“Despite the impact of the crisis, however, we believe that there are positive growth opportunities for the GCC asset management industry, although we remain concerned that a number of key challenges still need to be seriously addressed,” said Anthony Mallis, CEO of Securities and Investment Company (SICO), on Sunday.

The impact of the global financial crisis on the GCC investment management industry will come under the spotlight at the Fund Forum Middle East 2010 conference, to be held in Bahrain on Oct. 4-6. Mallis will be one of the keynote speakers.

“For asset managers, the dramatic decline in market valuations in the GCC led to lower returns, very substantial domestic and foreign investment asset outflows, the liquidation of funds, institutional failures and near failures, reduced investor confidence, a regulatory shake-up, rebalancing of asset allocations and substantially reduced revenues for asset managers,” he said.

SICO global assets under management declined by 17 percent in 2008 but recovered to $110 trillion by the end of 2009.

Total regional assets under management have stabilized, although some major MENA mutual funds declined by up to 94 percent during the past two years.

GCC stock markets lost nearly two-thirds of their value during the crisis and 18 months later, they have hardly regained the lost ground. Regional stock market liquidity has witnessed a noticeable downtrend for the past three years: the total value traded in the first half of 2010 was $165 billion, down 45 percent compared to the same period in 2009.

New market dynamics have emerged in the post-crisis environment.

“Investors are now more risk-averse - they are seeking greater scope for alpha and more effective risk controls. Clients are shying away from complex structured products in favor of more simple, traditional products. At the same time, investment managers need to reassess their business models, provide greater specialization and focus, and ensure consistency of returns” Mallis said.

“Several factors underpin SICO’s optimistic outlook for the GCC investment management industry. The industry is still relatively under penetrated, with a conventional AUM-to-market cap ratio of 0.1 percent compared with 2.6 percent in the US. The total size of the GCC investment pool - estimated at $2.7 trillion - remains largely untapped. Over 95 percent of these funds are invested in offshore markets, and could potentially flow back into regional markets,” he said.

In addition, regional growth prospects are strong, due to a combined GCC economic growth rate of over five percent, attractive stock yields and growth potential, the expected opening up of the Saudi market to foreign investors, the migration of retail money into institutional funds, and the channeling of funds from real estate and other illiquid assets into equity and debt instruments.

“However, key challenges relating to regional regulatory and legal frameworks, corporate governance, capital market development, and human resources, still need to be addressed. It remains imperative to resolve these issues if the regional asset management industry is to grow and mature, and realize its full potential,” said Mallis.