KA-CHING

Cash reg­is­ters are ring­ing and busi­ness prospects look up­wards. How should busi­ness­men pru­dently man­age their as­sets to en­sure un­hin­dered growth? Qatar To­day finds out more about as­set man­age­ment in the coun­try.

Qatar Today - - INSIDE THIS ISSUE -

Cash reg­is­ters are ring­ing and busi­ness prospects look up­wards. How should busi­ness­men pru­dently man­age their as­sets to en­sure un­hin­dered growth? Qatar To­day finds out more about as­set man­age­ment in the coun­try.

Ac­cord­ing to a re­port by global firm Ar­cadis en­ti­tled “Global Built As­set Per­for­mance In­dex 2014,” the wealth gen­er­ated by each mem­ber of the pop­u­la­tion in Sin­ga­pore was es­ti­mated to be $29,500 (QR107.4 mil­lion) in 2013, a fig­ure ex­pected to re­main broadly the same dur­ing 2014.

Qatar and the UAE, with es­ti­mated wealth gen­er­ated at $20,500 (QR74,620) and $17,500 (QR63,700) re­spec­tively, are ranked sec­ond and third in the world af­ter Sin­ga­pore and it is here that the as­set man­age­ment in­dus­try ex­perts play an im­por­tant role in as­sist­ing and ad­vis­ing the com­pa­nies, banks and the HNWIs about their in­vest­ment plans (see chart).

As far as Sov­er­eign Wealth Funds (SWFs) are con­cerned, the GCC coun­tries, with more than ten funds and close to QR7.28 tril­lion ($2 tril­lion) worth of as­sets un­der man­age­ment, ac­count for 34% of the Global SWFs, which are to the tune of QR19.65 tril­lion ($5.4 tril­lion).

Across the world, the built as­set wealth in 30 coun­tries (in­clud­ing Qatar, the UAE and Saudi Ara­bia from the GCC re­gion) gen­er­ated an in­come of over $27.1 tril­lion (QR98.64 tril­lion) in 2013. These coun­tries rep­re­sent a mix of ad­vanced and emerg­ing economies from all re­gions of the globe. This fig­ure is ex­pected to rise to $28.1 tril­lion (QR102.29 tril­lion) in 2014.

In the Mid­dle East, Qatar and the UAE per­formed bet­ter than Saudi Ara­bia as the share of built as­sets to their re­spec­tive GDPs has been more. This is due to lower en­ergy sub­si­dies in these two na­tions com­pared with Saudi Ara­bia. Added to this is the rel­a­tive low cost of labour which keeps con­struc­tion costs down, fa­cil­i­tat­ing the rapid for­ma­tion of built as­set wealth.

The Ar­cadis re­port also says that by 2022, when Qatar hosts FIFA World Cup, the per­for­mance of its built as­sets are ex­pected to grow by over 40%, ahead of coun­tries such as the UK, US, Rus­sia, Canada, Turkey, Aus­tralia, Sin­ga­pore and The Nether­lands but be­hind China, Saudi Ara­bia, the UAE, Malaysia, Hong Kong and South Korea.

Driv­ing force

Qatar's as­set man­age­ment in­dus­try is ramp­ing up on a num­ber of prospec­tive op­por­tu­ni­ties, par­tic­u­larly driven by the na­tion's cur­rent man­date to de­velop a broad and sus­tain­able in­fra­struc­ture sys­tem.

Wealth and po­lit­i­cal sta­bil­ity, pro­gres­sive poli­cies, and the scale of growth and op­por­tu­nity are sig­nif­i­cant fac­tors that, among oth­ers, drive the growth of as­set man­age­ment in Qatar. Three key-driv­ers - a ris­ing per capita in­come, greater lev­els of client so­phis­ti­ca­tion and more risk ap­petite from lo­cal in­vestors that are in­creas­ingly look­ing for ways to di­ver­sify their port­fo­lios - also have helped in the devel­op­ment of the as­set man­age­ment sec­tor.

Qatar's wealth is sta­ble and proven, un­der­pinned by QR728 tril­lion ($20 tril­lion) hy­dro­car­bon re­serves and with the ab­sence of po­lit­i­cal un­rest due to the high lev­els of so­cial in­vest­ment, the coun­try is cur­rently sit­u­ated on sta­ble grounds for devel­op­ment and in­vest­ment, and it is that sta­bil­ity that is ap­peal­ing to in­vestors and de­vel­op­ers.

“In­sta­bil­ity in Iraq and Syria has had min­i­mal im­pact on Qatar in the past. How­ever this is likely if there were any sig­nif­i­cant mil­i­tary ac­tion in one of the GCC coun­tries. The po­ten­tial loss of the 2022 World Cup is another risk which, if it was to hap­pen, would re­duce con­fi­dence and have a neg­a­tive im­pact even though the ac­tual im­pact on GDP would be mar­ginal.”

DR ATAF AHMED Head of As­set Man­age­ment Qin­vest

“Qatar can at­tract around QR14.56 bil­lion ($4 bil­lion) in in­vest­ment af­ter be­ing up­graded as emerg­ing mar­ket, and in ad­di­tion, for­eign own­er­ship lim­its of Qatari cor­po­ra­tions has been in­creased from 25% to 49%.”

ALAN RICHELL Part­ner and Head of Busi­ness Ad­vi­sory EC Har­ris Mid­dle East

As part of this broader strate­gic in­tent, Qatar is look­ing to be­come a hub of re­gional in­vest­ment for many rea­sons.

Part­ner and Head of Busi­ness Ad­vi­sory at EC Har­ris Mid­dle East Alan Richell says Qatar's key fo­cus is on di­ver­si­fi­ca­tion in as­set cre­ation across all phys­i­cal as­set classes in­clud­ing health­care, in­fra­struc­ture, com­mer­cial, res­i­den­tial, entertainment, ed­u­ca­tion and cul­ture.

Changes in many reg­u­la­tions, es­pe­cially those in re­as­sur­ing in­vestors that Qatar is a safe place to in­vest in and also to do bank­ing in the coun­try also helped in the in­dus­try's growth. Some of the mod­i­fied reg­u­la­tions in­clude “know your cus­tomer,” anti-money laun­der­ing rules and in­creas­ing of for­eign own­er­ship lim­its of Qatari com­pa­nies listed on Qatar Ex­change.

“Resur­gent stock mar­kets, a larger fixed in­come and more in­sti­tu­tion­alised cap­i­tal mar­kets, Qatar's up­grade to emerg­ing mar­ket, bet­ter depth, breadth and an im­prov­ing reg­u­la­tory en­vi­ron­ment - served to boost trad­ing vol­umes, in­vest­ment prod­uct of­fer­ings and cap­i­tal in­flow to the as­set man­age­ment in­dus­try,” says Robert Pram­berger, Act­ing Head of As­set Man­age­ment and Direc­tor of The First In­vestor (TFI), a shariah-com­pli­ant in­vest­ment com­pany spe­cialised in as­set man­age­ment, in­vest­ment bank­ing and real es­tate.

In ad­di­tion to govern­ment spend­ing, high lev­els of dis­pos­able in­come and wealth cre­ated by Qataris is ex­pected to drive the sec­tor's growth, a trend that will be en­hanced in the com­ing years.

“Re­gional as­set man­agers are well po­si­tioned to ben­e­fit from the in­creas­ing ap­petite in eq­ui­ties which is driven by re­cent per­for­mance, the com­mit­ment of pol­i­cy­mak­ers to ex­pand the non-hy­dro­car­bon share of do­mes­tic economies as well as a his­tor­i­cally low (and pro­longed) in­ter­est-rate en­vi­ron­ment, a com­bi­na­tion that makes eq­ui­ties one of the most at­trac­tive as­set classes,” Pram­berger avers.

Prospects and risks

De­spite sub­stan­tial wealth and be­ing one of the nat­u­ral fo­cal points for in­vestors in the re­gion, devel­op­ment of as­set man­age­ment in the coun­try has not kept up with the rate of GDP growth. This, in turn, has cre­ated a sig­nif­i­cant op­por­tu­nity for the in­dus­try's growth.

Q In­vest's Head of As­set Man­age­ment Dr Ataf Ahmed says the past few years have seen an in­creas­ing level of par­tic­i­pa­tion from lo­cal in­vestors and this is set to con­tinue with more in­vest­ment firms look­ing to move to Qatar. There is also a grow­ing level of in­ter­est from for­eign in­vestors - both lo­cal and abroad - as lo­cal in­vest­ments are some­what iso­lated from fac­tors that im­pact de­vel­oped global mar­kets.

As far as risks are con­cerned, Dr Ahmed says they are pri­mar­ily cen­tered on a po­ten­tial loss of con­fi­dence in the event of a large ex­oge­nous po­lit­i­cal event in ei­ther Qatar or nearby.

“In­sta­bil­ity in Iraq and Syria has had min­i­mal im­pact on Qatar in the past. How­ever if there were any sig­nif­i­cant mil­i­tary ac­tion in one of the GCC coun­tries, it is likely. The po­ten­tial loss of the 2022 World Cup is another risk which, if it was to hap­pen, would re­duce con­fi­dence and have a neg­a­tive im­pact even though the ac­tual im­pact on GDP would be mar­ginal,” Dr Ahmed says.

Richell says that the mar­ket is also ex­pe­ri­enc­ing a sig­nif­i­cant amount of risk that re­quires close mon­i­tor­ing and ac­tive man­age­ment.

“Qatar can eas­ily de­velop at an un­sus­tain­able pace where devel­op­ment gets be­yond the state's abil­ity to cope. In ad­di­tion, there is a need for a ro­bust over­all strate­gic de­liv­ery plan that sup­ports the QNV 2030 and the Na­tional Devel­op­ment Strat­egy to avoid ad-hoc, un­struc­tured devel­op­ment, which could fur­ther af­fect Qatar's abil­ity to de­liver a clear and con­cise mes­sage to in­vestors, in­sti­tu­tions and in­di­vid­u­als alike,” he feels.

Another risk is the chal­lenge to at­tract and re­tain highly skilled pro­fes­sion­als. There is strong com­pe­ti­tion for the best tal­ent and if Qatar is un­able to at­tract and re­tain the best then the in­dus­try will not achieve its full po­ten­tial.

The key risk, ac­cord­ing to Pram­berger, re­sides mainly in the com­pe­ti­tion es­pe­cially com­ing from the large in­ter­na­tional as­set man­ager sell­ing their funds via third party wealth man­agers in the re­gion.

“The op­por­tu­ni­ties def­i­nitely ex­ist since the per capita earn­ings are very high and wealth man­age­ment is an area that is in its in­fancy. The risks are, of course, like in any in­dus­try that one may be too slow to cap­ture the ex­ist­ing op­por­tu­ni­ties,” says Mo­hammed Ghiy­ath Sheikhah, Head of Lo­cal and In­ter­na­tional In­vest­ments, Qatar In­ter­na­tional Is­lamic Bank.

EM sta­tus

The up­graded stand­ing of Qatar in the global eq­uity in­dices is also ex­pected to give a boost to the coun­try's as­set man­age­ment.

This in­ter­na­tional in­ter­est will con­tinue to grow as fa­mil­iar­ity of the medium in­vest­ment case for Qatar im­proves,” says Akber Khan, Direc­tor As­set Man­age­ment with Al Rayan In­vest­ment.

He says on the do­mes­tic front, the re­cent fall in Qatari de­posit rates is a boon for the in­dus­try as it re­fo­cuses both in­di­vid­ual and cor­po­rate in­vestors, to­wards al­ter­na­tive op­tions to boost re­turns on cash. Ad­just­ing for in­fla­tion, bank de­pos­i­tors have lost money for the last three years. Many cor­po­rates are now con­sid­er­ing bonds and sukuk as a mod­estly higher risk, but more lu­cra­tive, al­ter­na­tive.

“Even Qatar's high-in­come ex­pa­tri­ate pop­u­la­tion is an in­vestor cat­e­gory that is rapidly grow­ing in im­por­tance. They are ex­pe­ri­enced mu­tual fund in­vestors and seek ex­po­sure to the eco­nomic prospects of their new home via eq­ui­ties and mu­tual funds,” Khan says.

Dr Ahmed also agrees that the up­grade - to­gether with in­creas­ing the cap on for­eign own­er­ship lim­its - has seen more global groups in­creas­ing their ex­po­sure to Qatar. This will help to bring in much needed liq­uid­ity to the lo­cal mar­kets. The up­grade will also en­cour­age more com­pa­nies to list which will in­crease the size and depth of the mar­ket, he says.

“Even Qatar's high-in­come ex­pa­tri­ate pop­u­la­tion is an in­vestor cat­e­gory that is rapidly grow­ing in im­por­tance. They are ex­pe­ri­enced mu­tual fund in­vestors and seek ex­po­sure to the eco­nomic prospects of their new home via eq­ui­ties and mu­tual funds.”

AKBER KHAN Direc­tor As­set Man­age­ment Al Rayan In­vest­ment

“The op­por­tu­ni­ties def­i­nitely ex­ist since the per capita earn­ings are very high and wealth man­age­ment is an area that is in its in­fancy. The risks are, of course, like in any in­dus­try that one may be too slow to cap­ture the ex­ist­ing op­por­tu­ni­ties.” MO­HAMMED GHIY­ATH SHEIKHAH Head of Lo­cal and In­ter­na­tional In­vest­ments Qatar In­ter­na­tional Is­lamic Bank

Richells pre­dicts Qatar can at­tract around QR14.56 bil­lion ($4 bil­lion) in in­vest­ment af­ter be­ing up­graded as emerg­ing mar­ket, and in ad­di­tion, for­eign own­er­ship lim­its of Qatari cor­po­ra­tions has been in­creased from 25% to 49%.

Reg­u­la­tory en­vi­ron­ment

Though the govern­ment has an­nounced re­or­gan­i­sa­tion of the three reg­u­la­tors un­der the um­brella of Qatar Cen­tral Bank in De­cem­ber 2012, the process is still on an evolv­ing stage in order to make the reg­u­la­tory en­vi­ron­ment con­ducive for the in­dus­try's growth in Qatar.

Dr Ahmed opines that more work could be done to stream­line the reg­u­la­tory regime and make it eas­ier for firms to set up and launch ser­vices. At present, it can take a long time to es­tab­lish a firm and set up funds.

“Mul­ti­ple reg­u­la­tors with some­times over­lap­ping re­mits can also make it chal­leng­ing when com­pared with say the US or within Europe, where there is one cen­tral au­thor­ity in each coun­try and a clear process. An ad­di­tional is­sue is that whilst some reg­u­la­tors use English and Ara­bic, oth­ers work pri­mar­ily in Ara­bic, which is a real ob­sta­cle for many in­ter­na­tional in­sti­tu­tions,” Dr Ahmed says.

Qatar is demon­strat­ing a pro­gres­sive ap­proach to a more ac­ces­si­ble mar­ket for in­vestors through plat­forms such as the QFC and a tax regime that ben­e­fits in­vestors at

the point of re­turn, feels Richell.

An up­hill task

Qatar still has to go a long way to be­come the leader of the as­set man­age­ment in­dus­try in the GCC re­gion as it has to com­pete with Saudi Ara­bia, whose pop­u­la­tion is 28 mil­lion com­pared with its own 2.2 mil­lion.

More­over, Saudi Ara­bia is home to hun­dreds of as­set man­agers and in­sti­tu­tion­alised fam­ily of­fices com­pared with half a dozen as­set man­agers in Qatar and only a hand­ful of fam­ily of­fices which or­gan­ise in­vest­ments on in­sti­tu­tional lines.

Though Qatar is ranked sec­ond in the world in wealth gen­er­a­tion per person at present, Saudi Ara­bia may over­take in the com­ing years as its as­sets may start con­tribut­ing more to the GDP in the com­ing years. To main­tain its cur­rent po­si­tion, Qatar has to make op­ti­mum util­i­sa­tion of its built as­sets.

“Saudi Ara­bia's as­set man­age­ment in­dus­try as­sets are es­ti­mated to be in ex­cess of $100 bil­lion (QR364 bil­lion), dwarf­ing the in­dus­try in Qatar. There is no rea­son for Qatar's as­set man­age­ment in­dus­try to be larger than its neigh­bour un­less the Qatari govern­ment was to di­vert sub­stan­tial funds to­wards it,” Akber Khan says.

Even Dr Ahmed is of the same view. “Saudi has a strong ad­van­tage over all of the other GCC coun­tries sim­ply be­cause it has a much larger pop­u­la­tion and a deeper pool of liq­uid­ity and wealth,” he says.

The sur­plus wealth pro­vides an op­por­tu­nity for Qatar to em­bark on as­set man­age­ment in­dus­try aim­ing for lead­er­ship, Sheikhah points out that the frame work cre­ated by the govern­ment is very favourable for the in­dus­try though risks such as the mar­ket en­try costs may be on the high side.

Richell how­ever dif­fers say­ing that lead­ing as­set man­age­ment across the GCC is not the core fo­cus for Qatar. “Given its unique set of cir­cum­stances, Qatar's am­bi­tion is on im­prov­ing the com­mu­nity by strength­en­ing health, ed­u­ca­tion and so­cial mo­bil­ity across the coun­try. Qatar's key fo­cus is on driv­ing fur­ther eco­nomic di­ver­si­fi­ca­tion across in­dus­tries with ex­ten­sive in­vest­ment in in­fra­struc­ture devel­op­ment,” he points out.

Prime sec­tors

Which sec­tors are most sought af­ter by in­vestors in GCC coun­tries?

While Sheikhah feels that the en­ergy sec­tor is the most sought af­ter by the in­vestors in which the built as­sets can ex­pect good

re­turns, Pram­berger says in­vestors would look at real es­tate and fi­nan­cials as they tend to dom­i­nate do­mes­tic economies and in­vari­ably con­sti­tute more than 50% of lo­cal eq­uity mar­ket cap­i­tal­i­sa­tion. "Both sec­tors are cycli­cal by na­ture, an at­trac­tive ar­gu­ment for in­vest­ment dur­ing the cur­rent pos­i­tive eco­nomic cy­cle,” Pram­berger says.

Richell echoes the sen­ti­ments

Dr Ahmed, how­ever, says as­set al­lo­ca­tion re­ally de­pends on the in­vestor type though in­vest­ment is fo­cused on en­ergy, in­fra­struc­ture, real es­tate and do­mes­tic con­sump­tion.

“Most re­tail in­vestors are less fo­cused on sec­tors and look more at ei­ther yield or po­ten­tial growth rates for their in­vest­ments. Mean­while, in­sti­tu­tional in­vestors typ­i­cally take a more so­phis­ti­cated ap­proach to in­vest­ing; one which is based on fac­tors such as a par­tic­u­lar fund's man­date and the in­sti­tu­tion's cur­rent macroe­co­nomic view. For ex­am­ple, QIn­vest, cur­rently like sec­tors such as health­care in Saudi Ara­bia, con­sumer dis­cre­tionary in the UAE and in­dus­trial and ma­te­ri­als in Qatar,” Dr Ahmed says

“Resur­gent stock mar­kets, a larger fixed in­come and

more in­sti­tu­tion­alised cap­i­tal mar­kets, Qatar's up­grade to emerg­ing mar­ket, bet­ter depth, breadth and

an im­prov­ing reg­u­la­tory en­vi­ron­ment – all these served

to boost trad­ing vol­umes, in­vest­ment prod­uct of­fer­ings and cap­i­tal in­flow to the as­set

man­age­ment in­dus­try.” ROBERT PRAM­BERGER Act­ing Head of As­set Man­age­ment and Direc­tor

The First In­vestor (TFI)

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