The long-term prospects for the regional asset management industry remain positive, according to Securities & Investment Company (SICO), the Bahrain-based regionally-focused investment bank.
SICO believes the increasing number of funds being rated by independent institutions such as Standard & Poor’s is helping to grow the regional asset management industry. Ratings by independent agencies offer greater transparency to investors, as well as help in creating a performance benchmark. Performance information made available by ratings agencies also enables domestic, regional and international investors to understand the investment style and process of different fund managers, and help them in finding managers that best fit their investment profile.
SICO’s own funds have been awarded either AA or A ratings by Standard & Poor’s based on stable and superior risk adjusted returns. . Their performance has been driven by insight generated by SICO’s focus on quality and disciplined investment approach. In fact out of the five funds ranked as AA (the highest ranking attained by GCC focused fund managers by S&P), two are managed by SICO.
The estimated size of the GCC asset management industry is around $90-100 billion of which GCC equities account for around $10-20billion. According to estimates, the GCC mutual fund industry is expected to double in size to around $200 billion by 2012. However, SICO considers the market to still be in its infancy. Significant potential remains to be tapped, as the assets under management as a percentage of Gross Domestic Product (GDP) in the GCC region is around 8%, well below that of the developed and emerging markets. In Europe, the equivalent percentage is 63%, and for the US it stands at 115%. Within the region, there are four main types of investors: retail investors, high net-worth individuals, family offices and institutional investors. Retail and high net-worth individuals have traditionally dominated the regional investment market but the last few years has seen the emergence of institutional investors including Sovereign Wealth Funds, Pension Funds and Family Offices, who bring a greater degree of investment sophistication to the market. Access to the regional markets is provided through mutual funds or discretionary portfolios. Mutual funds are more closely regulated and monitored by regulators, whilst discretionary portfolios are more flexible, catering to specific and larger client’s needs.
Fundamental to the long-term growth and value creation of the asset management industry will be the regulatory environment. Much has been done over the past few years in improving the regulation for providers of asset management services but much remains to be achieved to bring the region to internationally accepted standards. Once the region can offer “best standards” regulation, an increasing number of international investors will be attracted to invest in the GCC’s markets. All of SICO’s funds are regulated by the highly regarded Central Bank of Bahrain. SICO also ensures that it offers all of its clients complete transparency and ensures that clients’ assets are held by an independent party (custodian).
A key challenge for the industry is that it remains underdeveloped in comparison to developed financial markets, offering no hedging mechanisms for investors. Crucial to the development of the regional market is the need for a greater involvement of institutional investors who are typically more sophisticated and long-term in their investment outlook. Regional markets still suffer from the high levels retail investment participation, which is generally short-term and does not offer depth to markets.
Anthony Mallis, Chief Executive Officer, SICO, said, “Despite the severe correction in the world’s equity markets, we believe the long-term regional asset management story remains strong. The GCC still offers significant upside potential to investors with a long-term investment horizon and the industry is increasingly developing its practices to those of international standards. The prospects of growth and greater transparency will help to bring institutional investors back to the market, thus helping to provide the stability required by the region’s stock markets.”
Securities & Investment Company is a wholesale bank offering a selective range of investment banking services, including asset management, brokerage, corporate finance and market-making, on a regional basis and with a particular emphasis on Bahrain. Through its wholly owned subsidiary, SICO Fund Services Company (SFS), SICO also provides custody and fund administration services.
As of March 31st 2009, SICO reported total assets of BD 85.3 million, with shareholders’ equity of BD 44.5 million. SICO’s shares have been listed on the Bahrain Stock Exchange since May 2003. Securities & Investment Company was the first ‘closed’ company to list on the exchange.
SICO’s comprehensive range of regular Market Updates and Reviews, and Fund Reports, can be accessed via www.sicobahrain.com
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