Middle East Financing Boom as New Funds Established

Middle Eastern investors traditionally tended to outsource asset management to Western managers, but assets are now staying there and funding local project for infrastructure, healthcare, education, and real estate, reports Opalesque.

In an overview of its recent roundtable held in Dubai, the news service for the alternative investment sector says that dozens of new funds are being set up in the Middle East.

While about 50% of them will be real estate focused, Opalesque says that the other 50% represent a mixture of private equity, venture capital, mezzanine, credit and hedge funds that engage in more strategies than ever, including commodities, trade finance, film funding, small and medium enterprise (SME) credit, or aircraft financing.

Local managers and service providers notice a marked increase in appetite from foreign investors to invest in funds that are managed by regional managers.

The markets of the Gulf stand to do well with a strong dollar peg and ongoing significant government spending and investment domestically. There has been legitimate concern recently about the rapid drop in oil prices, says Opalesque.

Nonetheless, given a decade of accumulated reserves from twin surpluses, the governments can afford to run at a slight deficit, if that becomes necessary, for a few more years. This maintains a favourable environment for both public equities and infrastructure investments. However, after the recent rerating – the United Arab Emirates (UAE) and Qatar joining the MSCI Emerging Market Index – being highly selective within that opportunity set will be critical.

The multiples that are being offered in the initial public offering (IPO) space have become very attractive to local businesses and local families now to go public. This, together with a friendlier regulatory framework that further encourages IPOs, will also pave the way for more offerings. Vehicles like a Gulf Cooperation Council (GCC) pre-IPO fund are set up to capitalise on private to public transactions by investing in pre-IPO founder shares.

Growth of Islamic Finance

In recent years several developments have taken place within Islamic Finance, particularly in the sukuk space. This is an asset class with a very large supply and demand imbalance. Sukuk went from being a type of asset-backed security (ABS) rarely found outside of Malaysia or Indonesia to a major asset class that an increasing number of financial institutions are looking to get exposure to.

A major development over the past two quarters was the issuance of sukuks from non-Islamic countries, with issues from the governments of the UK, South Africa and Hong Kong, as well as a forthcoming Luxembourg government issue. These are all major steps to giving the asset class as a whole increasing credibility, says Opalesque.

Islamic finance has evolved from an industry which in the past has predominantly serviced a retail type of client base to now also servicing institutional clients and conventional investors. The important thing to remember is that a well-managed Shariah fund can perform just as well and if not, actually better than a conventional peer.

Qatari investment bank QInvest has created QMAP as the world’s first open architecture Islamic managed account platform. It brings best practice from the conventional fund industry to Shariah investors through a range of global partnerships with managers around the world. QMAP provides the structures and support to help asset managers launch Sharia compliant products, and ease the compliance burden. The platform has met with strong demand from both investors and product providers.

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