Saudi asset management industry remains resilient, cautiously optimistic in 2021

The Saudi asset management industry is well prepared to play a pivotal role in providing the neces-sary impetus to the overall economic recovery after posting 14 per cent growth in 2020, experts say.

Ovais Shahab, head of Financial Services at KPMG in Saudi Arabia, said a resilient asset management industry has withstood the two-fold challenges posed by the decline in oil prices and the Covid-19 pandemic, whereby investor redemptions have been limited and asset prices have either been stable or have rebound.

“As the commercial activity started to resume after limited lockdown; we noted that the large as-set managers reported AUM growth of 14 per cent since December 31, 2019 with a few public funds and more than 50 private funds launched until September 30, 2020,” Shahab told Khaleej Times.

Steady growth in revenue, profits

Latest available data shows that Saudi asset management companies have recorded a steady growth in revenue, profitability and assets under management (AUM) last year as they managed to aggregate SR471 billion of AUMs, reflecting a growth of 14 per cent during December 2019 to Septem-ber 2020 despite the pandemic challenge and slowdown in economy.

In its first edition of the Asset management review recently, KPMG analyzed the industry’s financial performance through the lens of 12 large asset management firms regulated by the Capital Market Authority (CMA). It highlighted the dynamic shift in investment strategies and business plans amid Covid-19 crisis and how varied investor behaviors have evolved in recent times.

Domestic focus

Shahab said the overarching rationale for the strong performance of the asset management industry during 2020 was the domestic focus of the industry in investments and reliance on affluent and institutional investors.

“While the industry had shown the resilience and offered multi assets products in no time under-pinned by strong capitalisation of fund managers operating in the industry; Investors’ confidence was sustained when they were able to shift towards capital protective assets when equities and debts were causing volatilities,” he said.

Lastly, he said affluent and institutional investors reflected their long-term view on the market and pliability to liquidity constraints due to wider economic measures from the government.

Resiliency to continue

To a question about the industry outlook, he said the Covid-19 crisis made “us aware of the impact of unexpected events, and though we cannot predict how the situation will evolve, will continue to improve our handling of the situation and our resiliency” to such events.

“Based on our discussions with leading industry executives and analysis of current state of asset management industry; we anticipate increased competition in the market and investors seeking more value from their fund managers, firms will need to differentiate themselves through demonstrating cross fertilization of investment ideas to generate alpha and developing digital enablers to provide bespoke customer experience.

“Risk appetite of retail investors has been impacted already and they are expected to pursue diversification agenda at the back of their continued risk management. However, UHNWI client base for fund managers in Saudi Arabia will continue to be decisive in maintaining stable AUMs.

“We are also noticing a global uptake in environment, social and governance (ESG) investments and only a matter of time before ESG becomes a top of the agenda item for both investors and fund managers in Saudi Arabia,” Shahab said.

KPMG also predicts an uptick in the deployment of necessary capital to start-ups and entrepreneurs through venture capital or private equity type investments arising from imminent privatizations and the presence of distressed assets as a result of the pandemic.

“In line with the global trend, we expect fund managers to offer a diversified investment suite to potential investors as the risk/reward appetite evolves in the market and fund managers shift their investment strategies accordingly,” Khalil Ibrahim Al Sedais, office managing partner at KPMG in Saudi Arabia.