BROADER AND DEEPER
After several years spent somewhat in the doldrums, Qatar's asset management sector is sparking back to life, with a rash of new moves coinciding with a wave of positive headlines from the country's capital markets.
These developments have been welcomed by those seeking to raise Qatar up the global bourse league table, promising as they do to boost international attention and market capitalisation. Indeed, finding ways to deepen and widen the capital markets has long been a challenge – as well as an objective – of Qatar's financial authorities, along with its brokerages and banks.
Much still needs to be done, though, if Qatar is to mount a successful challenge to other regional rivals. Creating bigger funds and offering a wider range of products are two of the main ways this can be done, while keeping the momentum going on privatisation – and the consequent listing of major outfits – is also a key challenge.
One of the most positive pieces of news in recent times from the Qatari capital markets was, of course, the MSCI upgrade that came at the end of May.
Moving from the Frontier Markets to Emerging Markets index had been widely anticipated, too, with a major surge in investment into the Qatar Exchange (QE) by active foreign funds and local investors noticeable since the start of the year.
The also widely-expected immediate effect of the upgrade was, however, a drop in the QE Index immediately, as investors reappraised stocks that had become over-valued in anticipation of the MSCI hike. This too was largely an over-compensation, though, with the market bouncing back at the start of July. The over- and under-correction process was still on-going at the time of writing.
In the lead up to MSCI upgrade though, some key announcements had also been made in the asset management (AM) segment.
May saw an announcement from the QE that this year would see the bourse list its first Exchange Traded Funds (ETFs). QE CEO Rashid Al Mansoori told OBG that two ETFs are to be listed – the first based on government fixed-income risk from an Asian borrower, and the second based on a representative Qatar-country index. The hope was that these would be listed in the second half of 2014.
These two ETFs are also to be some of the largest in the region, according to bourse officials. Their launch comes on the back
of the success of the iShares Qatar ETF, launched just ahead of the MSCI upgrade.
News also came in May of plans to increase the limit on foreign ownership of QE listed companies, from a normal current level of around 25% to 49%. While still short of granting possible majority control, the move was widely welcomed for creating more room in the index for foreign investment.
Taken together then, recent months have seen some major shifts in the nature of Qatar's capital markets – all of which should have a positive effect on the AM segment. This has in the past been rather moribund, although since 2012, there have been signs of a potential revival.
Back then, Barclays Natural Resource Investments (BNRI) announced it had formed a strategic partnership with the Qatar Asset Management Company (QAMC), with BNRI setting up an office in Doha and QAMC investing $250 million (QR910 million) in BNRI's current and future portfolio of companies. This was the first strategic partnership for QAMC, itself a collaboration between the Qatar Financial Centre Authority (QFCA) and the Qatar Investment Authority (QIA).
Another major foreign/Qatari tie up in the AM field is Aventicum Capital, a joint venture between Credit Suisse and Qatar Holding, which launched its first, $500 million (QR1.8 billion) Qatar-based, Frontier Markets business in July 2012. Aventicum also more recently announced it was launching a second fund, Aventicum Alternative Equities - a long/short European equity operation - from its Geneva office.
These two funds are significant because they are both large, posing a challenge to locally-based AM companies.
One of the most successful of these is Amwal, whose two Qatar Gate Funds – ‘N' and ‘Q' – have been good performers. Qatar National Bank (QNB) has its Al Watani funds and QNB Debt Fund, while Investment House – which launched Qatar's first Islamic fund – is also in the market, as is Commercial Bank of Qatar, Masraf Al Rayan Bank, Doha Bank, and Barwa Bank. In total there are some 12 local funds currently listed.
When it comes to competing with the large, internationally linked funds, though, local firms have to battle some disadvantages.
First, there is the issue of costs. Local fund managers often have to charge higher fees, as they are unable to spread their costs around as widely as international players.
Then there is the volatility of local capital markets – as evidenced by the QE's performance this year. The large numbers of retail investors lies behind much of this, with indexes rising and falling as these players buy or dump equities. This makes AM a less predictable affair.
The locals can offer one key advantage, however; their local knowledge and access, with wealth management often involving relationships with a few, often very private, individuals. Indeed, one of the traditional weaknesses of AM in Qatar has been that families, who often run some of the wealthiest businesses, are reluctant to place their investments with outsiders, such as AM companies.
Another crucial point in the further development of the AM sector will be the widening of the bourse itself with more listings, particularly of some of the major and attractive businesses still awaiting privatisation.
“The privatisation and IPO listing process is on-going,” Fahmi Alghussein, CEO of Amwal, told OBG. “This will provide support to the Investment Banking, Brokerage and Asset management industry locally, increase the breath and depth of the Qatari market and reduce the concentration risk for investors.”
More IPOs of big hitters would draw major interest globally, widening the possibilities for AM. Widening the bourse with more products would also assist in AM development, increasing portfolios to include real estate as well as other products.
In the meantime, Qatar will be up against stiff competition from other regional markets, most notably those in the UAE which was also upgraded at the same time by MSCI.
PwC recently estimated that by 2020, assets under management in the MENA region will be 2.5 times greater than in 2012, at around $1.5 trillion. The prize is therefore a great one – if Qatar can find the means to win it