Asset managers with a permanent base in the UAE stand to benefit most from the changing regulatory landscape in the country, while the MSCI reclassification and Dubai Expo 2020 will continue to drive regional growth, according to leading figures from the asset management industry.
These conclusions were reached during a roundtable hosted by International Adviser, which focused on the distribution of fund products in the UAE. The event was attended by representatives from four leading asset management firms: HSBC Global Asset Management, Schroder Investment Management, Mashreq Capital and Fidelity Worldwide Investment.
In recent years, the financial services industry in the UAE has come under increased regulatory scrutiny, with the asset management sector one of those affected.
However, tightened regulations are increasing the opportunities for well-managed asset management businesses, according to the roundtable’s attendees.
A brave new world
William Wells, head of intermediary sales, Middle East at Schroders, says many asset managers stand to benefit from the new landscape.
“A lot of the asset managers, and particularly the ones who are based here, who understand the regulations and who are working with the regulators to ensure we have a well regulated environment, are going to be the ones that are going to benefit most,” says Wells.
“That is particularly from the direct distribution of funds as part of wealth management, but increasingly it will also be in terms of insurance products that are being sold through banks and through financial advisers.”
Wells also suggests those companies with “well-structured funds” registered in globally recognised, highly regulated jurisdictions such as Luxembourg and Dublin, will be particularly welcome in the new environment.
Abdul Kadir Hussain, chief executive of Mashreq Capital, agreed, adding that one of the benefits of the regulations being introduced by organisations such as the Emirates Securities and Commodities Authority (SCA), is that it encourages consumers and, more specifically, advisers to look harder at the products they choose.
“Until now, because there’s been a lack of regulation, there’s been a lack of awareness around elements such as where the fund is housed, what transparency that allows, who are the service providers of the funds, who are the custodians, and all these kinds of things,” says Hussain.
“They fall by the wayside because advisers aren’t focusing on them and the investors obviously aren’t. Those kinds of things will become important and hence guys who are positioned and who have well-structured products should definitely benefit.”
Peter Duke, head of fund distribution, Middle East at Fidelity Worldwide, added that although there have been some “teething problems” with the new legislation from the SCA, the introduction of the rules is nonetheless a positive step for the local industry and an opportunity for advisers.
One of the most significant pieces of regulation being introduced in the UAE, aside from the SCA’s fund registration rules, is due to be implemented in November. Aimed at the intermediary market, the UAE Insurance Brokerage Regulation is likely to lead to widespread consolidation in the insurance broker market due to a significant increase in the capital requirements for firms.
Views were mixed on what impact the new regulation and the following market consolidation would have, although the attendees agreed it would help improve advice in the region.
Dan Rudd, regional head MENA at HSBC Global Asset Management, says: “[The new regulations will] raise the bar of qualifications, although there is still a lot of work that needs to be done.
“What the industry has got to get right, is to give investors comfort that when they’re getting financial advice from the industry, they’re talking to qualified, professional people. So consolidation won’t hurt us, it’s more about how [brokerage firms] bring advisers up the curve and how they communicate to the market and the client on what advice they’re giving, their qualifications and the products they’re advising on.”
Duke agreed but added that, in order for the quality of advice to improve in the UAE and for the “starting point not to be the adviser”, greater transparency and some regulation of the advice process is needed.
The attendees also discussed the benefits of having a permanent base in the country, as opposed to “tripping in” as some asset management companies do.
Duke, who joined Fidelity’s Middle East office in its fifth year in Dubai in 2005, said it is hard to quantify the benefit of having a base in the region, if one were to look purely at assets under management.
“[However], if you are close to your clients you get access, which gives you the chance to establish your credibility,” says Duke.
“Once you’ve done that, you’ve built trust and you’re in a much better position to get a percentage of every portfolio allocated to Fidelity and that is where you actually see the real benefit. Once people understand what you do and they’re confident, then you tend to pick up, incrementally, more business.”
Easier to quantify, says Duke, is the impact on companies which have had a base in the region and left.
“Their reputation is damaged, a lot of people turn against them very quickly,” says Duke. “Because having told a good story, advisers are left to rely on factsheets sent from afar or getting something from a website, which isn’t what they want.”
Wells, who opened Schroder’s office in the Middle East in 2007, having previously covered the region from the UK, also suggests the new regulations will make it more difficult for those trying to attract business without a regional presence.
“With better regulations in place, those companies that don’t have funds registered cannot distribute through banks and the like, so it’s been very important to be here, working with the regulators and our partners,” says Wells.
In recent years, there have also been a number of funds which were sold widely across the Middle East by providers without a presence, and which have since been suspended. While events like these clearly erode investor confidence in the asset management industry, it has at least driven some investors to use more established names.
A steady ship
“What it has led to is that more of the advisers are looking for stable partners to work with, stable providers and, in terms of the products, they want more liquidity and more transparency,” says Wells. “Because it’s these products that have been less liquid, that have gone to the wall and left big holes in clients’ portfolios.”
Wells added that products like Schroders’ multi-asset funds and the multi-manager range it recently acquired as part of the acquisition of Cazenove, are areas which are currently generating a lot of investor interest.
Rudd said it was a similar story at HSBC, with investors looking to its flagship multi-asset product.
“We also launched a multi-asset solution in Asia to cater for clients seeking exposure to these key markets, we brought this strategy into the region, because they’ve got different risk profiles and different clients want different types of risk,” says Rudd.
Another product area which has attracted attention, according to Hussain, are shariah-compliant products.
“We saw a need for a shariah product as we have an Islamic window in the bank that distributes into that market,” says Hussein.
“Clearly there is a lot of interest, and the thing that surprised me a little is the interest is not just regional, but global. Even global managers who may not have that product, want to look at it or want to see what the advantages are, because they see a demand base for that in the countries that they distribute in.”
This year has seen a number of fund management companies express an interest in opening an office in the UAE, with some having already taken positive steps in this regard.
Attracting these businesses to the region are a number of key factors, not least the reclassification of Qatar and the UAE from frontier to emerging markets by MSCI, which will come into effect this month.
Wells explains this will see “significant amounts” of money being allocated to the region by asset managers.
Meanwhile, Hussain adds that Qatar and the UAE are already being viewed by some emerging market managers as “safe haven” countries.
“We are already seeing that global EM fund managers are starting to look at this region as a safe haven within their portfolios,” says Hussain.
“So, whether it’s the Russian crisis in Ukraine, the Chinese GDP numbers, or Brazil imploding, any time you get volatility on the emerging market front, you see this region becoming more and more stable.”
Another driver for long-term growth in the region is the Expo 2020, which was awarded to Dubai in November last year, something Rudd says is a sign of more widespread positivity in the region.
“From a regional perspective, [Expo 2020] is a real sign of positive momentum for growth. The wealth management sector will have a real opportunity to play its role,” adds Rudd.
“Opportunities will still arise after 2020, especially given the event will attract over 25 million visitors, but I see the greater opportunity is now and building up to 2020. The expansion of UAE as a global business hub will no doubt continue during the next six years and into the next decade. A knock-on effect will be increasing employment and greater opportunity for financial planning.”