Schroders, the British investment bank, is committed to keeping its office in the UAE despite deteriorating trading volumes and low prices.
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Deutsche Bank, based in Germany, recently moved its head of equity capital markets back to London from Dubai. Nomura, based in Tokyo, closed its Dubai equity research unit and the UK's HSBC has shut its retail equity brokerage unit in the Emirates.
Gavin Ralston, the global head of product at Schroders, believes the company needs to keep its presence in the country to build a sustainable regional business. From its office in Dubai, Schroders runs a fund that invests in equities in the Middle East and North Africa (Mena).
It also has a sales team looking after local clients who want to invest globally.
"It plays very well with clients in the Middle East," said Mr Ralston, on the sidelines of a conference in London.
"It is one thing not to set up an office in the first place, but to set one up and then close it leaves a very bad taste in the mouth, which would take us years to recover from."
Investor appetite for exposure to the Middle East fell at the start of the year due to the Arab Spring, according to Schroders, and although investors have returned to the region, Mr Ralston said the Schroders' Mena fund had seen "modest" outflows.
Many brokerages have gone out of business while international banks have scaled back operations.
Low trading volumes led Nomura recently to disband its equity research team in Dubai, although some leading regional companies will continue to be covered by its analysts based in London.
Shuaa Capital, an investment bank based in Dubai, yesterday signalled further job losses as it sought to shift away from retail brokerage and focus on serving institutional investors.
That followed HSBC's move last month to shut its retail equity brokerage.
"We have been through similar downturns in Asia in the 90s where we kept offices all the way through and got good plaudits from clients when the good times came because we'd hung around and not reduced our commitment," said Mr Ralston. The Securities and Commodities Authority, the UAE financial market regulator, recently developed guidelines to help brokerages to merge, rather than shut down.
But despite low confidence in the equity markets in the UAE, Mr Ralston said the number of retail investors looking at investment funds was increasing.
"This segment is growing fast and having had a presence on the ground, we should be in a position to gain market share of a growing market," said Mr Ralston.
There is about US$41 billion (Dh150.6bn) in investment funds in the Middle East, according to Schroders, which compares with an estimated $1.6 trillion managed by sovereign wealth funds.
The investment house also estimates the wealth of ultra-high net worth individuals at about $1tn in the Middle East.
Saudi Arabia has the biggest market for investment funds, with $25bn of assets under management, experts say.
* additional reporting by Hadeel Al Sayegh
rjones@thenational.ae
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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.”
