Dubai is set to reinforce its status as the region's leading financial hub with new legislation and regulation expected to attract inward investment as the GCC is forecast to see an exponential growth in assets under management to nearly $111 billion by 2020, a new study reveals.
While fund managers in the UAE are expected to see their asset under management (AUM) grow from $1.6 billion in 2016 to $18.9 billion in 2020, fund managers across the GCC are expected to more than double their AUM from $45.8 billion in 2016 to $110.9 billion in 2020, said the report DIFC Wealth & Asset Management Report 2017: Mapping Opportunities in the Measa Region.
While greater financial sophistication of the region's financial markets drive the rapid growth in fund assets in the GCC, the Middle East investment market is expected to more than double between 2012 and 2020, with assets rising to $1.5 trillion by 2020 from $600 billion in 2012 - 12 per cent at an annualised rate, the report noted. The report explores the latest investment opportunities in the region, while providing a five-year projection for AUM in key Measa (Middle East Africa and South Asia) countries.
At the end of 2016, total AUM by fund managers in the Measa's key financial centres (India, South Africa, Nigeria, Egypt and the GCC countries) was $436.5 billion. By 2020, the report projects total AUM to reach $678.9 billion.
"The DIFC has identified the wealth and asset management industry as having huge potential for growth over the next five years, which is why we are making a number of enhancements to our platform. From the DFSA's recently updated collective fund regime to potential legislative changes on the horizon, we believe Dubai and the DIFC can play a central role in attracting assets to the region and preparing it for the future of the financial services industry," said Arif Amiri, chief executive officer of the DIFC Authority.
According to the report, Dubai, leading the Global Financial Centre Index in the Measa region, has the aspiration to provide a bridge for capital flowing to South Asia, Africa and the Middle East due to their central locations and convenient time zones relative to Europe.
"While Bahrain has long been the jurisdiction of choice for many fund managers operating within the GCC, growth slowed there in the wake of the financial crisis. Political instability during the Arab Spring also hit confidence and many fund managers who moved to Dubai at that time have stayed despite a return to stability in Bahrain," it said. The report pointed out that the UAE has several different regimes for fund managers but most managers use one of the free zones, particularly the DIFC.
The report said Islamic asset management continues to grow, at a moderate compound annual growth rate of 2.44 per cent since 2012 to reach $58.89 billion in AUM at the end of 2016. Shariah-compliant investments have strong demographic demand but remain under-utilised.
"Representing just one per cent of global Islamic funds, Shariah-compliant pension funds could be a key contributor to the Islamic fund management industry in the years ahead," said the report.
The report also highlights the massive expansion of the middle class in emerging markets. "This has created significant opportunities, with financial sectors that were previously focused on exporting capital now reinvesting that capital in those requiring finance at home. Financial centres in the GCC have a particular opportunity because there are opportunities for investment both regionally and across the wider African and Asian regions."
The region is particularly attractive for fund managers in the alternative investments sector. In contrast to the perception that investors from the Middle East are heavily concentrated in real estate, these make up just under 20 per cent of assets of high net worth individuals, among the lowest of any region except Japan and North America, said the report.
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