Asset managers in the Gulf will remain “somewhat resilient” to the twin-shocks of the coronavirus-induced economic slowdown and volatility of oil prices, due to their strong track record and continued relationship with an affluent client base, according to Moody's Investors Service.
Despite economic headwinds, established players in the industry have seen a continued inflow of funds since the beginning of the pandemic, according to the ratings agency. Larger managers with a diverse mix of assets and strong digital platforms are better positioned than the smaller players.
Assets under management have dropped since mid-February, which is largely a reflection of lower market valuations. However, positive fund inflows for GCC asset managers contrasts with net outflows for some of their western counterparts.
"The GCC [asset management] sector's resilient inflows partly reflect its exceptionally strong performance last year, but we expect risk appetite to remain subdued and some diversification away from the region," Vanessa Robert, a vice president at Moody's, said in a research note on Monday.
In the future, inflows for asset managers will be supported by “bespoke mandates from a range of affluent clients, including high net worth individuals, family offices, sovereign wealth funds and other government institutions, which generally have higher risk tolerance and [a] longer investment horizon,” Ms Robert said.
Asset managers in Saudi Arabia and the wider GCC region have grown their AUM in recent years, despite “heightened geopolitical tensions and oil price-related growth fluctuations”, Ms Robert said.
Given the current economic backdrop, Moody’s expects risk appetite to remain subdued and sees regional money managers diversifying their asset portfolios going forward.
GCC asset managers have already reported a shift in client assets towards lower risk strategies such as money market investments, fixed-income and sukuk since the start of the coronavirus crisis.
Some investors have also redirected equity investments towards companies with stronger cash positions, and industries with more predictable cash flows.
“We expect GCC investors to maintain a risk-averse stance in the months ahead," Ms Robert said. "Flows into equities and multimarket funds are likely to fall furthest amid continued market volatility."
Moody's expects investors to diversify their portfolios "away from the region to reduce risk, [as] currently the [asset management] sector is highly concentrated within the region".
The ratings agency also expects demand for alternative investments including the real estate sector to continue to be a key feature of the regional market.
The outlook for investment flows into the GCC asset management industry in 2020-21 is “somewhat uncertain”, however it will pick up momentum as the pandemic comes under control and economies bounce back.
Smaller asset managers, which typically do not benefit from the support of larger parent companies, will be more vulnerable to increased competition during the pandemic.
“As a result, we expect some consolidation within the industry, although this is likely to be slow,” Ms Robert said.
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Read more about the coronavirus
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.”
RESULT
Bayern Munich 5 Eintrracht Frankfurt 2
Bayern: Goretzka (17'), Müller (41'), Lewandowski (46'), Davies (61'), Hinteregger (74' og)
Frankfurt: Hinteregger (52', 55')
Match info
Uefa Champions League Group B
Tottenham Hotspur 1 (Eriksen 80')
Inter Milan 0
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Leaderboard
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Polarised public
31% in UK say BBC is biased to left-wing views
19% in UK say BBC is biased to right-wing views
19% in UK say BBC is not biased at all
Source: YouGov
What is the FNC?
The Federal National Council is one of five federal authorities established by the UAE constitution. It held its first session on December 2, 1972, a year to the day after Federation.
It has 40 members, eight of whom are women. The members represent the UAE population through each of the emirates. Abu Dhabi and Dubai have eight members each, Sharjah and Ras al Khaimah six, and Ajman, Fujairah and Umm Al Quwain have four.
They bring Emirati issues to the council for debate and put those concerns to ministers summoned for questioning.
The FNC’s main functions include passing, amending or rejecting federal draft laws, discussing international treaties and agreements, and offering recommendations on general subjects raised during sessions.
Federal draft laws must first pass through the FNC for recommendations when members can amend the laws to suit the needs of citizens. The draft laws are then forwarded to the Cabinet for consideration and approval.
Since 2006, half of the members have been elected by UAE citizens to serve four-year terms and the other half are appointed by the Ruler’s Courts of the seven emirates.
In the 2015 elections, 78 of the 252 candidates were women. Women also represented 48 per cent of all voters and 67 per cent of the voters were under the age of 40.
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