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Gulf asset managers face distribution dilemma

Partnerships, global regulations seen as solution.

October 5, 2010 8:36 by

Asset managers in the Gulf Arab region are looking to partner with regional players and third-party providers to break the bottleneck of distributing their offerings solely through banks, executives said on Monday.

The industry, still at its nascent stage, is heavily dependent on banks, but as the funds grow in size and get international focus, better distribution methods are in demand.

The challenge is even bigger for small regional players who do not have the ability to market their products effectively to international players or comply with global regulations like Ucits III, a European Union (EU) framework for funds that can be sold across borders.

“In this public funds business, distribution matters and size matters significantly. Particularly in the Middle East, I think the banks have a competitive advantage in platforms. Why? Because they have the clients,” said Trevor Regan, head of asset management at Al Mal Capital in a conference in Manama.

The asset management industry in the Middle East saw a raft of fund launches during the boom years, but many funds struggled to attract any sizable inflows as investors became increasingly risk-averse since the burst of the asset bubble in 2008.

Since the beginning of this year, asset managers based in the Middle East North Africa region have been launching EU-regulated Ucits III funds while global managers have dusted off MENA launches that have been on the backburner since the financial crisis.

As international investors look at the region, increasingly touted as the next big emerging market play, demand is rising for effective distribution and compliance with global norms.

“The next step is to go to a wider audience and making sure that our funds are in the platform of international and global audience,” said Shahzad Waraich, vice president, global wealth management at HSBC Amanah.


For smaller players, the operational cost of complying with global regulations like Ucits III are too high, forcing them to set up partnerships with others in the region. “The way forward is probably doing partnerships with managers in different regions who are in a similar situation to what we find ourselves in MENA,” Al Mal Capital’s Regan said.

Local fund managers are also looking to set up funds domiciled in off-shore locations to attract global clients.

Saudi-based Al-Rajhi Capital recently launched a Luxembourg-domiciled fund to invest in Saudi equities aiming to tap demand for off-shore funds, the head of its asset management division said.

HSBC Amanah is in the process of bringing around 15 of its funds in the region to a local platform, according to Waraich.

“The way you domicile your fund and which distribution you use is a key point,” he said.

(Reporting by Dinesh Nair and Frederik Richter, Editing by)


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