Asset management in the GCC - Euromoney

had aspirations in the Middle East but had been put off by the lack of alegal code they could understand and trust, and a regulatory environmentthey were comfortable with. As with everything else in Dubai, thepace has been extraordinary: 30 pieces of legislation were enacted inthe first three years, between them representing what one senior figureat DIFC calls “an entire body of Anglo-Saxon law”.From an asset management perspective, many of the world’s biggestnames are registered and set up within DIFC already, among them FranklinTempleton, Permal, Invesco, Man, Prudential and Schroders, and theasset management arms of international banks such as Deutsche Bank,UBS, ING and Barclays. However, very few funds are actually domiciledwithin the DIFC – the figure was just nine in late 2007 – which has ledcritics to suggest that all the DIFC has really done is become a conduitfor money to leave the UAE, with foreigners simply posting sales staffin their offices rather than any manufacturing presence. In fairness, thecollective fund law governing domestically domiciled funds only cameinto effect in mid-2006, and it will take time, and the arrival of custodialand fund administration services in Dubai, before it will make sensefor many groups to domicile funds there. At the moment, there is noobligation for foreigners active in Dubai to domicile funds there, somost instead keep their funds in the Cayman Islands, Channel Islands orBermuda as they always have done. There is some speculation, though,that in time foreign groups will be required to domicile feeder fundslocally which then feed into offshore products.From the outset the DIFC has been designed to offer domicile to awide range of products, including mutual funds, exchange tradedfunds, listed investment companies, hedge funds (and fund of funds),and Shariah-compliant funds. The regulatory package allows for 100%foreign ownership of the funds, no tax, no restrictions on foreignexchange or profit repatriation, and of course the world class level ofsupervision and regulation from the DFSA.It is important to noted tha the DIFC does not cover retail financialservices, nor transactions in dirhams; those are covered by the centralbank in Abu Dhabi.Initially, the legal model was similar to that in Dubai: the QFC operatedon common law principles while the rest of the country hadits previous, Islamic legal code. Also as in Dubai, the QFCRA tried toadopt best practice from regulatory authorities elsewhere in theworld, and again bears a lot of similarity to the UK’s FSA. However inJuly 2007 it was announced that a single financial regulatory bodywould be established, bringing together the regulatory functions ofthe stock exchange, central bank, and QFC Regulatory Authority, andsome regulatory responsibility for insurers that had resided within theMinistry of Economy and Commerce. A chairman and board for thisnew body should be announced soon.The QFC aims to foster a number of centres of excellence, hopingthat clusters of firms will develop in those areas, which in turn maydevelop into a regional hub. Insurance is one example, and another isasset management. Collective investment regulations for wholesaleand retail funds have been enacted over the past 12 months. It ishoped that managers will domicile their funds locally, which has nothappened at this early stage, but a new tax regime that came intoeffect on 1 May may help: it exempts any locally domiciled funds fromtax. Many fund managers have in any event chosen to set up in Qatar.Among them are Axa Investment Management, Global InvestmentHouse, EFG-Hermes and Kuwait Financial Centre.Axa was already in the region through the insurance arms of its businessbefore selecting Qatar as the centre of its investment managementadvisory and client services for the region. Axa, like many othersin the region, had historically managed its Middle Eastern businessfrom London and Paris, and had reached a point where it made senseto be on the ground.“Location was not the only issue; we did want to feel comfortablewith a strong regulatory environment and we were very impressed bythe QFCRA,” says Scott Callander, director, Middle East, at Axa InvestmentManagement. “The logistics of moving around the region arevery good, and by the nature and dispersion of our clients we’re nottied to any one city in the GCC.”Qatar has its own highly ambitious programme to build a financialcentre, though its aim is rather different from that of Dubai. Its intentionsare to build a centre that is very much onshore: it wants internationalfinancial institutions to establish operations on the groundin Qatar. In the Qatar Financial Centre’s own words, it wants them toparticipate in the long term and mutually beneficial partnership withQatar. It is often explained in terms like these: that Qatar is not primarilyaiming to become a regional financial hub, but if its structureenables it to become one, so much the better.The legislation to establish the QFC was enacted in March 2005. Thereare four distinct components to the Qatar model: the QFC Authority,which is responsible for commercial strategy and for developing relationshipswith the global financial community, among other groups;the QFC Regulatory Authority, which supervises financial servicesfirms and financial institutions operating in or from the QFC; a civiland commercial court; and a dispute resolution body.Some homegrown institutions are appearing too. One exampleis Qatar Capital Partners, formed last year with a focus on venturecapital. “The opportunities are huge in Qatar,” says Mikko Suonenlathi,general manager at Qatar Capital Partners. “The things QFC is drivingare corporate governance and transparency, and I think that’s exactlythe right agenda. Once you get to the highest possible internationalstandards it will make it into an even better investment environment.”Qatar’s regulatory environment is still coming together, thoughmuch of the most important legislation is now in place. For example,the regulations for limited partnerships – vital for any privateequity and venture capital business. “That’s a significant step forward,”says Mikko. But every step forward is a new one. “It’s pioneersteps that I’m taking,” says Mikko. “But with the overall environmenthere it’s a good time to take those steps. Three years ago it was tooearly; three years later is too late. Now is the time to enter anew market.”