Dubai: The Securities and Commodities Authority (SCA) regulations enacted this month, that puts stringent approval process on the sale of foreign funds, do not augur well for the country’s young domestic mutual fund industry and could kill the fund sector.
That was a message from Shehab Gargash, group CEO of Daman Investments, a Dubai-based investment management company, during his annual press conference held on Wednesday.
“When you come in and straddle too much regulation too soon on a nascent industry, I can tell you right now that you will not see new, meaningful mutual funds in the UAE for the foreseeable future,” said Gargash. “That’s a shame. The ability to pull in money and deploy it, is key to any economy’s move to success.”
Despite being the second-largest economy in the Gulf, when it comes to the development of the domestic fund business, UAE lags behind Bahrain and Saudi Arabia. The average fund size in the UAE is $23 million compared to $45 million in Bahrain and $134 million in Saudi Arabia. And even during the best year of 2005, when liquidity was abundant, UAE launched just four funds.
While acknowledging that the regulatory environment, which is “more regulated” has made the economy more mature, better structured and more integrated into what happens locally and around the world, he rued its overreaching aspects.
“UAE at final analysis is an entrepot, free trade economy designed for economic activity, designed for ease of transaction, and designed to attract businesses of all nature around the world, said Gargash . “While regulation is important and maintaining the integrity of the system is paramount, sometimes frivolous, or overregulated sectors are going to hurt rather than help the return of activity in the economy.”
He thinks that it is far more complicated, more costly and more confusing to open a business in the UAE compared to 10 years ago.
However, Gargash is encouraged by various indicators including renewed recovery in real estate, trade, retail, tourism and banks. However when it comes to the financial markets, mainly equities, he feels liquidity will be the key to cementing the turnaround.
In fact liquidity challenges in the market have forced Daman Investments to postpone its end 2012 plans to launch an IPO (initial public offer) of its shares. In June the company had sold a 22.7 per cent stake via a private placement.
“We don’t feel this market is yet ready for an IPO. The liquidity in the market in not enough for an active primary market,” said Gargash.
Gargash said that the IPO plan now looks likely in 2014-15. As of now, Dama is preparing for a second round of fund raising for 800,000 shares and the indication, said Gargash is again at a premium above $170, the price they paid for each share in the first round.
