Living the life of opportunities

At a recent gathering of asset management companies in Luxembourg, as I reflected on the growth in the the Middle East, two words strongly came to mind - "development" and "opportunity".

As one looks around the region and especially here in Dubai, "development" is in the air. There is something new virtually everyday in the newspapers - governmental developmental initiatives, new business ventures or real estate projects, foreign acquisitions by regional entities or even increased avenues for the entertainment and leisure industry.

Several aspects of our life have been affected by this rapid change, and whilst not all of them are positive (e.g. rising inflation, especially rents, and the state of heavy traffic) the bulk of development will hopefully over a period of time lead to progress and prosperity in the region.

Impact

Similarly, several positive developments have also had a postive impact on the asset management industry in the region.

The primary among these is the development of the regional capital markets; the improvement in regulation due to capital market reforms and setting up of financial centres; and the growth in distribution opportunities due to the development of the wealth and investment management industries. All of these are extremely important ingredients of a thriving asset management industry.

The above developments, along with the significant level of wealth and liquidity, present create a significant opportunity for foreign asset management firms. However, there are several factors that have resulted in this opportunity being greater for firms that have invested in building a local presence.

In the past, the region was primarily considered an institutional or ultra high networth market with limited prospects on the retail side. Nowadays, the growth in economic activity and the ability to buy real estate are changing the nature of our society. People are getting wealthier and there is a growing white collar workforce that has long-term plans to stay or even retire here.

Growth

This has resulted in the growth of the retail market, especially the mass affluent segment which has encouraged local banks to enhance their wealth management infrastructure to service them. In addition, there are several international and regional private banks that have established themselves locally in the past few years to take advantage of the platform provided by the new financial centres.

The improving infrastructure, the growing levels of wealth and the increasing need of clients wanting to invest onshore and offshore have encouraged this trend. The foreign asset managers need to efficiently service these distribution entities but with increased competition, this becomes difficult without a local presence.

Whilst highlighting developments and opportunities, I don't want to give a false impression of utopia. There are several key issues and challenges that need to be evaluated and overcome (e.g, multiple jurisdictions and the lack of portability, anti-money laundering issues, lack of quality data etc.) by those looking to set up shop in the Middle East. However, I do believe that all things considered, the proverbial pot of (black) gold awaits those brave enough to take the plunge.

- The writer is a senior director at Franklin Templeton Investments. The views expressed in the article are his personal opinion.