Property

Gulf investors avoid stocks in favour of property

Gulf investors shun stock markets to invest aggressively in the property sector, leaving fund managers seeking to target other expatriates from the West and India.

Gregor Stuart Hunter

November 01, 2011

Gulf nationals are shunning investments in world stock markets and seeking aggressive buys in local property, according to a new study from Invesco.

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A poll of 108 investment managers found that stocks account for more than half of the portfolios of Western and Indian expatriates, compared with less than a third of investors from the Arab world and only one fifth of Gulf nationals' investments, according to the Invesco Middle East Asset Management Study.

But the diversity of expatriates' investment preferences presented significant opportunities for local fund managers to tailor investments to expatriates from different parts of the world, said Nick Tolchard, head of Invesco Middle East. "Our findings have highlighted a strong appetite for international investing across expatriate segments in the GCC," he said.

"In order to effectively target diverse expatriate segments it is critical to recognise their individual requirements and investment preferences and to understand the emphasis they place on investing in their home markets."

Fund managers and private banks have aggressively targeted the Middle East as the soaring price of oil increases local wealth.

But equity managers continued to find slim pickings among wealthy nationals from Gulf states, the study found. Gulf nationals were most likely to invest in property, which accounted for 87 per cent of total portfolio values, the study found.

Gulf nationals were also more likely to be short-term investors, with investment horizons of two years compared with six to seven years for Western investors. Investors from the Gulf and India sought the highest target returns of 11 per cent, compared to lower target returns of 7 per cent for Western expatriates.

The financial crisis has taken an axe to local stock markets, with the Dubai Financial Market General Index losing 70.6 per cent of its value since the collapse of Lehman Brothers in September 2008.

By contrast, global markets have mostly recovered from the world financial meltdown, with the MSCI World Index of global equities only 1.5 per cent lower since that time, though recent market panics induced by the eurozone debt crisis have eaten into gains seen earlier in the year.

In numbers: PKK’s money network in Europe

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Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille

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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.”