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Global markets have witnessed an exponential rise in the sophistication and diversity of investment funds, especially across regions such as North America, Europe, and parts of Asia. However, the GCC region appears to be lagging significantly in this crucial financial sector.
International markets have developed investment ecosystems where pooling investor capital is a cornerstone. For example, the United States boasts thousands of mutual and hedge funds, allowing investors—both large and small—to diversify portfolios, distribute risk, and tap into global opportunities.
European markets have similarly embraced investment vehicles like UCITS (Undertakings for the Collective Investment in Transferable Securities), providing a level of investor protection and transparency that has helped attract capital worldwide. Asia has not been far behind, with financial hubs like Singapore and Hong Kong introducing investment structures that encourage both domestic and foreign participation.
In contrast, the GCC still lacks comparable sophistication. Though there has been growth, much of the region’s wealth remains tied to traditional asset classes, such as real estate or large-scale family-owned businesses. The few funds that do exist often lack the regulatory framework and transparency necessary to foster widespread confidence. Weak policies in areas like investor protection, tax incentives, and transparency have hindered the establishment of a more vibrant and diverse investment fund landscape.
Real estate weightage
The overwhelming focus on property development in the region is a great example. While real estate remains a significant wealth generator, it is often pursued through singular, developer-driven initiatives. Such an approach leaves much of the risk concentrated with a single entity, exposing both developers and their investors to potentially devastating losses.
Shifting to a pooled investment model, where multiple investors share the risk across diversified portfolios, would provide a more sustainable pathway to growth. Such funds could include everything from property to equities, bonds, and emerging asset classes like fintech or green energy—sectors that are essential to a diversified and future-proof investment strategy.
Policy reforms
For the GCC to adopt this model, policy reform must take centre- stage. It is crucial to develop investment funds at both individual and enterprise levels, opening access for smaller investors and expanding opportunities beyond the ultra-wealthy.
The challenge lies in the absence of essential financial infrastructure and educational initiatives. Too many GCC banks still prefer traditional loan products and lack the willingness to champion investment funds, leaving a critical gap in financial services.
Moreover, public awareness remains an issue. Many potential investors have limited knowledge of investment funds and their benefits. Educational programmes designed to teach individuals and institutions the advantages of fund-based investments could prove transformative.
Introducing diversified financial products tailored to the regional market would also help establish investment funds as a mainstream option.
Partnerships
Strategic partnerships are equally crucial. International fund managers, institutional investors, and global banks have played pivotal roles in elevating markets in Asia and Europe. By cultivating partnerships with such players, the GCC could unlock expertise and attract foreign capital.
The creation of joint ventures between regional investment firms and international entities would lead to an exchange of best practices, transparency standards, and innovative financial instruments, accelerating the region's progress.
If these challenges are addressed, the GCC will benefit tremendously. A well-structured investment fund industry would not only diversify the region’s wealth but also make it a more attractive destination for international investors. Transparent, well-regulated funds would provide foreign entities with the confidence needed to allocate capital to the region, knowing that investor protections are in place. This would lead to a significant inflow of capital, boosting regional economies and fostering growth in new industries.
To conclude, policymakers, financial institutions, and investors in the region must recognise the need for reform and work collaboratively to create an ecosystem that mirrors those in more mature markets.
(The author is Founder and Senior Executive Officer at Ento Capital, headquartered in Dubai International Financial Centre (DIFC). Any opinions expressed in this article are the author’s own)