Marmore, a research subsidiary of Kuwait Financial Center “Markaz” has participated in the recently held Global Investor Forum on Middle East Asset Management Forum held in Bahrain. The Managing Director of Marmore, Mr. M.R. Raghu, was a panelist and was speaking about outlook for the Middle East Asset Management Industry. Among other things, Mr. Raghu focused on how the institutional investor landscape is skewed in favor of Sovereign Wealth Funds and Pension Funds and their participation in local stock market is minimal at the moment leading to small size of the mutual fund industry. He said that institutional investors like mutual funds are key to capital market growth and development as they broad base the market, induce a sense of corporate governance among listed companies and enhance market liquidity.
Mr. Raghu stressed the need for the asset management industry to attain scale on par with other emerging markets in order to play an active role in modernizing the market. He also pointed out the dominance of money market and trade finance products in the asset category and absence of bond and real estate products among the product offerings. Given the large and growing sovereign and corporate bond issuances in the last few years, Mr. Raghu feels that introduction of asset allocation products with focus on equities and bonds can be good from a risk management point of view, especially given the absence of other risk management tools like derivatives.
Mr. Raghu added that the dominance of certain sectors in the index also pose problems to spot investment opportunities for asset managers. He said that banks, materials and telecom almost dominate the allocation while attractive sectors like education, healthcare, IT, transportation and logistics have small share though they offer more opportunities. He expressed the need to expand offerings in these upcoming sectors in order to improve fund performance. This can be done by encouraging private family business houses to list in the markets and through privatization.
Mr. Raghu stressed the need to attract foreign investors to GCC markets. Though he believes that index inclusion can be a good first step, transparency, corporate governance and research are more crucial. He stressed that regulatory developments play a key role in attracting foreign capital and he mentioned how Saudi Arabia and Kuwait are leading some of the important regulatory developments in the region.
He also believed that geopolitical risk perception about GCC is higher among foreign investors than local investors and hence there is a need to correct this misperception and show case GCC as a more stable place to invest than other parts of Mena region.
The asset management industry should also use technology to improve customer experience and cater to Gen-Z and Millennials, which are relatively untapped according to him. While the outlook for growth for the asset management industry is positive, players can do well to focus on product innovation, technology adoption, development and attracting local & international institutions and funds in order to get promoted from frontier markets to emerging markets.
According to Mr. Raghu, the asset management industry should move up in the ladder to wealth management as banks are doing. The industry will then turn “solution” focused than “product” focused. With the dominance of high net worth clientele in the GCC region, such a transition opens up several interesting possibilities for growth according to him.
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About Marmore
Established in 2010, Marmore is a research subsidiary of Markaz, an Investment Bank and Asset Management Company with more than 40 years of experience. Marmore caters to the growing research and information needs of organizations in the MENA region.
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