middle east fund survey 2011

8/6/2019 Middle East Fund Survey 2011

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Middle East Fund Survey 2011

WHITEPAPER


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TABLE OF CONTENTS

[03] Foreword

[03] 1. Facts

[05] 2. Top Issues

[07] 3. Business Development3.1 Long-term trends to guarantee success

[10] 4. Industry Challenges4.1 Effects of political unrest

[14] 5. Industry Opportunities5.1 Opportunities in each GCC country

5.2 Outsourcing opportunities

[20] 6. Current Allocation and 2011 Outlook

[22] ConclusionAbout MEED Insight


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ForewordResults from this survey of GCC and Levant investors, fund companies

and distributors reveal that the fund industry remains cautiously opti-

mistic in spite of the rising uncertainties surrounding the region today.

However, the ongoing geo-political unrest sweeping the region, if it

is not reined in, provides a very strong undercurrent which could

undermine such optimism. This is further complicated by the shortage

of experienced finance professionals and the lack of historical and

research data to guide industry players in formulating the right strate-

gies. Most importantly, the overall negative market sentiment among

investors, which easily outweighs the regions high liquidity arising from

increasing oil and gold prices, remains a hindrance that must be over-

come by the industry.

Such cautious optimism, however, is not entirely unfounded. Opportu-

nities include a largely untapped insurance market and the expected

rise in popularity of Islamic insurance funds (Takaful), the expected

boom in real estate and construction projects in Qatar, Saudi Arabia

and Abu Dhabi, the renewed interest in commodities, and the adop-

tion of more cohesive regulations governing the industry, among

others. Most of the respondents (52 per cent) project better business

performance in 2011 compared with 2010, and over 60 per cent plan

to hire new staff during the year. Furthermore, 87 per cent of fund

companies indicated that their companies will obtain net inflows in

2011. Over 30 per cent of respondents likewise indicated plans toincrease allocations in all asset types particularly equities, real estate

and cash.

In general, the findings of this survey point to a more commercially

active 2011 for the regions fund industry players, with a good proba-

bility that overall growth will be achieved if they undertake greater

diversification in terms of their investment portfolio and market and

products coverage. This will potentially lead to a recovery in market

confidence over the coming years, barring any worsening or significant

spilling over of the political unrest into key markets such as Saudi

Arabia and the UAE.

1. FactsA total of 111 investors, 25 fund companies and 34 distributors partici-

pated in Advent and MEED Insights 2011 Fund Survey. Of the respon-

dents which disclosed their location, about 45 per cent are located in

the UAE, 19 per cent in Saudi Arabia, and 7 per cent in Bahrain. The

rest are from Egypt, Lebanon and other non-Mena countries. The

majority of respondents have at least 50 employees, with some having

several thousand.

advent.com 03

This communication is provided byAdvent Software, Inc. for informationalpurposes only and should not be con-strued as, and does not constitute,legal advice on any matter whatsoever

discussed herein.


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Number of employees Share (%)


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Source: MEED Insight survey, based on responses from 11 fund companies

The majority of the respondent fund companies that disclosed the mar-

kets where they sell their funds cited the Mena (Middle East and North

Africa) region, primarily Saudi Arabia and the UAE. The rest indicated

selling their funds to non-Mena geographies as well.

More than a quarter of respondent investors said they manage all their

funds internally, compared with over 70 per cent, which have between

15 and 99 per cent of their funds administered by external managers.

Percentage of funds managed internally Respondents (%)

< 20 per cent 1420 to 50 1851 to 99 41100 27

Source: MEED Insight survey, based on responses from 22 investors

2. Top IssuesThe survey results indicate that capital inflow from both local and for-

eign sources, along with the political tensions and the burden of allo-

cating more resources to risk management, are among the major issuesthat fund companies in the Middle East region are most concerned

about in 2011. It should be noted that capital inflow issues among fund

companies started rising shortly after the global financial crisis began

in 2008. The political unrest which took hold in the first quarter of 2011

in key Mena markets only served to exacerbate the vulnerability of an

industry that was in the early stages of recovery from one of the worst

financial periods in recent history. Furthermore, nearly a quarter of the

respondent fund companies cited a lack of market research as well as

the weakness in the regions financial regulatory framework among

their top issues.

advent.com 05

64

918

9

0

20

40

60

80

100

Mena India Asia, Europeand NorthAmerica

Africa andRussian

IndependentStates

%o

frespondents

Active markets

In which markets are you actively selling yourfunds today?


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0 10 20 30 40 50 60 70 80

Proximity to customers outside home market

Outsourcing back-office operations

Shortage of finance professionals

Compliance with regulatory framework

Distribution

Weak and non-transparent regulatory framework

Market research

Capital inflow (foreign)

Political tensions in key Middle East countries

Risk management

Capital inflow (local)

Top-of-mind issues among fund companies

% of respondents

WHITE PAPER


Meanwhile, half of the respondent investors cited the growing political

tensions in the region as a primary concern for 2011. A lower percent-

age (38 per cent) cited the overall economic outlook as a top concern,

followed by 37 per cent which cited real estate or property. Meanwhile,

about 36 per cent cited risk management and a weak regulatory frame-

work, and between 28 and 33 per cent included oil price fluctuations

and asset allocation in their list of top three most important issues in

2011. Respondents answers clearly indicate that macroeconomic

and regulatory factors tend to overshadow operational or strategicfactors such as risk management and asset allocation in their priorities

for the remainder of the year. The level of market confidence, which

is inevitably tied up to the perceptions of a countrys or a regions eco-

nomic and political stability, overrides all other factors including, in the

case of the Gulf Co-operation Council (GCC) states, higher oil and gold

prices, cited a fund manager respondent at a Bahrain-based bank,

whose investment portfolio is focused predominantly on the GCC.

A similar trend is noted among fund distributors, with macroeconomic

and regulatory concerns generally outweighing operational, research

and capital inflow concerns. However, one unique concern stands outamong some of the distributors, who highlighted long-term perform-

ance of fund companies as an issue. With a relatively young fund indus-

try across the Middle East region, finding local fund companies with a

good track-record can be challenging. The bigger fund distributors

often opt for multinational fund companies that have a presence in the

region and a long fund history elsewhere, in more developed markets.


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0 10 20 30 40 50 60 70 80

Management of external managers

Alternative asset classes

Shortage of qualified finance professionals

Oil price fluctuations

Asset allocation


Risk management

Real estate/property

Overall economic outlook

Political tensions in key Middle East countries

Top-of-mind issues among investors

% of respondents

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0 10 20 30 40 50 60 70 80

Capital inflow (foreign)

Capital inflow (local)

Long-term performance of fund companies

Market research


Compliance with local and internationalregulatory framework

Overall economic outlook

Political tension in key Middle East countries

% of respondents

Top-of-mind issues among fund distributors

Source: MEED Insight survey, based on responses from 34 fund distributors

3. Business DevelopmentGenerally, the respondents overall prognosis of their business devel-

opment and growth in 2011 is positive, or better than in 2010. More

than half of overall respondents indicated that this year will be better

than last, while a minority (15 per cent) stated the opposite. The

remainder indicated that 2011 will be neither better nor worse com-pared with the previous year. Of the three groups surveyed, the

investors are generally less optimistic with one-fifth of them indicating

that business in 2011 will be worse than in 2010. Furthermore, just

under half said that this year will be better than the previous one.

However, this ratio is still three percentage points lower when viewed

against the overall average.


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How will your business develop in 2011 (compared with 2010)?

Investors (%) Fund companies (%) Distributors (%)

Better 49% 65% 56%

Same 31% 30% 38%Worse 20% 4% 6%

Source: MEED Insight survey, based on responses from 111 investors, 25 fund com-panies and 34 fund distributors

The relative positive overall outlook among the survey participants

comes on the heels of geo-political upheavals in several Mena coun-

tries such as Egypt, Tunisia, Syria, Kuwait, Bahrain and Oman. Citizen

protests or threats of protests have sporadically hampered business

activities in these countries during the first quarter of 2011.

The geography where investors and fund companies are focusing their

investment influenced their 2011 outlook to a large extent. Generally,companies that are focusing their activities towards Abu Dhabi, Qatar,

Kuwait and Saudi Arabia tend to have the same or better forecast

for their business in 2011. Investments made in global and emerging

markets also underpin the positive outlook expressed by some

investors. Growth in these regions is expected to compensate for the

softness of their home markets.

According to one respondent, the anticipation of a change in the pre-

dominantly parochial investment attitude among Middle East investors

is another reason for optimism among respondents.

Understandably, respondents that are in or focusing mainly on Egyptor Bahrain have a more pessimistic view of 2011. With demand and

productivity slowing down significantly, and the movement of goods

severely interrupted following the revolution, we cant afford to be

optimistic, explains a financial analyst at an Egypt-based fund company.

The ongoing unrest is not the only reason among those who said that

2011 will be a worse year than 2010. A Dubai-based investment com-

pany with major stakes in the real estate sector stressed that debts

must be cleared in order to reverse the recession. Another, Bahrain-

based investor explains that her view is based on the projected tight

liquidity across Mena and throughout Europe. Even if the fundamen-tals [in Mena] improve this year, and it is likely that they will because of

the demonstrated GDP growths, it will take time to improve market

confidence now that it has been shaken. Restoring investor confidence

is a primary issue that the Middle East region will have to deal with for

the rest of the year. This sentiment is echoed by a fund company that

focuses on property development, which said that even improved

liquidity among regional and local banks will not necessarily translate

into higher capital inflow. They [the banks] are not going to invest the

cash; they will hang on to it or use it for retail loans, primarily because

they need provisions for ongoing debt and to maintain sufficient funds

Worse15%

How will your business develop in 2011(compared with 2010)?*

Better

52%Same

33%

Worse15%

*Overall average


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for government spending. Generally, they will not be using cash to

obtain equities.

A leading international fund distributor with offices in Dubai foresees a

worse year for his business. He says that delays in the launch of newfunds, changes in regulations in some countries, and poor stock market

performance, which are all directly and indirectly related to the recent

geo-political unrest sweeping the Mena region, will ultimately result in

a more difficult business environment in 2011.

Do you plan to expand your staff?

Investors Fund Distributors OverallCompanies

(%) (%) (%) (%)

Yes, 14 people 34 43 34 35

Yes, 510 people 11 14 13 12Yes, more than 10 people 11 14 25 15No 43 29 28 38

Source: MEED Insight survey, based on responses from 111 investors, 25 fund com-panies and 34 fund distributors

Consistent with the relative optimism expressed by the survey partici-

pants, about 62 per cent indicated that they plan to hire new staff in

2011. A higher percentage of fund companies and distributors plan to

expand their staff compared with investors, with a quarter of distribu-

tors indicating that they plan to hire more than 10 people in 2011.

When it to comes to outsourcing the management of assets externally,there was very little difference between those that plan to and those

that are still hesitant about doing so, indicating a more limited market

potential for international companies wishing to play a more active role

in the management of the regions funds.

Do you plan to increase the share of assets managed externally?(% of investors)

Yes 49No 51


3.1 Long-term trends to guarantee success

Investors provided a wide range of responses when asked about the

long-term trends that are fundamental to their success going forward.

These responses fall under two broad categoriesmacro-economic

and operationswith regulatory and product-related trends emerging

as third trend.


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In addition, fund companies cited very specific factors that are crucial

to their success. These include:

Better educated finance professionals with Western market

experience;

Availability of debt;

Market standardisation;

New markets and new clients;

Government incentives; and

Development of new products

Fund distributors, meanwhile, cited political and economic stability,

focused and well-planned strategies to address new markets, eco-

nomic growth in higher risk markets such as Yemen, Sudan and Libya,

long-term partnerships with current clients, and reliable government

decisions or measures as fundamental to future success.

4. Industry ChallengesChallenges faced by the young and nascent fund industry in the GCC

and the broader Mena region are varied and significant. These includevulnerability to the global financial crisis and the subsequent property

crash in Dubai, the shortage in finance professionals, and the lack of

market data.

A little over 20 per cent of the respondents acknowledged that the real

estate crash in the UAE, particularly in Dubai, severely impacted their

business. About one-third said the impact was manageable or moder-

ate, while the rest indicated that the property meltdown had very little

negative impact on their business.

Macro-economic

Rise in oil and gold prices Innovation Opportunistic volatility Investment in infrastructure (energy,

education, healthcare, consumergoods)

Real estate expansion Robust industrial growth Return of investors World Cup in Qatar Funds from GCC moving to

eastern hemisphere Funding of feasible commercial

development

Operations

Higher expectation of black swanevents, and therefore greater empha-sis on risk management and liquidity

Outsourcing Cost savings Hiring competent staff Investment in training and

development Optimisation of the revenue cycle

management chain Thin and lean focus on core

activities

Other (Regulatory and Product)

Emerging country funds REITS Regulatory correction Diversification in investments Food commodities, power,

energy


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21%

32%

Huge impact, we had major property investments

Moderate impact, we had a balanced portfolio

How did the property crash in the UAE, particularly inDubai, impact your business?

47%

0% 10% 20% 30% 40% 50%

Minimum impact, we did not have a significantproperty investment

advent.com 11

Source: MEED Insight survey, based on responses from 90 investors, 22 fund compa-nies and 32 distributors

Survey participants response to the economic crisis also showed major

variations. Half of the fund companies stated that they made no major

changes to their business operations or strategies, while 40 per cent of

investors said they had reduced their staff. A significant segment of dis-

tributors, on the other hand, cited increasing their use of outsourced

services as a means to cope with the challenging business climate.

Ironically, between 18 and 19 per cent across the three groups of

respondents reported undergoing some sort of general expansion in

spite of the crisis. Furthermore, a few respondents cited adopting other

measures that include stronger risk controls and end-to-end cost opti-

misation as a means to address the crisis.

Source: MEED Insight survey, based on responses from 90 investors and 22 fundcompanies

0%

20%

40%

60%

80%

100%

What changes did you introduce into yourbusiness following the 2009 economic crisis?

Investors companies Distributors Overall

Reduced staff Increased outsourcing

Reduced number of products General expansion

Have not made any major changes


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Approximately 68 per cent of respondent fund companies indicated

that they have allocated more resources to risk management following

the crisis of 2008, although 10 per cent more (78 per cent) stated that

their clients are now putting more emphasis on risk management.In fact, 88 per cent of investors and distributors stated that they have

become more conscious and therefore put more emphasis on risk man-

agement following the crisis, whereas only 74 per cent think that the

fund companies have indeed allocated more resources towards man-

aging and controlling risks in the wake of the economic crisis.

Meanwhile, the majority of the respondents indicated that the country

where they operate in the Middle East region has a reliable regulatory

framework to allow the fund industry to flourish. The remainder dis-

agreed; and disagreement came from every country from the UAE to

Egypt. For the most part those who indicated that the local regulatorymeasures are reliable and sufficient were largely influenced by the

major improvements that have been put in place over the past few

years. We are confident in the capability of the Dubai Financial Serv-

ices Authority (DFSA), says a Western respondent. An independent

court has been established by the Dubai International Financial Centre

(DIFC) to provide comprehensive legal redress in civil and commercial

matters within the DIFC. One respondent also explained that the

recent crisis including the political and economic volatility in the region

will serve to further strengthen the scope and implementation of laws

governing the fund industry across the GCC and the wider Mena

region.

Most of those who presented a dissenting opinion to the question are

influenced by their exposure and experience in more developed mar-

kets particularly in Europe. Areas of improvement particularly in terms

of clarity of certain laws remain, and admittedly were still far from

reaching the level of sophistication found in Western countries,

explained one respondent.

No

32%

Have you dedicated more resources torisk management following the economic

crisis?

Yes

68%

Source: MEED Insight survey, based onresponses from 22 fund companies

No

31%

Does the country where you operate offerreliable, transparent and enforceable

regulatory framework for the funds industryto flourish?

Yes69%

Source: MEED Insight survey, based onresponses from 91 investors, 22 fundcompanies and 31 distributors

Not important

Important

Very important

How important as an issue

is the lack of qualified

investment professionals

in the region? (%)

85240

How important as an issue

is the lack of qualified

Islamic finance specialists

in the region? (%)

194535

Source: MEED Insight survey, based on responses from 91 investors, 22 fundcompanies and 31 distributors


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The shortage of finance professionals that interpret the various regula-

tory measures and ensure proper compliance is a related issue. Com-

pliance with regulations goes hand in hand with the task of installing

risk management and controls, and both tasks are made more difficultby the shortage of experienced [finance] professionals, says one fund

company. The shortage of qualified and experienced manpower is an

endemic issue in nearly every sector particularly in the GCC states, and

more so in the fund management and distribution industries. Recruit-

ing world class finance professionals is always a challenge but it is not a

vacant market, added a manager at an Abu Dhabi-based fund com-

pany. We utilise international head-hunters to recruit the best talent.

4.1 Effects of political unrest

Most of the surveyed companies indicated that they are currently

reviewing the impact of the recent political and economic regimechanges in strategic Mena markets into their future strategy. A mere 11

per cent indicated that they are not making any changes while three

times as many respondents said that these changes require substantial

change in their market focus. Among the most common fears

expressed by respondents is the potential inflationary impact and gen-

eral instability that a change or a vacuum in political leadership could

create, as well as the inevitable reduction in capital inflow resulting

from negative investor sentiment. Conversely, about 30 per cent of the

respondents indicated that these changes could pave the way for more

lasting and profitable benefits, foremost of which is the eventual flour-

ishing of private investment as a result of a more democratic and trans-

parent conduct of business.

37%33%

30%

10%

15%

20%

25%

30%

35%

40%

What are the short- to long-term effects of thepolitical regime changes to the GCC fund industry?

0%

5%

Changes could triggerinflationary scenariosthat hinder investment

growth

Significant reduction incapital inflow

A more democraticregime is good forprivate investment

Source: MEED Insight survey, based on responses from 22 fund companies and 32distributors


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5. Industry OpportunitiesNotwithstanding the multiple and mounting challenges confronting the

Mena regions fund industry, opportunities still await market players. In

terms of factors that are expected to drive growth throughout 2011,

fund distributors are relying primarily on new client segments, while

fund companies are eyeing new products to deliver much needed

growth. Fund distributors are watching institutional investors such

as insurance companies to have a more actively managed portfolio in

the future. They are also expecting asset managers and mutual fund

companies to become more engaged in local markets. New products

would certainly include Islamic insurance (Takaful), which offer consider-

able opportunities. Said one Abu Dhabi based fund company: There

is a huge insurance market in the Arab world, and we have barely

scratched the surface. On the other hand, new markets could includethe emerging, less risky markets like those in Africa, according to an

Egyptian fund company. There is a really interesting story on these

underdeveloped but rapidly growing countries in Africa that will attract

investors.

One company must diversify if it wants to grow, cited a respondent

fund distributor based in Dubai. This respondent is focusing on the

traditional emerging markets (Brazil, Russia, India and China) as well as

on the new emerging markets in the Far East (Vietnam, Cambodia,

Taiwan and Thailand) and in Africa. A diversification in markets reduces

the risk of overexposure in a single market, while at the same timeallowing a diversification in products or sectors.

Two other factors, namely new markets and flows from existing clients

to existing products, are expected to further drive the industrys growth

at varying degrees throughout 2011.

New products

New client segments

Flows from existing clients to existingproducts

Main growth drivers in 2011

0% 10% 20% 30% 40%

New markets

% of respondents

Average Distributors Fund companies

Source: MEED Insight survey, based on responses from 23 fund companies and 33

distributors


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advent.com 15

Based on the survey, there exists a wide gap between the asset classes

in which investors plan to make most of their new investments in 2011,

and which asset classes fund distributors expect to attract the most

inflow. Some 45 per cent of the respondent investors indicated thatthey will make most of their new investments into long-only equity in

emerging markets. A slightly smaller percentage said they plan on tar-

geting most of their new investments into property and fixed income in

emerging markets, while only a quarter indicated that they will be mak-

ing the most investment into sharia-compliant hedge funds. A minority

(8 per cent) said they will be making the most new investments into

other types of assets, which range from Europeanespecially Swiss

stock and currency marketsfood and medical-related assets, gold-

related products, green energy windmills, to options, futures and

derivatives.

Into which asset classes will you make the most new investmentsin 2011?

Asset class Investors (%)

Long-only equity (emerging markets) 45Property 40Fixed income (emerging markets) 34Fixed income (developed markets) 28Hedge funds (sharia-compliant) 25Hedge funds (non-sharia-compliant) 19Long-only equity (developed markets) 19Other*

8*Specified asset classes are: European (Swiss) stock and currency markets,food and medical, gold, green energy, options, futures and derivatives


46%

39%

33% 33%30%

18%

9%

0%

10%

20%

30%

40%

50%

ofrespondents

What asset classes will see the most inflow in 2011?

Hedgefunds

(sharia-compliant)

Long-onlyequity

(developed

markets)

Long-onlyequity

(emerging

markets)

Fixedincome

(emerging

markets)

Fixedincome

(developed

markets)

Property

Hedgefunds(non-

sharia-compliant)%

Source: MEED Insight survey, based on responses from 33 fund distributors


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On the contrary, nearly half of the respondent fund distributors (46 per

cent) expect sharia-compliant hedge funds to see the most inflow

among all types of asset classes in 2011. Another 39 per cent see the

most inflow towards long-only equity in developed markets. Moreover,non-sharia compliant hedge funds and property or real estate are

expected to attract less inflow throughout the year, although a varia-

tion in outlook is noted depending on the focused geography.

The difference in the preferred assets by investors and the fund distrib-

utors projected best performing asset classes in terms of net inflow is

most likely due to the diversification efforts of resident (Middle East)

investors in terms of new markets.

Furthermore, the fund distributors predisposition to expect long-only

equities and sharia-compliant hedge funds to attract the most net

inflow in 2011 can be attributed to the absence of active secondarymarkets and local currency dominated bonds in the Middle East,

according to one respondent who is involved in securities services. And

although less risky asset classes such as long-only equities are a good

investment vehicle for any company looking for growth opportunities,

diversification will be the key in attaining decent returns in future. The

commodity sector ranging from oil and energy to agriculture and food

apparently offers excellent opportunities. One respondent explained

that: The shift in the manner in which we create food. . . it now takes

7kg of grain to produce 1kg of meat.. . and all the related changes in

the food consumption patterns across the globe mean that engaging

the commodities sector, particularly in agriculture, in emerging marketswill be profitable in future.

However, the fact that there are nearly three times as many investors

than distributors that participated in the survey indicates that investor

behaviour will likely exert a stronger influence than that of the distribu-

tors over the manner in which capital investments will be distributed

throughout 2011 between the specified asset classes.

38%

29% 29%24%

19% 19%14%

10%

0%

10%

20%

30%

40%

50%

%o

frespondent

s

Which types of products are you planning to launch?

Fixedincome

(emerging)

Fixedincome

(developed)

Property

Other(privateequity,

ETF,multi-asset

classes)

Long-onlyequity

(developed)

Long-onlyequity

(emerging)

Hedgefunds(sharia-

compliant)

Hedgefunds(non-

sharia-compliant)



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advent.com 17

Approximately 86 per cent of respondent fund companies also

expressed plans to expand their product range during the course of

the year. About 38 per cent are considering introducing fixed-income

products in emerging markets, 29 per cent would introduce fixed-income products in developed markets as well as new property prod-

ucts, whereas about a quarter said they plan to introduce other types

of products including exchange traded funds (ETFs), private equity or

multi-asset class products.

The relative attractiveness of the property segment, in spite of the mas-

sive volume of stalled, delayed or cancelled construction projects in

the emirate of Dubai, hinges on the expected boom in property proj-

ects in selected areas within the region, particularly in Abu Dhabi and

Saudi Arabia. In the bigger scheme of things, Dubai [property market]

is just a small slice of the pie. The property market will remain attractive

for the rest of Mena and globally, explained one fund company.

And while ETFs are considered to offer a bright opportunity by a few

fund companies, some distributors are not as excited about them sim-

ply because they are new and relatively untested. A new product like

an ETF always takes time to gain the right investor sentiment, explains

one distributor. It should be noted that the Middle East ETFs that cur-

rently exist are listed and traded overseas.

In addition, half of the respondent fund companies had stated that the

retail segment would offer the most opportunities throughout 2011,

while only 36 and 14 per cent cited institutional and wholesale clients,

respectively. This means that fund companies generally expect institu-

tional investors such as sovereign wealth funds or government pension

funds to remain relatively risk-averse throughout 2011. Even commer-

cial banks will remain reluctant to invest in high-risk markets to protect

their liquidity, explained one respondent. Hence, the retail segment

comprising individuals who purchase stocks or equities through the

banks will remain the most interesting segment for 2011.

14%

36%

Wholesale

Institutional

What client segment will offer mostopportunities in 2011?

0% 10% 20% 30% 40% 50% 60%

% of respondents



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For about a third of respondents, the GCC equities market offers good

opportunities in 2011, or at least better opportunities than the previous

year, in spite of the ongoing political unrest within the region. A quar-

ter of the respondents expressed the opposite view, with investorsagain holding out a more cautious stance compared with the fund

companies and distributors.

33%

45%

34% 35%38% 36%

47%

40%

29%

18% 19%

25%

20%

30%

40%

50%

f

respondents

How do you view the opportunities in GCC equitiesmarkets in 2011 compared with 2010?

0%

10%

Investors Fund companies Distributors Overall

%o

Better Same Worse


Furthermore, there is no widespread plan among fund companies to

merge products into one domicile as of the survey period, with only

13 per cent saying they have already decided to do so.

Yes, wehave

decided13%

No43%

We arecurrentlyreviewing

this44%

Do you plan to merge/move yourproducts to one domicile in 2011?

Yes

86%

No

14%

Do you perceive net inflows into theindustry in 2011?

Source: MEED Insight survey, based onresponses from 23 fund companies

Source: MEED Insight survey, based onresponses from 23 fund companies and 33distributors

As for net inflows, 86 per cent of respondent fund companies and dis-

tributors stated that they see positive net inflows towards the industry

in 2011. This finding strongly ties in with the fund companies response

on whether their firms will manage to attract net inflows during the

year, with 87 per cent of them responding positively.


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advent.com 19

5.1 Opportunities in each GCC country

According to respondents, Qatar offers the most opportunities for their

business compared with the other of the GCC states. Its successful bid

to host the 2022 Fifa World Cup, strong leadership and ambitious infra-structure and development plans, coupled with the near absence of

political or sectarian conflicts within the state, all contribute to making

Qatar a stable investment destination.

Country rankings in terms of opportunities for the fund industry

Country Ranking (1 lowest; 6 highest)

Qatar 4.07Saudi Arabia 3.99UAE 3.98Kuwait 3.37Oman 3.06Bahrain 2.40


Saudi Arabia and the UAE are perceived to offer similar levels of

opportunities, with Kuwait and Oman trailing behind. Bahrain had

expectedly fallen behind its neighbours not least due to the recent

dilemma confronting its political leaders. The recent protests had

exposed the island kingdoms volatility, which could undermine the

business-friendly image which it has tried to build over the years as

evidenced by the quick and early success, and now the uncertain futureof, the Bahrain Financial Harbour (BFH).

5.2 Outsourcing opportunities

While outsourcing has its share of ardent supporters in terms of stream-

lining cost and enhancing operational efficiency, about 42 per cent of

the overall respondents still do not outsource any business functions.

Of those who do outsource, the majority cited outsourcing back office

and IT functions, 43 per cent outsourced marketing functions, while the

rest reported outsourcing training and development, compliance, as

well as manpower or recruitment services.

The following table shows the areas where respondents see the most

potential for outsourcing in future:


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6. Current Allocation and 2011 OutlookA huge majority of respondent investors and distributors estimate that

they are either underweight or neutral in equities, and 74% plan on

maintaining or increasing their allocation in 2011. Moreover, at 38 per

cent, there are more respondents who plan to put more capital into

equities than in other asset classes such as bonds or cash. In other

words, 2011 generally looks set to be a good year for the regions equi-

ties market. This outlook tallies consistently with an earlier finding in

this survey, where about 35 per cent of respondents indicated seeing

better opportunities in the GCC equities market in 2011 vis-a-vis 2010.

Investors

Sales Finance

Training anddevelopment Everything except

face-to-facecustomer interaction

Logistics Telemarketing Payroll and HR Call centres

Fund companies

Compliance Back office

Market research Marketing IT

Distributors

HR Research

IT Non-corefunctions

Distribution andwholesale

13%

41%

46%

Equities

Overweight Underweight Neutral

38%

26%

36%

Equities allocation direction

Increasing our allocation Decreasing our allocation

Maintaining our allocation

Source: MEED Insight survey, based on responses from 84 investors and 29distributors

The bonds market, based on respondents expected allocation direc-

tion , will see less action than the equities market. About 46 per cent

stated that they will maintain their bond assets, and 32 per cent said

they intend to increase their investment in bonds.


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advent.com 21

Source: MEED Insight survey, based on responses from 85 investors and29 distributors

16%

35%

49%

Bonds


32%

22%

46%

Bonds allocation direction



24%

41%

35%

Real estate assets


38%

27%

35%

Real estate allocation direction



Decreasing our allocationNeutral

27%

26%

47%

Cash

Overweight Underweight

34%

21%

45%

Cash allocation direction

Increasing our allocation



Percentage-wise, there were as many (38 per cent) respondents who

indicated that they will increase their real estate allocation in 2011, as

those in equities. This in spite of a significantly higher percentage ofrespondents (24 per cent) who indicated that they are overweight in

terms of real estate assets. This proves that the property crash in Dubai

did not significantly diminish the value of real estate and property

assets among respondents altogether, and that real estate will remain

the most attractive asset type next to cash, based on respondents

expected behaviour for the year.

The ratio of respondents that are overweight in cash (27 per cent) is

higher than the ratio found in other asset classes (13 to 24 per cent).

However, relative to other asset types, it also boasts the lowest percent-

age in terms of those who intend to decrease allocation during the year.

Source: MEED Insight survey, based on responses from 83 investors and 28distributors


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Source: MEED Insight survey, based on responses from 84 investors and29 distributors

Finally, respondents planned allocation on sharia-compliant assets

looks more likely to remain the same or increase during the year.

Investors have displayed increasing interest in Sharia-compliant prod-ucts over the past few years as more products become available in the

market. A quarter of respondent investors have earlier indicated that

they plan to make the most of their new investments for the year on

sharia-compliant hedge funds.

ConclusionThe Middle East fund industry players are most concerned about the

geo-political unrest confronting the Mena countries and its impact to

the regions economic stability and outlook. These major issues are

accompanied by a weakness, real or perceived, in the overall regula-

tory framework governing the fund industry in a number of individual

markets.

The inextricable relationship between the political and economic stabil-

ity of a country and the confidence that it generates from investors is a

major issue that must be addressed with urgency and care. While the

unrest gave way to a regime change in some countries, leaders in other

countries remain adamant. These leaders had displayed greater willing-

ness to part with money in the form of investments on housing and

other infrastructure projects than in increasing citizen participation in

the political process. This could mean that the huge economic gainsresulting from an increased government spending will generally out-

weigh the risks posed by citizen unrest, at least within the foreseeable

future. The regions combined stock markets had already posted a

strong recovery to the tune of $13bn by mid of April 2011 following

major setbacks in the first two months of the year. The markets in

Morocco, Tunisia, Oman, Kuwait, Bahrain and Egypt, however, still

remain weak.

Increasingour

allocation35%

Decreasing ourallocation

22%

Maintainingour

allocation43%

Sharia-compliant investments allocationdirection


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advent.com 23

As is the rule of thumb even in more stable business environments,

diversification in products and markets is essential for both investors

and fund companies going forward. An increased resource allocation

on risk management, hiring of experienced and competent financeprofessionals, along with diligent market research, should also be on

the top agenda of each industry player.

Finally, it is essential for the industry players to keep an eye on the

newly emerging markets in Africa and the Far East as well as on the

BRICs, in addition to Qatar, Saudi Arabia and Abu Dhabi, and on prod-

uct segments that are underdeveloped or previously underrated such

as Islamic insurance and commodities.

About MEED Insight

MEED Insight is a bespoke research service brought to you by MEEDs

top country and sector experts. It provides bespoke market research

and data solutions to clients who have specific information requests to

help them make more profitable business decisions.

With access to a wealth of regional information ranging from broad

macro-economic statistics to specific sector data, MEED Insight helps

clients accurately and cost effectively forecast market growth and

trends. MEED Insight has a particular focus on project-related market

data thanks to its proprietary database of projects in the Middle East

and North Africa (Mena) region, MEED Projects. Thanks also to the

respected MEED name, MEED Insight consultants have considerable

access to the market, enabling them to speak directly to clients, con-sultants and other companies.

For sample reports and further details about MEED Insight, please visit

www.meed.com/insight.


24/24

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