Abu Dhabi National Oil Company's new oil trading business has begun operations from Abu Dhabi Global Market Square.
The new unit will trade in oil futures as a direct participant, the state oil firm said, moving it away from being a traditional marketer of oil to a global trader, allowing it to take advantage of changing market dynamics.
"This historic achievement is yet another important milestone for Adnoc as we become a more modern, agile and progressive energy company," Dr Sultan Al Jaber, Minister of Industry and Advanced Technology and Adnoc group chief executive, said. "Our steadfast focus is on providing a better service to our customers, while also stretching the margin from every barrel of oil that we produce, refine and trade. Our move into trading supports both of these goals."
Adnoc has set up two trading units, with Adnoc Trading focusing on crude oil. Another entity, Adnoc Global Trading, set up as a joint venture with Italy’s ENI and Austria’s OMV, is trading refined products.
Adnoc Trading has already begun operations from the Abu Dhabi Global Market, while Adnoc Global Trading is on track to establish the required processes, procedures and systems to begin operations within the coming months.
“The opening of our trading offices at Abu Dhabi Global Market further reinforces its position and reputation as a leading and growing commodities trading hub for our nation and the Middle East region,” Dr Al Jaber said.
“In the weeks and months ahead, trading will become integral to how Adnoc manages its business, helping us to better manage our product flows, deliver greater efficiencies, and provide our customers with a broader service and more integrated solutions,” Khaled Salmeen, executive director of Adnoc’s marketing, supply and trading directorate and chairman of Adnoc Trading, said.
Derivatives are contracts based on an underlying asset in which the buyer and seller agree to a trade at a set price in the future. Trading in oil derivatives is substantially larger than the physical market for oil, with about 2.5 billion barrels per day traded on exchanges, compared to about 100 million physical barrels per day used.
Last year, Adnoc received the green light from the emirate's Supreme Petroleum Council to list Murban on an international exchange, as it looks to change the way it currently prices and trades crude. Murban is Abu Dhabi's flagship crude grade, which flows at approximately 1.7 million barrels per day.
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The government has taken an increasingly tough line against companies that fail to pay employees on time. Three years ago, the Cabinet passed a decree allowing the government to halt the granting of work permits to companies with wage backlogs.
The new measures passed by the Cabinet in 2016 were an update to the Wage Protection System, which is in place to track whether a company pays its employees on time or not.
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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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