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Middle East assets record 10% growth last year
Abdul Basit / 5 September 2011
DUBAI — The value of professionally managed assets in the Middle East jumped by 10 per cent last year, higher than the global average of eight per cent, according to a report released recently by the Boston Consulting Group (BCG).
In the region, professionally managed assets amount to roughly $1 trillion, or a quarter of assets in the region. While BCG expects total assets (both direct and indirect) to grow by around eight per cent in the coming years, professionally managed assets are estimated to grow at a slightly stronger rate of around 9-10 per cent.
“While Sovereign Wealth Funds have often maintained a stable share of professionally managed assets, we have found that private households demonstrate a long-term trend to increase their professionally managed assets. This trend is also evident among insurers, who seem to be increasing their professionally managed assets as part of a broader asset management professionalisation drive,” said Dr. Sven-Olaf Vathje, a Partner and Managing Director at BCG Middle East.
Despite the favourable conditions for local asset managers, their success may be constrained by a number of factors. These include a lack of investable assets in the local markets, a lack of experience in relation to managing foreign assets and a lack of distributional discipline. It is, therefore, expected that the majority of professionally managed funds will be with international asset managers, due to their proven track records. Additionally, a broader consolidation of regional asset managers seems unlikely.
Markus Massi, a Partner & Managing Director at BCG Middle East, said: “To pursue growth across borders in the Middle East, asset managers must first develop a clear view about which markets they would like to enter given their current capabilities and resources. Just as important, they must accurately assess the level of competition in the new market as local distribution power and connections are key and investor preferences and institutional set-up vary by GCC market. Finally, they must decide where they do not want to be in terms of regions, products, and client segments. Every asset management company cannot stand for all products — credible specialisation and customer focus is key.”
Professional managers of institutional assets and retail mutual funds retained a good momentum in 2010 in the Middle East and around the world, confirming the rebound from the global financial crisis. However, building on the recovery and achieving a stable growth trajectory will remain a tall challenge, according to the report.
The report, Building on Success: Global Asset Management 2011, draws on a detailed benchmarking of leading industry competitors that BCG conducted early in 2011. It also reflects a comprehensive market-sizing effort.
The global value of professionally managed assets rose by 8 per cent to $56.4 trillion in 2010, it said, adding: The increase — which followed a gain of 13 per cent in 2009 and a decline of 17 per cent in 2008 — was driven principally by the continuing recovery of equity markets, with net new inflows remaining marginally positive.
The financial crisis, by introducing great market uncertainty and calling traditional investment beliefs into question, made investors more likely to scrutinize and challenge the investment decisions made by their asset managers.
Product dynamics continue to shift. Many product shifts observed before the crisis have continued through 2009 and 2010 and into 2011. One key ongoing trend is the faster growth of more risk-averse, passively managed and alternative products, compared with actively managed products. In the Middle East, money market products or capital guaranteed products play a larger role compared to other markets.
Different markets face different competitive challenges. There are different sets of challenges for different markets along the entire asset-management value chain. Mature markets such as North America, Europe, Australia, and Japan—where penetration of some asset-management products is stagnating—will likely grow at a modest pace overall. Developing markets such as the Middle East, Latin America and many parts of Asia will likely grow at a faster pace, albeit from a much lower base of regional and domestic AuM.
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