UAE's asset management industry has continued to grow in recent years, with regulatory developments and a new financial free zone to launch in Abu Dhabi later this year. Mena Fund Manager looks at some of the issues facing managers
Few countries in the Mena region have put as much energy into developing their asset management industry as the United Arab Emirates. And while much of the focus has been on Dubai, there are new initiatives on the horizon to develop the industry elsewhere in the country.
The appeal of Dubai is understandable. The market infrastructure in place at the DIFC combined with access to wealthy investors has helped create an attractive environment for both national and international asset managers. It is the financial centre of the country, which has one of the highest GDP per capita in the world, and has also become a destination for the region's wealth over the years.
The UAE has also emerged as one of the stronger economies in the face of weaker oil revenues. A visit by the IMF towards the end of last year noted the lower breakeven price compared with other major producers in the region and its sovereign wealth fund buffers.
"There is certainly a degree of confidence in the UAE as a location for investors to be based and invest," says Invesco's head of international development Nick Tolchard. "It seems we've moved a long way from the days where there was concern over Dubai debt. I do think we've moved into a new environment over the past two or three years."
"We have seen a lot of development of the regulatory environment in the UAE. We've seen developments at [UAE regulator Emirates Securities & Commodities Authority] ESCA," he adds. "It'll be interesting to see developments in Abu Dhabi with the financial centre there."
While Dubai remains the home to a major part of the country’s financial services industry, rival emirate Abu Dhabi has redoubled its efforts to diversify its economy with the launch of a financial free zone later this year.
Plans to launch the Abu Dhabi Global Markets (ADGM) on Al Maryah Island in the emirate have been in the pipeline for a while, but development is now pushing forward with former UK regulator Hector Sants appointed as adviser, and a consultation on a number of issues now taking place.
Going head-to-head with its northern neighbour, ADGM could foster greater competition in the UAE’s asset management sector and prompt further regulatory changes.
However, not everybody is convinced that the new free zone will be able to compete with the more established DIFC immediately.
“If you listen to businesses in the Middle East, they are still focusing very much on the DIFC,” says Nigel Sillitoe, CEO of strategic research company Insight Discovery. “The DIFC has attracted quite a few companies over the past couple of months and it’s well known that a number of very large UK-based asset management companies are still weighing up the option of whether to set up a physical presence in the Middle East.”
“I think the DIFC is developing its proposition, it’s keen to develop its ability to be a fund domicile,” adds Invesco’s Tolchard. “What counts today is where the assets are managed and where the clients are able to access those products.”
Recent efforts by Dubai’s financial authorities to launch new structures, such as the Qualified Investor Fund (QIF), and strengthen existing regulations have been met positively by the industry. The launch of the QIF follows increased interest for alternative investment strategies both from investors and managers wishing to launch them.
“It’s still a very vibrant environment. It has fuelled our growth in the past and continues to do so,” says Fred Tabbal of Maples Fund Services, adding that there are a number of UAE-based fund launches in the pipeline focusing on real estate, infrastructure and other alternative assets.
Yet, there have been some concerns raised by firms domiciled at the DIFC over their offshore status and how they interact with other emirates. Criticism has been levelled at ESCA and how it relates to the DIFC-based asset managers, with some managers telling Mena Fund Manager of issues when offering their products elsewhere in the UAE.
“As far as ESCA and the [DIFC regulator Dubai Financial Services Authority] DFSA are concerned, we continue to see an increase in ESCA’s regulatory role which is very positive and hope that the DFSA and ESCA jointly continue to align the UAE’s regulatory regime with international best standards,” says Tabbal.
“As industry practitioners, we are actively engaging with regulators and providing feedback that will further contribute to the development and refinement of the regulation, and specifically to break barriers within the region to promote further growth and cross-border activities and services.”
“There are rumours that ESCA are changing the structure for fund approval instead of the distributors having to pay fees, the onus will be on fund managers to pay these fees,” a source told Mena FM on condition of anonymity. “The good news for the industry in general, the fees are going to be considerably lower than had been forecasted.
“ESCA have changed their strategy and started to make it easier for funds to passport into the UAE. Currently the onus is on banks to pay fees for funds and the bills would have been astronomical for some of the local banks,” the source says. “It’s now the fund managers that will pay a fee to have the funds registered, and it will be a very modest fee.”
Avalanche of regulation
Despite some internal regulatory differences, the adoption of international regulations have been implemented by local regulators with little fuss. Tabbal of Maples Fund Services says managers in the UAE have been well-positioned for changes in the regulatory regime,
“There is an avalanche of regulation sweeping the global economy, and the sectors we serve are affected,” says Tabbal. “Managers were originally in denial but now they are finally accepting the regulation they are subject to. We have managers who are well aware of AIFMD in Europe. Almost every manager is aware of Fatca implications and how far reaching it is.”
Outside of fund management, other efforts have been made to pull in more interest from around the region. Dubai’s attempts to become a centre of Islamic finance in the Gulf were helped by new rules on sukuk issuance and have been greeted with some interest from corporates.
While the onset of lower oil prices has weakened investor appetite recently, there were several notable IPOs last year. The spin-out of Emaar Malls from its parent generated a significant amount of interest, leading to one of the biggest listings in recent memory. Elsewhere, rising property prices have signalled healthy appetite for property from investors, while development projects have continued to be greenlit.
Further work still remains, however. Financial education remains a priority for some firms operating out of Dubai. There are also several other challenges for the burgeoning local wealth management community.
“What I would encourage is further evolution so that members of the public when investing, are able to be clear about whether their adviser is regulated, which umbrella they come under,” adds Invesco’s Tolchard. “I still think that is a work in progress, but I think that is a long-term trend.”
© MENA Fund Manager 2015
© Copyright Zawya. All Rights Reserved.