It has been a very positive evolution for the Qatari funds industry. According to a recent Boston Consulting Report (Building on Success: Global Asset Management 2011), the value of professionally managed assets in the Middle East rose by 10% last year, higher than the 8% global average, to reach roughly USD 1 trillion, or a quarter of total GCC assets. BCG also expects professionally managed assets to continue to grow at around 9%-10% per year over the coming years.
While Qatar currently represents a small proportion of the GCC funds industry relative to its GDP, this is rapidly changing. Qatar's exceptional economic growth, favourable demographics, growing breadth and depth of investible assets and robust regulatory regime, as well as its strategic location, increasingly make it one of the most attractive fund management markets in the region.
Importantly, we can see that the evolution of Qatar's fund industry is reinforced by the following factors:
1. Superior Economic Fundamentals Driven by Exceptional Hydrocarbon Wealth
Qatar boasts one of the world's most dynamic and fastest growing economies and this remains the primary growth driver for the fund management industry. The IMF forecasts that Qatar's GDP grew 16.3% in real terms in 2010 to reach a nominal GDP of USD 129.5 billion while in 2011 the economy is set to grow a further 20% in real terms to reach a nominal GDP of USD 194.3 billion.
Perhaps unsurprisingly, Qatar's robust GDP growth is presently driven by its exceptional hydrocarbon resources, which consist of the world's third largest reserves of natural gas. In terms of natural wealth overall, this impressive growth equates to an estimated USD 16.7 trillion in monetizable oil and gas reserves (QFC Authority analysis of the BP Statistical Review of World Energy). As Qatar continues to diversify away from its hydrocarbon dependence, this wealth is being reinvested in significant infrastructure investment programmes, which are expected to total more than USD 140 billion over the next five years, creating huge opportunities for investors and the asset management industry.
2. Favourable Demographics
According to the IMF, indications suggest that GDP per capita in Qatar is set to surge to USD 109,900 by the year-end, up from USD 76,160 in 2010, ranking Qatar second only to Luxembourg on the world stage. At 49%, Qatar also continues to enjoy one of the highest savings rates in the region, significantly higher than the world average of 22%. This pool of savings makes Qatar one of the most promising markets for wealth management in the Middle East. The high savings rate coupled with the redirection of wealth from abroad, as Qatari investors increasingly demand representation closer to home, is contributing to Qatar's significant onshore High Net Worth Individual wealth (individuals with more than USD 1 million of investible assets) which amounted to some USD 25 billion in 2009.
According to BCG, Qatar also has the 7th highest proportion of Ultra High Net Worth households, those with more than USD 100 million in assets under management per 100,000 households. At 8.9%, Qatar has the third-largest proportion of millionaire households in the world. Not surprisingly, according to Datamonitor, Qatar is one of the most attractive HNWI markets in the Middle East, offering high potential for international managers catering to this high-net-worth segment.
3. Rising Institutional Wealth
Sovereign Wealth Funds as well as insurers and pension funds are also spurring growth in the asset management industry. Middle East SWFs accounted for 37% of the estimated USD 3.9 trillion SWF assets globally in 2009 and for half of all assets held by the GCC with Qatar's SWF, managed by the Qatar Investment Authority, accounting for circa USD 85 billion of assets, according to SWF Institute data. BCG also sees a rising trend for insurers to increase their professionally managed assets as part of their broader asset management professionalisation drive, on the back of GCC insurance premiums which are expected to more than double to USD 27 billion over the five years to 2014.
Pension funds meanwhile total USD 50 billion for the GCC as a whole and USD 1.2 billion in Qatar, according to Ernst & Young's Islamic Finances & Investments Report, 2009.
4. Growing Breadth and Depth of Investible Assets
Following the swift development of Qatar's capital markets, there is a growing breadth and depth of investible assets supporting the development of the asset management industry. A key plank was the establishment of a recognised liquid sovereign yield curve following the State of Qatar's multi-tranche USD 7 billion bond issue in 2009. In 2010, Qatar and the UAE accounted for the bulk (31% and 32%, respectively) of the USD 29.9 billion sovereign and corporate bond and sukuk issuances across the GCC (Markaz bond market survey 2010).
On the equities side, the Qatar stock market, with 42 listed companies, rose nearly 25% in 2010 making it the best-performing market among all the Middle Eastern exchanges last year. Shariah funds are also rapidly growing in popularity with the Islamic Development Bank and the IFSB predicting that more than half of all financial services delivered within the GCC will be Shariah-compliant by 2015.
Strengthening the Pillars
The development of Qatar as a regional hub for asset management is being strongly supported by the Qatar Financial Center Authority, the commercial arm of the Qatar Financial Center. While all types and categories of Collective Investment Funds are permitted within the QFC, steps have been taken last year to accelerate the development of the asset management industry both at a retail and institutional level.
This includes revised rules to allow authorised firms to operate foreign funds and for foreign funds to be sold to domestic retail customers as well as the introduction of one of the friendliest tax regimes in the world; QFC-registered companies are subject to a 10% corporation tax charged on all locally-sourced profits.
The QFC also offers asset management firms an onshore trading environment with a robust legal structure based on English common law, a strong principles-based regulatory structure, 100% foreign ownership and repatriation of all profits and no restrictions on dealing in any currency.
Meanwhile the Qatar Exchange continues to improve the market's liquidity, accessibility and efficiency and, for example, in March this year announced the adoption of Delivery Versus Payment (DVP) rules to improve the clearing and settlement process and better serve investors.
Greater retail investor education, in terms of the benefits of portfolio diversification and advantages and disadvantages of different products, is also important and is something which the QFC Authority is actively looking at improving.
As a result of this favourable environment, since 2005, a number of major international players have taken up QFC licenses including AXA Investment Managers, Credit Suisse, Barclays Capital, the Industrial & Commercial Bank of China and Deutsche Bank. Local players include QNB Capital, Qatar First Investment Bank and QInvest.
The author is Director of Strategic Development-Asset Management and Banking, Qatar Financial Center Authority. The views expressed in this article are not necessarily those of Zawya.
© Zawya 2011
