more cautious stance compared with the fund
companies and distributors.
33%
45%
34% 35%38% 36%
47%
40%
29%
18% 19%
25%
20%
30%
40%
50%
f
respondents
How do you view the opportunities in GCC equitiesmarkets in 2011 compared with 2010?
0%
10%
Investors Fund companies Distributors Overall
%o
Better Same Worse
Source: MEED Insight survey, based on responses from 90 investors, 22 fund compa-nies and 32 distributors
Furthermore, there is no widespread plan among fund companies to
merge products into one domicile as of the survey period, with only
13 per cent saying they have already decided to do so.
Yes, wehave
decided13%
No43%
We arecurrentlyreviewing
this44%
Do you plan to merge/move yourproducts to one domicile in 2011?
Yes
86%
No
14%
Do you perceive net inflows into theindustry in 2011?
Source: MEED Insight survey, based onresponses from 23 fund companies
Source: MEED Insight survey, based onresponses from 23 fund companies and 33distributors
As for net inflows, 86 per cent of respondent fund companies and dis-
tributors stated that they see positive net inflows towards the industry
in 2011. This finding strongly ties in with the fund companies response
on whether their firms will manage to attract net inflows during the
year, with 87 per cent of them responding positively.
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5.1 Opportunities in each GCC country
According to respondents, Qatar offers the most opportunities for their
business compared with the other of the GCC states. Its successful bid
to host the 2022 Fifa World Cup, strong leadership and ambitious infra-structure and development plans, coupled with the near absence of
political or sectarian conflicts within the state, all contribute to making
Qatar a stable investment destination.
Country rankings in terms of opportunities for the fund industry
Country Ranking (1 lowest; 6 highest)
Qatar 4.07Saudi Arabia 3.99UAE 3.98Kuwait 3.37Oman 3.06Bahrain 2.40
Source: MEED Insight survey, based on responses from 90 investors, 22 fund compa-nies and 31 distributors
Saudi Arabia and the UAE are perceived to offer similar levels of
opportunities, with Kuwait and Oman trailing behind. Bahrain had
expectedly fallen behind its neighbours not least due to the recent
dilemma confronting its political leaders. The recent protests had
exposed the island kingdoms volatility, which could undermine the
business-friendly image which it has tried to build over the years as
evidenced by the quick and early success, and now the uncertain futureof, the Bahrain Financial Harbour (BFH).
5.2 Outsourcing opportunities
While outsourcing has its share of ardent supporters in terms of stream-
lining cost and enhancing operational efficiency, about 42 per cent of
the overall respondents still do not outsource any business functions.
Of those who do outsource, the majority cited outsourcing back office
and IT functions, 43 per cent outsourced marketing functions, while the
rest reported outsourcing training and development, compliance, as
well as manpower or recruitment services.
The following table shows the areas where respondents see the most
potential for outsourcing in future:
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6. Current Allocation and 2011 OutlookA huge majority of respondent investors and distributors estimate that
they are either underweight or neutral in equities, and 74% plan on
maintaining or increasing their allocation in 2011. Moreover, at 38 per
cent, there are more respondents who plan to put more capital into
equities than in other asset classes such as bonds or cash. In other
words, 2011 generally looks set to be a good year for the regions equi-
ties market. This outlook tallies consistently with an earlier finding in
this survey, where about 35 per cent of respondents indicated seeing
better opportunities in the GCC equities market in 2011 vis-a-vis 2010.
Investors
Sales Finance
Training anddevelopment Everything except
face-to-facecustomer interaction
Logistics Telemarketing Payroll and HR Call centres
Fund companies
Compliance Back office
Market research Marketing IT
Distributors
HR Research
IT Non-corefunctions
Distribution andwholesale
13%
41%
46%
Equities
Overweight Underweight Neutral
38%
26%
36%
Equities allocation direction
Increasing our allocation Decreasing our allocation
Maintaining our allocation
Source: MEED Insight survey, based on responses from 84 investors and 29distributors
The bonds market, based on respondents expected allocation direc-
tion , will see less action than the equities market. About 46 per cent
stated that they will maintain their bond assets, and 32 per cent said
they intend to increase their investment in bonds.
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Source: MEED Insight survey, based on responses from 85 investors and29 distributors
16%
35%
49%
Bonds
Overweight Underweight Neutral
32%
22%
46%
Bonds allocation direction
Increasing our allocation Decreasing our allocation
Maintaining our allocation
24%
41%
35%
Real estate assets
Overweight Underweight Neutral
38%
27%
35%
Real estate allocation direction
Increasing our allocation Decreasing our allocation
Maintaining our allocation
Decreasing our allocationNeutral
27%
26%
47%
Cash
Overweight Underweight
34%
21%
45%
Cash allocation direction
Increasing our allocation
Maintaining our allocation
Source: MEED Insight survey, based on responses from 85 investors
Percentage-wise, there were as many (38 per cent) respondents who
indicated that they will increase their real estate allocation in 2011, as
those in equities. This in spite of a significantly higher percentage ofrespondents (24 per cent) who indicated that they are overweight in
terms of real estate assets. This proves that the property crash in Dubai
did not significantly diminish the value of real estate and property
assets among respondents altogether, and that real estate will remain
the most attractive asset type next to cash, based on respondents
expected behaviour for the year.
The ratio of respondents that are overweight in cash (27 per cent) is
higher than the ratio found in other asset classes (13 to 24 per cent).
However, relative to other asset types, it also boasts the lowest percent-
age in terms of those who intend to decrease allocation during the year.
Source: MEED Insight survey, based on responses from 83 investors and 28distributors
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Source: MEED Insight survey, based on responses from 84 investors and29 distributors
Finally, respondents planned allocation on sharia-compliant assets
looks more likely to remain the same or increase during the year.
Investors have displayed increasing interest in Sharia-compliant prod-ucts over the past few years as more products become available in the
market. A quarter of respondent investors have earlier indicated that
they plan to make the most of their new investments for the year on
sharia-compliant hedge funds.
ConclusionThe Middle East fund industry players are most concerned about the
geo-political unrest confronting the Mena countries and its impact to
the regions economic stability and outlook. These major issues are
accompanied by a weakness, real or perceived, in the overall regula-
tory framework governing the fund industry in a number of individual
markets.
The inextricable relationship between the political and economic stabil-
ity of a country and the confidence that it generates from investors is a
major issue that must be addressed with urgency and care. While the
unrest gave way to a regime change in some countries, leaders in other
countries remain adamant. These leaders had displayed greater willing-
ness to part with money in the form of investments on housing and
other infrastructure projects than in increasing citizen participation in
the political process. This could mean that the huge economic gainsresulting from an increased government spending will generally out-
weigh the risks posed by citizen unrest, at least within the foreseeable
future. The regions combined stock markets had already posted a
strong recovery to the tune of $13bn by mid of April 2011 following
major setbacks in the first two months of the year. The markets in
Morocco, Tunisia, Oman, Kuwait, Bahrain and Egypt, however, still
remain weak.
Increasingour
allocation35%
Decreasing ourallocation
22%
Maintainingour
allocation43%
Sharia-compliant investments allocationdirection
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advent.com 23
As is the rule of thumb even in more stable business environments,
diversification in products and markets is essential for both investors
and fund companies going forward. An increased resource allocation
on risk management, hiring of experienced and competent financeprofessionals, along with diligent market research, should also be on
the top agenda of each industry player.
Finally, it is essential for the industry players to keep an eye on the
newly emerging markets in Africa and the Far East as well as on the
BRICs, in addition to Qatar, Saudi Arabia and Abu Dhabi, and on prod-
uct segments that are underdeveloped or previously underrated such
as Islamic insurance and commodities.
About MEED Insight
MEED Insight is a bespoke research service brought to you by MEEDs
top country and sector experts. It provides bespoke market research
and data solutions to clients who have specific information requests to
help them make more profitable business decisions.
With access to a wealth of regional information ranging from broad
macro-economic statistics to specific sector data, MEED Insight helps
clients accurately and cost effectively forecast market growth and
trends. MEED Insight has a particular focus on project-related market
data thanks to its proprietary database of projects in the Middle East
and North Africa (Mena) region, MEED Projects. Thanks also to the
respected MEED name, MEED Insight consultants have considerable
access to the market, enabling them to speak directly to clients, con-sultants and other companies.
For sample reports and further details about MEED Insight, please visit
www.meed.com/insight.
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