Dubai, UAE — The GCC asset management market is a rapidly growing market, with assets under management (AUM) projected to reach nearly $500 billion in onshore assets by 2026, a leap from $400 billion at the end of 2022.
The growth of the GCC asset management market is being driven by a number of factors, including strong capital inflows from both domestic and foreign investors. The strong capital flows are, in turn, driven by high oil prices, economic diversification efforts and the development of the financial sector.
The IMF estimated in 2022 that GCC countries together held a trade surplus of approximately $350 billion. Wealthy individuals are also attracted to the region, with the UAE previously projected to attract the most millionaires worldwide in 2022.
Additionally, an increased appetite for IPOs saw the Middle East raise a record amount in proceeds, exceeding $20 billion in 2022.
Other factors facilitating the growth of asset management marked are:
Favorable demographics: The GCC region has a young and growing population, which is creating a demand for asset management services.
Rise of the middle class: The rise of a middle class is increasing the demand for investment products and services.
Growing awareness of asset management: There is a growing awareness of the benefits of asset management among investors in the GCC region. This is being driven by factors such as increased education and the availability of financial advice.
According to a new report by Strategy & Middle East, this projected growth underscores the potential of the GCC asset management industry amidst global economic challenges.
“Despite the region’s preference for offshore investing, increasing product sophistication and supportive regulatory initiatives are making onshore investment more appealing,” said Jorge Camarate, Partner at Strategy& Middle East, and the leader of the firm’s Financial Services practice.
Historically, high-net-worth individuals (HNWIs) and family offices have favored offshore asset management opportunities.
Strategy& Middle East estimates that currently more than 70 percent of regional private wealth is in offshore accounts. However, the local asset management industry has several tailwinds that are shifting trends.
Aurélien Vincent, Partner at Strategy& Middle East, added, “Strong capital inflows into GCC countries, supported by favorable oil prices and record growth in initial public offerings (IPOs) have been critical growth drivers for the asset management industry. As GCC countries continue to diversify their economies and deepen their capital markets, regional investors and institutions are poised to benefit from an expanding array of investment avenues and opportunities.”
In response to changing market dynamics, individual investors are increasingly seeking professional advice, driving the GCC asset management industry towards more advanced products.
This trend, towards meeting sophisticated investor needs, has been facilitated by crucial regulatory initiatives around the region. For instance, Saudi Arabia’s Capital Market Authority introduced amendments to investment funds regulation in 2021, while the UAE’s Securities and Commodities Authority took measures to enhance the competitiveness of local asset managers and revitalize the industry.
Dmitry Abramov, Manager at Strategy& Middle East, adds, “The GCC asset management industry is presented with a unique opportunity for growth. With the right strategic actions, GCC asset managers can capitalize on the tailwinds to capture new market share, effectively overcoming region-specific challenges.”
Against this backdrop, Strategy& Middle East recommends six strategic actions for GCC asset managers to harness these tailwinds and address region-specific challenges:
Hone the performance track record: Asset managers must consistently demonstrate high performance. This can be achieved by investing in talent, creating effective performance management mechanisms, and organizing internal processes to allow portfolio managers to focus on critical activities.
Create segment-specific operating models and value propositions: Asset managers should develop specific operating models for different client segments such as institutional, retail, and HNWI clients. This should encompass product offerings for each segment, a sales coverage model, marketing plan, legal structures, and back-office capabilities.
Build effective sales functions: A robust sales function, equipped with tools such as advanced analytics to facilitate product-oriented discussions, is crucial. The sales team should also be linked with the product development team for regular product updates.
Revamp the product range: Asset management companies should experiment with their product range, testing client interest in various asset classes and new products such as IPO funds, international, and sharia-compliant funds. However, it is crucial to incrementally build on existing capabilities to avoid overextending resources.
Exploit digital tools: Embracing digital tools across the value chain is key. Specifically, portfolio management and optimization tools can help to manage investment strategies, provide electronic reporting, compliance, and performance management – enhancing efficiency and seamless integration for institutional customers.
Consider non-organic growth opportunities: The fragmented nature of the GCC market offers many opportunities for M&A and partnerships. Asset managers should explore acquisitions of mid-sized independent firms, or form partnerships such as sales management agreements and co-branded products.
As long as the right strategies are employed, GCC asset managers can overcome region-specific difficulties, beating competition, and capturing new market share in the coming years.
Experts say the GCC Asset Management Market stands as a dynamic and integral component of the region’s financial sector. As the GCC economies continue to evolve and expand, the asset management industry is poised to play an increasingly vital role in shaping the financial future of the region.