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Mideast asset management industry faces challenges

DUBAI - The region's asset management industry faces a number of challenges if it is to continue to grow said Michael Klimek, head of asset management Middle East at Commerzbank.

Local investors still prefer domestic stocks and real estate, said Klimek, speaking to Khaleej Times. He said investors still need to understand the benefits asset managers can bring to their portfolios, adding: "There is a lot of room for improvement."

He also said investors across the GCC do not have a sufficiently diversified portfolio. "Investor behaviour is heavily dominated by a domestic bias, more so than in other markets," he said. "Retail investors more often lack education and sophistication." He also noted that banks in the region tend to have an "over-exposure to their region or to the US dollar," and said they should seek to diversify their portfolios more.

Klimek also described the fund management market in the region as "assymetrical" because of the extreme gap between the size and degree of diversification of sovereign wealth funds, on the one hand, and funds held by other institutions, on the other hand. "Servicing them require completely different skill sets and respective team set ups", he said.

According to one industry estimate, current assets under management in the MENA region had reached $70 billion by mid- 2007. And the same source predicted that the industry would grow at an annual rate of at least 23.5 per cent each year, to reach $200 billion by 2012. But accurate industry figures are not available because there is no local association of asset managers, said Klimek. The fact there are no publicly available figures only adds to the "opaqueness" of the industry in the region, he said.

An association would enhance the industry's transparency and facilitate knowledge sharing between industry players, allowing them to share best practice on regulatory issues for example. "It would allow us to make use of synergies", Klimek said, adding: "I would love to initiate an asset management association. I would volunteer to set it up but I would need commitment by others."

The asset management arm of Commerzbank is Cominvest and has been operating in the region since mid-2007. As of December 2007, Commerzbank had euros 63 billion of assets under management worldwide, but no specific figures are available by region. However, a company statement says "we can confirm that here in the Middle East we already have a substantial book of business."