Apr 22 2012
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328 GCC funds hold $26.5 billion in assets: Markaz
The findings are contained in Markaz 's new report, titled 'GCC Asset Management & Investment Banking Survey 2012', released at the weekend. The report takes an in-depth look at the industry across the GCC in terms of assets under management (AUM), number and types of funds managed, top managers across the various markets, fund costs, benchmarks and performance ranking and a number of other parameters.
Moreover, the report discusses the investment banking aspect in terms of equity and debt activity, M&A and IPOs.
Geographically, Saudi Arabian funds account for 66 per cent of the total ($17.5bn), followed by Kuwaiti funds with 16 per cent share and GCC/MENA mandated funds with 14 per cent share. In terms of products, money market funds lead the pack with a 53 per cent share, followed by equities at 42 per cent, while the remainder is in fixed income and specialised funds. Of the total, Islamic funds manage $17bn (64 per cent) in assets.
Saudi Arabia, with $17.5bn in assets, had the highest AUM to GDP ratio of 3.1 per cent, followed by Kuwait with AUM to GDP ratio of 2.6 per cent. The ratio for all other countries was less than 0.5 per cent, implying lack of institutional presence in the investment segment.
Most GCC country funds adopt local stock market indices as their benchmark. As local indices are price return indices, the fund manager performance (with respect to the benchmark) is overstated to the extent of dividend yield. Among global index providers, MSCI and S&P are the most active in the region. The majority of Sharia-complaint funds use S&P indices as benchmarks since MSCI has discontinued Saudi securities from its indices.
In Kuwait, six out of the 20 conventional equity funds use KSE Weighted Index as their benchmark. Four funds use KIC index ( Kuwait Investment Company ). Most GCC/MENA equity funds use S&P GCC Index and S&P GCC Sharia Index as benchmarks for conventional and Islamic funds, respectively.
The ranking of GCC countries in terms of number of funds domiciled, indicate that country of domicile relates to the size of each country's asset management industry with only a few exceptions. There were 143 funds domiciled in Saudi Arabia, managing $18.6bn in assets, followed by Kuwait with 57 funds, managing $4.6bn. Bahrain has 37 funds with $1bn in assets. Most of the funds domiciled in Bahrain are mandated to invest in GCC/MENA region.
The Central Bank of Kuwait on a monthly basis publishes a detailed break-up of the assets of the investment companies, which includes -- Portfolio investments (Managed Accounts), equity, debt and investment fund units held by local investment companies, custody accounts, foreign funds and commitments and guarantees. This is by far the most transparent break-up of assets of the asset management industry available in the GCC region. This provides us with a preliminary break-up between managed accounts and mutual funds for Kuwait.
As of November 2011, the size of Kuwait fund management industry, as disclosed by CBK, is at $6.0bn, and the assets managed under portfolios is at $53.5bn -- a factor of 9x. Similarly for Saudi Arabia, Saudi Arabian Monetary Agency ( SAMA ) provides the total assets in investment funds, which amounts to $21.9bn. However, SAMA does not provide statistics for assets managed under managed accounts. This leads us to take an intelligent guess on the proportion of managed accounts to investment funds for the rest of the region.
"Although it is very difficult to precisely measure the size of investment banking industry in the GCC, we have attempted to make an estimate based on sparse data obtained from various sources. Even though investment banking firms can practically derive revenue from a plethora of services they can offer, we concentrate our analysis on the four major revenue streams -- Mergers & Acquisitions, Equity Capital Markets, Debt Capital Markets and Loans," it noted.
As per data from Reuters, Middle East ECM issuance reached $10.2bn in 2011, a 47 per cent increase compared to 2010. Follow-on offers accounted for 62 per cent of 2011 activity. Total fees from ECM activities are estimated to total $82.1mn in 2011 as against $91.4mn in 2010.
The GCC raised $796mn in capital from nine IPO issues in 2011, a 61 per cent decrease from the previous year's $2,031mn from 12 issues. Saudi Arabian companies raised the maximum amount of new money in 2011, followed by UAE companies. Reluctance to sell at depressed valuations in addition to lower risk tolerance among investors are the main reasons for reduced IPO activity, says Markaz .
As for debt, the GCC debt market has seen a dramatic rise during the last few years on the back of fiscal reforms and heavy capital spending. Strong sovereign balance sheets, lower yields and cautious bank lending have fuelled the debt market growth.
However, lack of active secondary market and clear regulatory structure are hindering growth. Qatar exchange recently started trading on short-term Qatari Treasury bills with trading on government bonds and Sukuk expected to follow soon. UAE also wants to expand its secondary debt market beyond the small number of bonds listed in Dubai.
As per data compiled from Zawya Bonds Monitor, GCC entities issued $34.5bn worth of conventional bonds in 2011, down 9 per cent from 2010 issuance. These figures include bonds issued by both corporate and government entities offered for subscription to public or on private placement. The Sukuk market also saw strong activity with $19.5bn of issuance in 2011.
Middle Eastern M&A, based on target nation, reached $10.1bn during 2011, a 43 per cent decrease compared to full year 2010 when activity totalled $17.7bn. Among sectors, real estate is the most targeted industry with $2.6bn, 26 per cent of the activity down from $4.8bn during 2010.
The asset management industry in the GCC remains underdeveloped and nascent compared to its Emerging Market counterparts; its future growth also faces many challenges, says Markaz .
GCC markets are known to be volatile and speculative because of their retail-driven nature which tends to participate highly in over-exuberant times while being quick to exit in times of crisis. However, given the increased volatility of global markets in light of muted economic growth and the euro zone crisis, the GCC is looking increasingly less risky.
There is a perception of risks, however, associated with regional unrest and political turmoil; but we would be quick to note that the effect of these events on business in the region has been marginal and minimal to a large extent.
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