Asset management in the GCC - Euromoney

decisions will ultimately be made by the elder member of that family,perhaps a great-grandfather, who is chiefly interested in wealth preservationfor the next generation and who is therefore conservative. Thesuccessful fund salesman here is performing something of the role of afinancial advisor. At the other end, one could argue that Saudi Arabia’sPrince Alwaleed’s $20 billion-plus holdings are a family office of sorts,though of course in terms of scale and sophistication he and his teamare clearly a key institution. One European asset manager says familyoffices are “clearly seen as institutions both in terms of their needs andtheir sophistication.”Then there’s high net worth. This group, like high net worth anywhere,varies greatly in sophistication and investment capability, but somegeneral themes emerge. “It’s definitely eyes east rather than west,” saysWells. “They tend to be either very low risk or high risk; they’re lookingfor emerging markets exposure, the India, China and Asia stories, or arelow risk and want cash plus something. There’s not much of a middleground.”Many international private banks have set up divisions in the region tocater for this marketplace, whether through top-end private client divisionsor a broader wealth management approach. Merrill Lynch and ABNAmro, for example, are highly active in this field. However, this is a competitivefield, and the competition is not just from peers in the region.Consider Saudi Arabia, where dozens of new entrants are now chasingthe same limited number of (undeniably highly wealthy) individuals.They’re not just competing with each other, but with the offshore banksthat have traditionally managed much of the very wealthiest money.“Their immediate success will hinge on persuading the richest population,who’ve got 60% of their money offshore and do private bankingin Geneva and Zurich, to do business with entities in Riyadh rather thancontinuing their offshore relationships,” says one private banker. “Privateclients do business in Geneva. Institutions are used to dealing withsuitcase bankers flying in from London. This has been going on since thefirst oil crisis in the 70s. You’ve got 30 years or more of people being accustomedto doing the most important part of their business offshore.”Below that comes retail and mass affluent. Reaching this group are thelocal banks – many of which have private banking or premium divisionsof their own – and a handful of international groups with long trackrecords (often a century or so) in the region, particularly HSBC, StandardChartered and Citibank. Other international managers reachingretail typically won’t deal with them directly, but will go through thesedistribution networks. Many have not bothered even pitching productthrough these channels, instead focusing all their effort on institutionsand the high net worth. In many cases, they have no choice: businessesregistered in the DIFC, for example, can only sell product to people withover $1 million in investible assets, although there is talk about halvingthis limit.There is some evidence of foreign managers deciding to take the jumpto retail, though. Axa Investment Management, for example, has reachedaround $17 billion under management in the Middle East, most of itinstitutional, and has decided to take the next step. A new head of distribution,James Cahill, joined on 1 June to expand Axa’s strategy along thelines of its European model, by catering for global private banks; in theMiddle East that will mean going through distributors such as UBS, BNPand HSBC, as well as local offices. “It’s a natural extension of the businessstrategy,” says Scott Callander, director, Middle East, at Axa InvestmentManagement.Harshendu Bindal, senior director for CEEMEA at FranklinTempleton Investment Management in DubaiWhy go there at all? “The primary reason for developing the distributorstrategy is that the number of mass affluent is increasing pretty consistently,”says Callander. “There is still decent demand for overseas product,to provide diversification away from their exposure to real estate andlocal markets.”With a total local mutual fund industry of only around $57 billion (seeopening chapter) relative to a more than $900 billion regional marketcapitalization, it is clear that the retail sector is under-penetrated by fundsales, and it should represent a big opportunity for those prepared tomake the effort to serve it.International funds that do sell through the established distributionchannels to retail report varied experience of fees. “In fee structures,global relationships tend to have global fee structures and local relationshipstend to be more locally derived,” says Tolchard. “Organizations arebecoming more aware of fees in terms of what needs to be competitivein the marketplace, though we’ve yet to see the transparency of feestructures that we see elsewhere in the world. The region hasn’t yet beenput under the pricing pressure that more developed markets have.”The Gulf’s unique demographics are sometimes reflected in some distinctmarketing strategies. The clearest example of this is the huge SouthAsian population in the United Arab Emirates, believed to represent asmuch as 70% of the working population of Dubai. Several foreign banks,among them Citibank and ABN Amro, have set up dedicated non-residentIndian businesses in order to accommodate that part of society.Others specialize in expatriates generally.For local banks, the model is almost universally the same: they have anasset management division (sometimes hived off into a separate legalentity, but still under the same ownership) which produces productfor distribution through the same bank’s branch network. They is someselling of foreign managers’ products through these networks, oftenthrough white labelling, but there is almost no acceptance of the ideathat a bank would distribute another local manager’s product, which isseen as a competitor.Consequently, open architecture has little purchase in the Gulf so far,but many expect it, and hope for it. “It is very important for the developmentof the local asset management industry,” says Harshendu Bindal,senior director for CEEMEA at Franklin Templeton Investment Management.“Most local asset managers are focused on supplying product toGUIDE TO ASSET MANAGEMENT IN THE GCC15