Given the levels of liquidity in the UAE and the GCC, the regional asset management industry remains relatively dormant, accounting for only around 3% of total GCC market capitalization, compared to around 20% in a more mature market such as the US.
“We are now at a stage in the cycle where Latin America was about 5 years ago, and where the US and Europe were a decade or more ago in terms of product sophistication,” explains Hashem Montasser, Regional Head of Asset Management at EFG-Hermes, which has a long-standing track record managing regional funds and has played a pioneering role in bringing in specialized fund management products to the region since the inception of its first regional fund in 1999.
He adds, “But with the development of regulatory systems, and the evolution of Dubai as an investment hub, we are going to start to see these products get more sophisticated. Equity funds, which remain the dominant product class, have already started differentiating themselves in terms of industries, sectors and style of investing. In turn, a variety of new products will be introduced such as hedge funds, various types of fixed income funds, and more complex structured funds.”
Equity markets in the MENA region have been performing strongly and are set to continue to grow, fuelled by high oil prices and robust macro economic performance, as well as continued high levels of liquidity that has found its way into financial markets.
“As regional markets continue to boom, it becomes crucial to allow investors a good mix of investment choices. What we are witnessing today across the region is an investment trend towards single-holdings, with people generally wanting to be active investors themselves. But if an investor is seeking to diversify his holdings, decrease his risk, and get a stable return over time, then professionally managed funds are typically the right vehicle. Ideally, a smart investment approach would be to direct a portion of your total assets into mutual funds, which are more long-term buy and hold, and, depending on your appetite for risk and the amount of time on on your hands, another portion for day-to-day trading, which is more speculative in nature,” adds Montasser.
Depending on risk appetite, investors can typically choose from a variety of funds including equity funds, fixed income funds, which are characteristically lower in risk than equities, or balanced funds which combine the two.
Montasser elaborates, “The basic premise of funds is that investors should not be looking to buy into funds to trade them, but rather invest over a longer period of time so they can attain higher risk-adjusted returns. The nature of investing in funds, through a variety of companies in different sectors within a number of countries, naturally decreases risk.”
EFG-Hermes Asset Management manages over USD1 billion in assets, including two flagship regional funds: The MEDA Fund, a regional equity fund that invests in 12 Arab countries; and the Telecom Fund, which invests in telecom and media industries across the Middle East, Africa and parts of Asia. Both funds are exhibiting impressive performance, with the MEDA Fund up 48% year to date, and the telecom fund up 52% year to date, both on an absolute return basis.
