Oil-rich sovereign wealth funds in the Middle East control $1.6 trillion (€1.3 trillion) and the largest among them, the Abu Dhabi Investment Authority (ADIA), has some $600 billion, according to new estimates.
Their great wealth makes the funds by far the most important asset management clients in the region. Asset managers consulted by research firm Cerulli Associates said sovereign wealth funds represent on average three-quarters of the investment opportunity in the region.
"Getting the pitch right to the sovereigns - which is, to a large extent, ADIA, the Kuwait Investment Authority, and the Saudi Arabian Monetary Agency, since the Qatar Investment Authority barely outsources - is crucial,” says Cerulli director Barbara Wall.
Many of the sovereign wealth funds have large, outsourced passive allocations, meaning they remain good customers for providers of low-cost, index-tracking products, though fees must be competitive.
Wall says “passive managers can run an extremely lucrative practice from the Gulf, albeit on razor-sharp fees”.
The research found that retail investors are a secondary consideration for most asset managers in the Gulf. This partly explains why few international firms have a local investment capability in the region and instead serve clients from sales and distribution offices.
"Perhaps the single starkest conclusion of our research is that Saudi is expected to be far and away the greatest opportunity for foreign managers in the Middle East over the next few years," adds Wall. "The UAE, where ADIA is based, will remain important, but clearly methods of engaging more closely with Saudi will be a key to success for international managers in the years ahead."
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