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.