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Wed 6 Oct 2010 03:05 AM

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Muted inflows force Gulf asset managers to rethink models

Managers look at other asset classes, customer bases, as funds shrink in size

Muted inflows force Gulf asset managers to rethink models
OTHER OPTIONS: Gulf asset managers are being forced to rethink their business models due to muted inflows and rising redemptions. (ITP Images)

Muted inflows and rising redemptions are forcing asset managers in the Gulf Arab region to rethink their business models with managers looking at new asset classes and an alternative customer base to stay afloat.

Asset managers in the region have seen international institutions shun the Gulf as an investment destination since 2008, with money flowing to other emerging markets like China, Brazil and India.

In an interview, Roberto Demartini, associate director for fund services, Standard & Poor's, said: "Raising money has been extremely difficult and that's the main issue that the asset management industry has to tackle in the region."

Coupled with the weak performance of local stock markets, including the likes of Dubai and Abu Dhabi, portfolio sizes of most managers have been shrinking rapidly and some smaller funds have been slowly fading away, bankers say.

Total assets under management of some regional equities funds declined by as much as 80 percent in the last two years, Bahrain based Securities and Investment Company (SICO) said in a presentation at a conference in Manama on Tuesday.

In the second quarter of 2010 alone, Gulf markets saw net outflows of around $29 million compared with net inflows of around $1.1 billion in the same period last year.

Attracting inflows has become a key challenge for asset managers and lack of conviction about investment opportunities is forcing some of them to allocate as much as 25 percent of their assets into cash.

Some asset managers have been looking to raise funds from local institutions as international investors stay away, but family groups and other regional investors have been holding on to their funds since a regional property crash in 2008.

And according to SICO, out of a total $2.7 trillion investment pool in the Gulf region, over 95 percent of that is invested outside the region by sovereign wealth funds and high networth individuals.

Fund managers, both regional and international alike, are now looking at an increasing range of options to better sell their products and attract an investor base.

Some of them have been trying to move away from equities and focus more on fixed income assets, which is considered less risky.

Eric Swats, head of asset management, Rasmala Investments, said: "Our anticipation coming through this crisis....allowed us to develop a core competency in fixed income, a more conservative approach to our clients."

Managers are also seeking better distribution channels to sell their funds and have been looking to partner with regional players and third party providers to reduce their over reliance on banks.

Profit expectations of local investors in the region also need to change for the industry to grow, managers say as most local investors look at equity and debt markets as a quick way to make big money.

"When you make an investment into equities markets or fixed-income (funds), you are making a three to five years investment, you are not investing in a casino," said Farah Fastouk, chief executive for Middle East at ING Investment Management. "It doesn't really matter what products you create, the mindset is not there," she said. (Reuters)