Markaz Report Highlights Opportunities and Challenges in GCC Asset Management

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Kuwait City, June 26: GCC Asset Management industry has improved over the years, driven by positive regulatory reforms and the support from governments, according to a report published by Marmore MENA Intelligence, the research subsidiary of Kuwait Financial Centre “Markaz” titled “GCC Asset Management – A deep dive”. The report comprehensively analyses the asset management sector, delving deep into the products available in the market, preferred distribution channels, preferred asset classes, cost of funds and some emerging trends such as the increased usage of technology by industry leaders.  

GCC Asset Management landscape has improved substantially in the past decade, especially in Saudi Arabia, supported by capital market reforms, improvements in business conditions and the active participation of stakeholders. The product portfolio of asset managers has significantly expanded, providing more options to investors. Considering the reforms that are in the pipeline and the penetration of investment products, there is still significant headroom for the asset management industry to grow in the coming years.

According to the report, money market funds are more dominant in terms of assets under management of funds that are focused on GCC, while equity funds are more prevalent in terms of number of funds focused on the region. In response to the increasing investor demand for alternatives, the funds launched by asset managers in the region are becoming more diverse. Of the alternate asset classes, private credit is seeing higher interest as indicated by recent fund approvals in GCC. Among the 19 private credit funds approved from January 2023-May 2024, 13 have been from Kuwait.

The report observes that while banks have been the main channel for distribution of funds, of late, fintech players have started playing a noteworthy role in marketing and distribution. Digitalization of operations and outsourcing are two emerging themes in operations of asset management firms. Digital platforms, cloud computing, artificial intelligence and robo advisory are some technological developments that asset managers in the region have begun to adopt.

Regulatory regime pertaining to investment funds is evolving in GCC. The UAE and Saudi Arabia have come up with some standard frameworks and regulations in recent years such as UAE’s foreign investment fund rules and Saudi Arabia’s regulations for direct financing. Initiatives such as Saudi Arabia’s Public Investment Fund’s Manager Gate Platform are also supportive of the industry’s growth.

Examining the funds offered by asset managers, the report observes that GCC asset management market is concentrated among the few asset management companies. The industry also has many small-scale asset managers. This offers scope for consolidation and would enable players reap benefits of economies of scale. GCC asset management industry also consists of funds which are much smaller in size in comparison with global peers. The cost of operating such small funds adds pressure to margins and places the viability of business continuity at risk.

The report highlights emerging alternatives such as passive investment products, fragmented nature of the industry, revenue pressures and limited distribution channels as some challenges facing the industry. Geopolitical issues also present some headwinds for the asset management industry. But positive oil price outlook, rebound in non-oil activity, pick up in IPO momentum, supportive regulatory measures favour growth of the industry in the region. In the backdrop of favourable policy environment, the report discusses measures that could improve the industry’s growth prospects such as further improvement in product range, targeting retail investors, pursuit of M&As and greater leveraging of technology.

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