LONDON, 12 April 2004 — Savvy Arab investors helped pave the way for the global acceptance of hedge funds as an asset class over the last few years and are expected to play an integral part in developing this rapidly evolving industry.
While the rest of the world is now catching on to valuable risk adjusted returns that hedge funds can offer in all markets, Man Investments, the global provider of alternative investment products and futures broker, remains convinced that Arab investors will continue to lead demand for new and innovative products.
“The Arab investor is one of the most sophisticated in the world. He is always looking for opportunities to further diversify his portfolio. This is why Man Investments was able to break into the region 20 years ago, when international investors were still hesitant to diversify their portfolio through investments in hedge funds. These two attributes make the Arab investor more approachable than his counterpart in other international markets,” said Antoine Massad, head of the Middle East & Asia at Man Investments, Dubai.
Man Investments has been doing business in the Gulf region since it opened its first regional office in Bahrain in 1985 and remains the only resident hedge fund manager in the Arab world.
Man manages Arab investments worth nearly $5 billion. “We have to increase these investments by 20 percent annually,” Massad said during a workshop on hedge funds at Man headquarters in London recently.
“Most of the investors in the region are individuals but the number of institutional investors increased during the last five years,” he added.
Arab funds accounted for 20 percent of the total capital being managed by the company. Massad added that new clients in the market invest amounts ranging from $1 million to $20 million.
The Gulf remains a key focus for wealth managers, not merely because of the immense concentration of wealth, but because investors have a far higher degree of freedom in their investment decisions and tend to be more willing to explore new ideas.
There is more than $1 trillion in private wealth in the region divided among approximately 300,000 high net worth individuals (HNWIs) with more than $1 million in investible assets. The Merrill Lynch/Cap Gemini Ernst & Young world wealth report 2003 predicts that the figure will rise to about $1.5 trillion by 2007. As there were about 4.7 million HNWIs worldwide at the end of 2002, approximately 6 percent of the world’s wealthiest individuals live in the Gulf.
However, more than 98 percent of the $72.2 billion in new money invested into hedge funds in 2003 came from the US and Europe. A portion of this money may have come from offshore Arab wealth, but as an increasing number of hedge fund managers are looking to the vast Gulf market, there is a growing initiative to persuade Arab investors of the benefits of the asset class.
“The business in the Arab region represents for Man Investments one of the most balanced and diversified business in terms of the segments from where the assets are gathered,” Massad said.
Man has joint venture products in the Gulf with a wide range of leading regional service providers such as: National Bank of Bahrain; Ahli United Bank, Bahrain; Bank Muscat; Burgan Bank; ABN Amro Bank and Bank of Kuwait and the Middle East. Massad said the group is continuously looking at forming alliances with local and regional institutions in the GCC countries.
In recent years, a growing community of investors has looked to hedge funds as a means to obtain diversification away from traditional investments and improve the risk-adjusted return profile of their portfolios. As they have sought to identify the best alternative investment managers, institutional and private investors have been primarily attracted to established businesses with robust business infrastructures and long, solid track records.
Massad sees signs of growing institutional interest in hedge funds and indications that new markets for the asset class are soon to open. Germany’s Finance Ministry is expected to authorize the country’s first hedge funds soon. Japan’s Government Pension Investment Fund, the world’s largest public pension manager with an estimated $280 billion in assets, has recently asked the state for permission to invest in alternative instruments.
“With record investments into the asset class in 2003, and new markets opening all the time, interest in the asset class is expected to remain strong in 2004,” Massad said.
Hedge funds are robust instruments that provide valuable diversification away from the risks inherent in an over-concentration of capital in traditional assets. As fund of hedge funds managers operate in a market as inefficient and opaque as the hedge fund industry, they have a strong value proposition.
The success of any hedge fund product is highly dependent upon the skill of the investment manager and therefore upon it is crucial to select a manager with a clear competitive edge. Investors should look for an investment manager with considerable experience in the hedge fund industry and a proven ability to construct and manage a hedge fund portfolio.