Despite some progress in drawing money managers to the region, GCC countries face a daunting task to rival hubs such as Singapore. The region aims to improve its regulatory climate and win more interest from the industry, writes Sean Cronin of The National.
The global fund industry has long been better at taking money out of Arabian Gulf financial capitals than putting it into them.
Dubai and Doha want that to change. Competition between the two is heating up as they bid to attract big-name fund managers and win top billing as money management hubs.
But attempts to lure the foreign institutions through regulatory improvements—and, in the case of Qatar, other commercial carrots—have so far yielded few asset-management trophies. Analysts say a lot more needs to be done if the region wants to rival more established centers around the world such as Singapore, Dublin, and Luxembourg.
"Remember, the entire economy of the GCC is about the same size as that of Italy," says Richard Phillipson, the director of institutional consulting at Investit. "So it is not a huge opportunity for global managers. Even if trading were easier with Saudi Arabia opening, there are only a few firms big enough, liquid enough to be of interest."
To put the size of market in context, Investit estimates there is about $7 billion in client money managed out of the UAE, by about 30 firms employing just 300 people in total. With about half of them working with less than $100 million, their revenues would be in the order of $1.5 million each.
A 2010 World Bank report on the regional industry noted that at that size, management fees would be insufficient to support serious efforts in fundamental equity research. Two years on, the situation may be even worse, with the malaise in markets forcing many brokerages to close as banks have had to pull analyst coverage of locally traded stocks.
Investit contrasts the size of the UAE industry with Schroders, a fund giant based in the United Kingdom that manages $320 billion and employs 2,700 people. This single firm oversees about 40 times as much in assets as the entire UAE commercial sector.
That is one reason why efforts by Qatar to attract funds through commercial incentives appear insufficient for the required task.
Qatar last year bagged its first asset management trophy in the form of a Barclays (BCS) private-equity fund—but it did not come for free. The Qataris agreed to seed it with $250 million. The country claimed another asset-management startup this month with a venture involving Credit Suisse. But more may be required to attract the big names of global fund management that the Qataris covet.
The major fund managers that do have a local presence in the Gulf tend to keep just a few analysts or managers on the ground, and see little reason for changing that in current market conditions.
"We have been lobbied by the Qataris and Bahrainis to set up there, but we certainly don't see the business prospects are sufficiently big to warrant more than one office," says Gavin Ralston, the global head of product at Schroders.