Which countries in the Middle East are Invesco’s fund sold in?
We have a base in Dubai which covers the broader gulf region. The majority of our business is via fund platforms, which may well be distributing into those countries. So generically speaking, I would say it’s the GCC except we are not actively selling retail products into Saudi Arabia.
What are the investor habits of the three key groups: western expats, Arabs and non-resident Indians?
We felt this was a really interesting area to understand better, so in 2010 we commissioned research on the region and the fourth survey is being published this month. Our findings have given us a better understanding of the investment preferences and behaviours of those different groups.
In a nutshell, there is a split. Western expats tend to have a more long-term outlook, and they are also fairly sanguine about risk and return.
The non-resident Indian (NRI) market is more short-term, reflecting a more entrepreneurial mentality. We noticed last year that Indian investors were directing a lot of money into Indian deposit accounts where they could get very high yields compared with yields from the local banks.
The Arab investors have a very short-term outlook – a trading mentality – they like to take control of their own direct and tangible investments, such as real estate, with a dramatic home market bias.
How does your product range reflect these differing requirements?
It’s an ongoing process. When we arrived in the region our product range did not reflect the underlying groups because I don’t think you necessarily know what they are until you are active in the region.
The western expats are well served by our offshore product range, and our Sicav products are available on a number of the life or bank platforms.
The NRI market is interesting and we have just completed a joint venture with a Mumbai-based asset manager, Religare Asset Management. This new business partnership will enable us to access the Indian market and also to offer Indian equity and fixed income fund management, based out of India, available to investors in the rest of the world.
With the Arab market, one of the questions we are often asked is ‘Are you going to offer Islamic products?’ The sense we get is that this is not the primary driver of what Arab investors are looking for. The bigger issue in terms of attracting the Arab investor to you is to what extent they are prepared to diversify out of the region. We don’t offer active MENA funds. We offer a global product range and one of our missions is to make Arab investors aware of what is available beyond their own home market.
What is the pattern of fund sector sales? Which sectors are selling well and which ones are not?
In the UK that question usually comes with a very specific, measurable answer. One of the challenges in the region is there is no IMA that provides statistics about what products are selling well. So I can only give you anecdotal information of what is working in our product range. In terms of individual funds, we see a lot of interest in our Invesco Sterling Bond Fund. This has been a perennially popular product and continues to be this year as investors are looking for yield.
We also have a lot of interest in high income equity funds from the western expat market in particular, for example Neil Woodford in the UK income product suite.. We think feeder structures will be of interest for this and other retail groups, too.
Global high income is a sector that is attracting interest and there are specific areas where we have a lot of expertise and good performance such as Asian equities, which form part of a lot of peoples’ portfolios.
One of the trends we’ve seen developing, over the last six to 12 months particularly, is a greater interest in alternative asset classes.
pecifically, we have senior secured debt bank loan products, aimed at professional investors, which have a $160,000 minimum investment. A lot of institutions have started to show interest in that in the Middle East.
We also think that private equity is becoming something that people are getting more interested in again. So we have seen an evolution over the last two to three years. Investors looking for income but also now looking to put a bit more risk back on the table, so our year has started very well in terms of total sales numbers.
What we see is more confidence in investing internationally. We published some results from our Dubai investment meeting in February which suggested that the biggest concern for investors in the Middle East was the eurozone crisis, and that still continues. In the financial crisis a lot of capital moved back into the region and people wanted to keep it closer to home.
But now, whether or not it’s a product of the Arab Spring or a better global economic prognosis there is more of a willingness to deploy those assets in a more diversified way.
What is the change over the last year in the split of total funds in terms of asset classes?
We have seen a swing further back into equities, anything that is high yielding. It’s difficult to be more precise than that. And in this region one of the factors will be the currencies.
Another area that seems to come in and out of favour is the protected guarantee products, which we thought we would not see again after the financial crisis, when many clients lost money on them.
Is turnover of funds higher in the Middle East?
Yes it is, which is linked partly into investor time horizons and partly into the way the advice model works. In some banks, the portfolio reviews are pretty active so there is perhaps less of a resistance to switch funds in the Middle East than in the UK market. And again it depends on the investor groups because that is the driver to turnover. What we do see is the business from the life platforms seems to have a higher degree of persistency and slightly less turnover.
One of the other themes we’ve started to see developing in some of the larger IFA firms is the desire to have managed solutions. It’s not driven in the same way that the RDR is driving that move in the UK, but more about the practicalities of having to monitor such a large range of Sicav funds and products.
How are regulations in the Middle East impacting on fund sales?
It’s a good thing that more regulation is coming into the Middle East retail market place. Our concern has been that a private individual could be dealing with an adviser who could be in a number of different jurisdictions – the DIFC in Dubai, a free zone, or in the UAE at large. By bringing regulation in so that clients understand how the adviser is authorised is a good thing. The prospective Emirates Securities & Commodities Authority regulations do not appear to be affecting our institutional business –it’s more aimed at the retail market and there’s nothing in it at the moment that would prompt us to change our strategy.
Our frustrations lie in some markets which have not really developed proper regulation, where regulation is still covered off by the central bank or ministry of commerce.
What are your key distribution channels in the Middle East?
It is dominated by the platforms because that is our strategy. When we first went to the region we did not directly canvass the underlying IFAs. We focused instead on the life platforms, and the way we have dealt with IFAs over the years has been to invite them to our seminars and presentations.
Our original strategy was to focus on the relatively small number of large organisations we could develop strategic alliances with. So it was the global banks, some of the local banks and the global life companies, and the business split between the life platforms and the banks is relatively even.
We get some direct business from the banks, some of which goes through the life platforms as well, but virtually all the IFA life business is routed through the life platforms.
One of the things we helped facilitate was the three corner relationship between life platform, bank assurance and us as asset manager. When we first arrived it was either-or – you either dealt with the banks or the life platforms. One of our propositions to the life industry has been that to build your business as a life company in the Middle East, you should be distributing via banks and not just via the smaller IFAs.
The other thing that has slightly changed our strategy has been the emergence of larger IFA firms or networks. We are starting to have a more direct relationship with them, even if they are using the life platforms, by starting to do events specifically for key IFAs.
What new products and marketing initiatives have you lined up for this year?
We are looking at what fund products we might develop with Religare Asset Management, so watch this space. The search for income and the possibility of feeder structures to some of the better known managers in the UK is a possibility. Further down the line we are looking at whether to expand in the Gulf and go into some of the other markets where you might need to develop local currency share classes. Bear in mind it took us five to ten years to really develop significant traction in the Middle East which we now have.
