Big financial market - but just how large?

Focus: Insight Discovery's chief executive Nigel Sillitoe, is an expert on investing in the Middle East. But even he struggles to quantify exactly what the financial services business is worth.

Dubai, 21st September 2011. Nigel Sillitoe (Chief Executive Officer of Insight Discovery) at the Icon restaurant-Radisson Blu. (Jeffrey E Biteng / The National)

The Middle East Investment Panorama (MEIP) is an attempt to answer a simple question: what do investment advisers in GCC countries and the broader Middle East and North Africa (Mena) region want from international asset companies and life insurance companies with which they work?

Who better to answer these questions than Mr Sillitoe, the chief executive of Insight Discovery, a research company based in Dubai?

Mr Sillitoe is the former regional director of BNY Mellon, launching the bank's efforts in the Gulf first in Manama and then Dubai.

He joined Thames River Capital in 2007 before taking the helm of Insight Discovery, a company he had invested in, two years ago.

One of Insight Discovery's main activities is conducting employee engagement studies, which ask members of staff how happy they are with their bosses and environment. It also conducts customer perception studies for a number of global financial institutions.

These include leading international asset management companies such as Fidelity, JPMorgan Asset Management and Franklin Templeton, some of the sponsors of MEIP, and local financial institutions such as Commercial Bank of Dubai.

This latest report on the savings and investment market is one of the most detailed examinations of the sometimes opaque market for financial services in the Mena region. We talk to Mr Sillitoe on the eve of the report's publication.

He has lived in the Middle East since 2001 and is married with two young girls. He has visited most countries in the Mena region over the past 10 years and is an avid collector of Islamic art.

What is the size of the market for financial services in the GCC and Mena countries?

Quantifying the size of the various markets for financial services in many of the GCC and Mena countries is notoriously difficult, Hopefully, over time, this region will become more transparent and reach the standards of disclosure that have long been the norm in Europe and the US. Lipper SalesWatch Online, a leading publisher of data on funds that are domiciled in the European Union, and especially Luxembourg and Dublin, estimated that gross sales of such funds throughout the region amounted to US$5,593 million [Dh20.5 billion] in 2010. In fact, the market is a lot larger than that - which is why many of the largest international asset management companies have an office in either Abu Dhabi or Dubai. A lot of business that is undertaken with clients in the Mena countries is booked through the offices of private banks outside the region - in Switzerland, Singapore and elsewhere. Further, it is reasonable to expect that some of the fund investments that are held by high-net-worth individuals in the GCC and Mena countries are domiciled in the Cayman Islands, the British Virgin Islands and other jurisdictions that are not captured by research into sales of European-domiciled funds.

How important are the region's sovereign wealth funds for asset managers?

The SWFs are very important. It is difficult to be too precise about how large is the total pool of money managed by SWFs. The Sovereign Wealth Fund Institute estimates that, as of June 2011, the total assets under management globally amounted to $4,657bn - of which just over one third came from the Middle East. Of the 12 largest funds worldwide, four - Abu Dhabi Investment Authority, Sama Foreign Holdings, Kuwait Investment Authorityand Qatar Investment Authority - are based in GCC countries.

Offshore centres, such as Switzerland and Singapore, are said to play a quite important role. Is that true and how do you see that developing?

Most of the well-known private banks servicing high-net-worth individuals book business that they do with those clients through offshore centres outside the region - and, particularly, in Singapore and Switzerland. We were not able to quantify how much Mena business is handled by private banks' operations outside the region. However, we make two observations. First, the total value of private banking business from the region will grow as the oil-rich economies flourish and as [high-net-worth individuals] become even richer. Second, it is reasonable to look for the relative importance of the offshore centres to decline slightly. Thanks in part to the vision and efforts of the promoters of the Qatar Financial Centre and the Dubai International Financial Centre, private banking activity should grow faster within the GCC countries than elsewhere in the world.

How much demand has there been for Islamic funds?

Sharia-compliant funds are of interest to some, and not necessarily most, advisers in the GCC and MENA countries. Ernst & Young's comprehensive Islamic Funds & Investments Report suggests that, of late, this section of the global funds industry has lost its growth momentum. Through 2009, the aggregate [assets under management] of the world's Sharia-compliant funds remained constant at about $53bn. The number of funds remained broadly constant at around 750: the numbers of Sharia-compliant funds liquidated in 2009 was about the same as the number of new funds launched. Ernst & Young estimates that the Sharia-compliant funds account for about 5.5 per cent of the assets of the world's Islamic financial services industry in its broadest extent (i.e. $939bn or so).

Who are the main international asset management players, and do you see any new players coming into the market?

The key players include Franklin Templeton, JPMorgan, Fidelity, Invesco, Schroders, HSBC [Global] Asset Management, Russell Investments, UBS and Natixis. Most of the funds from these companies are also available from the platforms of international life companies. However, the international asset management companies use other distribution channels as well. Virtually all the largest and best known money managers have a local presence, whether in Abu Dhabi, Dubai, Qatar or Bahrain.