Funds Global talks to Stephane Battistella of Axa IM Qatar about being the first international asset manager to establish its Middle East headquarters in the country.
Axa Investment Managers (Axa IM), a multi-expert investment manager backed by the Axa Group, was the first international asset manager to open a fully licensed fund manufacturing centre in Qatar when it applied to the QFC Authority for a license in 2006.
The decision to open an office in the Middle East was an increasingly common occurrence among international asset managers. However, the majority of managers had hitherto opted for Dubai rather than Doha. “We had a desire to do things differently and not to follow the same path as every other international asset manager,” says Stephane Battistella, director, distribution Middle East at Axa IM Qatar. “And Doha, like few other places in the region, had all the logistical support we needed which is very important when you are covering a region from one office.”
The QFC Authority also made a very compelling case in 2006 when Axa IM was canvassing the various development authorities in the region, says Battistella. “There was a good logistical and infrastructural framework from which we could operate an office that would act as a hub for the Mena region. The point was not to have to open five or six offices to cover the Middle East.”
Business has grown in line with expectation, says Battistella, even with the impact of the financial crisis, and he puts this down to the firm’s stable structure and insurance background. “We only deal with institutional investors and we do not have any banking operations so there are no issues with Chinese walls or information leakage.
“Clients have three expectations from us – yield, liquidity and visibility. These properties were in demand before the financial crisis but are especially so now as clients look beyond a focus on products and performance. We are not in the gimmicks game.”
There are three areas of interest to investors in the Mena region, says Battistella – yield, tangible assets (such as real estate and listed, physical commodities that can help reduce the exposure to the energy sector); and the long-only equity space. Despite this interest in such solid and traditional themes, the level of sophistication among investors is reasonably high says Battistella.
“Don’t forget that for the last 20 years, international bankers have been coming over to the Middle East with an empty suitcase and an investment idea, hoping to take some of the region’s cash back with them. So the local investors have been exposed to a broad range of sellers and bankers.”
The financial crisis has, of course, lowered the region’s risk appetite somewhat and high inflation has created some challenging economic conditions, but the Middle East has always taken a long-term view to business in general as well as its investments, says Battistella. “It can take a long time to develop trust. Investors are not just looking for a brand, they are also looking for evidence of longevity and of a long-term commitment.”
In terms of the investment industry, there is a predominant brokerage culture where investors are more used to buying stocks rather than investing in funds and this is the challenge facing investment managers, says Battistella. “We need to educate the market to a degree about the benefits of an investment solution. It does not matter if that solution is a fund or a capital-protected warranty scheme, potential investors will want to see the benefit behind it. Yield, liquidity and visibility are what appeal to local investors and the key to providing that is asset management. If it was just a case of investing in a few stocks, our expertise at constructing portfolios would not come into it.”
The financial crisis may prove to be a useful development in that it will enhance local investors’ understanding of volatility and perhaps convince them that an investment solution such as a fund can meet their needs better than a simple stock market purchase.
“Real estate is an asset class that suits local investors’ mind-set so an open-ended real estate fund may be attractive, but to go from deposits to investments is a challenge. This is where a good asset management firm should be able to help by offering a breadth of expertise to cover any change in asset class preference and to provide solutions that will have long-term benefit and are not just products of the week.”
Choosing the right intermediaries is also important, especially in the wholesale market, and Axa IM runs a series of workshops for local intermediaries. “Sharing what we do is important because ultimately it is about what you put in the basket and not the product itself. There is a local market developing and there is also increasing asset allocation in the region from the international investment community. As an international player, it is important that we make room for both. But, ultimately, in the asset management world it is about sticking to what you are good at.”
Liquidity is an important aspect for international investment in the region and in that respect the upgrading of Qatar and other Gulf Co-operation Council (GCC) countries from frontier markets to emerging markets would be a welcome development for new investment into the region from passive-index linked to actively managed pooled vehicles. It would also help Qatar to develop its fixed income market by driving more asset allocation to the region from international investors. “I think a more developed fixed-income market would be very good for the region,” says Battistella.
The upgrading to emerging market status may also bring more international investment managers to Qatar to set up their own fund manufacturing base. In the five years that Axa IM has been in the country, few other asset managers have followed their example. “For any manager that has already set up a Mena office elsewhere in other GCC countries, it may be unlikely that they would want to move it or to set up an additional office. But new players setting up in Qatar would only benefit the market here.”
The regulatory environment can be demanding, says Battistella, but it is also in line with the expectations of local investors and is still very consultative rather than aloof and inaccessible. “There is a strong focus on expanding the market and engaging with the market, but there is still a high level of compliance required.”
And following the financial crisis and the fate of neighbouring Mena domiciles, this focus on sustainable growth is likely to continue.
The desire to develop the market in a different way to what has been seen in the region over the last decade is evident not just in the financial sector but in Qatar in general, says Battistella. Clearly, the country has seen its profile rise considerably in recent months thanks to the successful bid to stage the 2022 Fifa World Cup as well as other successful events involving the elite from the world of tennis and golf. But there has also been a concerted effort to develop facilities designed for families and not just the ex-patriot, bachelor lifestyle often presented to Westerners working in the Middle East.
"Doha has changed a lot in the last few years – there is far more to do and see as a family. There are more schools, sporting events, film festivals, museums and the cultural village. There are things happening all the time and it is becoming a place to bring your family to and to live.”
©2011 funds global