The Arab Spring sucked capital from the Gulf's funds sector as international investors sought security in safe haven investments. Now they are back, lured by attractive income, yields and economic propects in markets such as the UAE.
Institutional investors, such as pension funds and insurance companies, invested in the UAE's markets in large numbers during the first quarter of the year, as a bull market in local equities drove share buying, according to HSBC Securities Services, the region's biggest custodian bank.
Investment from such sources tends to be less speculative and prone to sudden withdrawals than broker-dealers or hedge funds, in theory adding a degree of stability to equity markets.
"It's the underlying economy," says Saleem Khokhar, the head of equities at National Bank of Abu Dhabi. "Foreign investors see the UAE suddenly as very vibrant. They have gone through the crisis and coming out much stronger. Dubai's business boom is having a knock-on effect on Abu Dhabi. There is certainly a lot more confidence."
Next month, the index provider MSCI will decide for the sixth time since 2009 whether or not to upgrade the UAE and Qatar to "emerging market" status, giving it access to passive investors tracking US$3.4 trillion of equities in markets such as Brazil and China.
Money was wiped out of the UAE's equity markets in 2011 as foreign investors cut positions in risky asset classes in the wake of the Arab Spring uprisings that ousted leaders in Tunisia, Egypt, Libya and Yemen.
The contagion events compounded troubles for the local equity industry that was already grappling with the effects of the 2008 global financial crisis and 2009 Dubai debt crisis that dampened investor confidence to fresh lows.
Dwindling asset prices and trading volumes caused the number of stock brokerages in operation to more than halve over this period to 50 companies from 120 at the peak of Dubai's equity boom.
While the state of the brokerage industry has been widely reported in the local media, fund managers have been reluctant to divulge until recently that they had struggled to raise fresh money during their roadshows abroad.
"After the Arab Spring, we saw a lot of outflows from international investors leaving the region," said Fadi Al Said, the head of equities for ING Investment Management in Dubai.
At the peak of ING's Mena fund in January 2011, it managed $125 million on behalf of clients. The fund touched a low of $32m at the end of 2011. Many small equity houses were forced to restructure their operations and downsize.
Last year Royal Capital's head of asset management and several analysts left the company as the Abu Dhabi asset manager closed its Mena Fixed Income Plus Fund.
Haissam Arabi, the founder of Gulfmena Investments, resigned earlier this year after a decision by shareholders to close the company's two proprietary funds, Gulfmena Opportunities and Gulfmena Access, amid continued losses.
But equity prices have remarkably improved this year, with the Abu Dhabi Securities Exchange General Index up 36.4 per cent and the Dubai Financial Market General Index up 41.9 per cent in the same period.
ING's Mena fund started the year with $37m of assets under management and has since almost doubled to $67m.
"We are seeing a lot of increased interest in terms of allocating money to the region," Mr Al Said says. "The performance is doing well, the macro picture is looking solid - all on the back of a lack of bad news."
Similarly, National Bank of Abu Dhabi's assets under management grew by just under Dh600m this year. A large portion of this was fresh money from foreign investors.
"We have done extremely well in terms of fundraising this year," Mr Khokhar says. "There's a lot more money flowing in because of what's happening in the region, and globally, money parked in Switzerland is flowing in. There is a real interest in our equities as well as GCC as a whole is particularly in focus."
Much of the capital was attributed to stellar subscriptions for the bank's Mena Dividend Leader Fund launched in March, in which $100m was raised from private placements over four weeks.
The Dublin-domiciled fund has just received UAE regulatory approval to be sold to retail investors in the Emirates.
The return of foreign money has encouraged large equity houses to consider takeover targets amid a need for consolidation across the sector.
"We certainly have an interest in acquiring small asset management businesses in the Mena region," Mr Khokhar said. "Quietly behind the scenes, we are pursuing this. Asset management is a scale game."
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
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Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
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Killing of Qassem Suleimani
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UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions