Push for UAE investment by sovereign wealth funds

The Financial Services Association wants to encourage the UAE's vast sovereign wealth funds to invest in local bourses to boost market liquidity and help develop a local industry for expatriate pensions.

The Financial Services Association wants to encourage the UAE's vast sovereign wealth funds to invest in local bourses to boost market liquidity and help develop a domestic industry for expatriate pensions.

The industry group is also hoping to engage with the Central Bank and the Securities and Commodities Authority (SCA) as they conduct wholesale reform of financial regulation.

The FSA, which first found its voice as a means of uniting industry opinion during the outcry over the SCA's regulation of mutual funds last year, is now seeking to actively influence policy decisions and promote the health of the market, said Arwa Hamdieh, the association's co-founder.

"That was a reactive approach towards a policy issue, and in order for the association to be able to service the groups, we wanted to be more proactive and figure out what are the bottlenecks for the industry," she said.

Of particular concern to the FSA's members is the shift by onshore UAE financial regulators to a "twin peaks" model, which will involve the Central Bank taking responsibility for macroprudential issues such as overall financial stability, while a beefed-up SCA will deal with operational issues within the sector.

This has been under discussion at the Ministry of Finance since at least last May, but is yet to produce any draft legislation or consultation.

The group will also lobby for upgraded regulations governing capital markets, stressing harmonisation with international best practice.

"The biggest challenge that the capital markets industry has right now is the liquidity and the volume on the exchanges," she said.

Key to helping resolve this difficulty would be to promote the creation of pension and gratuity schemes for expatriates that include as part of their investment strategy some allocation to local capital markets. However, Ms Hamdieh acknowledged it could take some time to establish such a system.

"In the meantime, we're proposing to encourage the sovereign wealth funds in the capital markets and until gratuity and pension schemes are developed to a point where they can make some impact in the local markets," said Ms Hamdieh.

While UAE sovereign wealth funds including Abu Dhabi Investment Council and Investment Corporation of Dubai have previously invested in local markets, few have the willingness or the financial capacity to actively support local market liquidity, said Victoria Barbary, a senior researcher at Bocconi University's sovereign wealth fund investment lab.