Little impact of global crisis on Gulf hedge funds

Date: Thursday, March 12, 2009
Author: Zawya.com

The Gulf has not been as badly impacted by the turmoil as other regions around the world and regional markets would be among the first ones to recover from the global economic tumult, said panelists at the 10th Annual Hedge Funds World Middle East conference.

"If we look at the region as a whole it's been an embryonic market in the funds industry as a whole.

"There are lot of people who have settled down here. What we have seen is development of that industry, the arrival of skill set and we have seen that 50 per cent of asset management firms are actually manufacturing products on ground.

Kevin Birkett, ED, Asset Management, DIFC AuthorityDIFC Authority, said: "In the GCC, this particular industry is only catching up with the rest of the world."

J Joseph, Head of Hedge Funds, Alternative Investment Department, Global Investment HouseGlobal Investment House, Kuwait, said: "As the markets in the region continue to evolve, most stay dominated largely by individual investors rather than institutions and funds. In the Gulf, we have been fortunate that we do not have predominantly large hedge funds based here. To a large extent, we were not affected as much. Gulf markets continue to evolve, as an institution they have not had a single large hedge fund."

The markets continue to face issues like liquidity and educating the investors should be a key focus, the panelists opined.

"If you look at GCC markets, liquidity is primarily an issue and continues to be so. Most markets continue to be dominated by individual investors rather than institutions and funds. There is still along way for the market to develop before we have large hedge funds focusing on the markets. Right now individuals who are trading in the market, continue to make money," added Joseph.

Highlighting the need to educate investors, Mike Hughes, Managing Director, Global Transaction Banking, Deutshe Bank, Middle East, said: "There is a significant issue around the understanding of how these markets work, by investors. The whole region is driven by retail markets. One of the things is we need to educate foreign investors who need to access products through banks, whether they be traditional equity investments. It's fundamentally different from the western world.

"I think the first step is to get institutional investors to look at individual markets, but we are still behind. Everyday infrastructure in the region is getting better, easier and transparent.

"Hence, product development is quite important to attract hedge funds and other type of institutional investors into these markets."

"There is definitely appetite, willingness to look at this market, and huge steps have been already taken."

Regarding short selling, Joseph added: "Shorting as a concept was not something that was acceptable to certain governments. The question in short selling is the cost involved in building up the inventory and providing the facility to do shorting. There are no direct shorts in the market right now."

"On the shorting products that are available, there are many in the Middle East, the whole concept is starting to get a bit more organised. The regulators do understand the benefits, exchanges are starting to recognise the need.

"A lot of progress has been made in the last two years. Right people are looking at this as concept, it wont take too long before we have a much more normalised type of market," added Hughes.

By Shveta Pathak