The Securities and Commodities Authority (SCA) passed legislation in 2016 that required asset managers to register foreign mutual funds for sale in the UAE.
Prior to this, local promoters registered funds.
Asset managers can use any number of local promoters for their funds and there is no additional fee.
The fees are purely on the funds being registered and are around AED35,000 (£7,658, $9,527, €8,986) initially per fund, with an annual registration or renewal charge of AED7,500.
International Adviser has spoken to a number of firms in the UAE to discuss if these changes have altered the investment opportunities in the country.
Off-putting
The latest fund manager to obtain approval to register its range of funds within the UAE was Vam Funds.
But how many have been deterred from entering the UAE retail investment world?
Giorgio Medda, the group co-chief executive and global head of asset management at Azimut, said: “[The regulation] has certainly made a number of asset managers think twice and assess fully the business opportunity before entering the market.
“It has transferred the financial risk, in case no business is made, to the asset managers.
“The fees structure, adding AED7,500 yearly ‘maintenance’, also made a difference and pushed out managers who do not have the relevant funds for retail investors and distribution.
“In the end, we believe this will be beneficial to filter access to the market by larger institutions that are able to satisfy the needed requirements for soliciting and promoting financial products for individual investors.”
Stuart McCulloch, Middle East market head at the Fry Group, added: “There’s no doubt some firms would be put off. There are multiple jurisdictions available to companies, so it would come down to how important the UAE market was to their global strategy.”
More regulation on the horizon?
SCA recently agreed to merge with fellow regulator the Insurance Authority (IA).
It is expected that this will lead to further regulatory changes for the investment world, but what will we see?
Tarun Khanna, chief executive at Nexus Group, said: “I believe that there will be more regulation in line with current trends in terms of transparency and utilisation of technology, which would be good for all stakeholders including consumers and advisers.
“Furthermore, the environmental, social and governance (ESG) criteria will continue to impact investor and corporate decision-making.”
McCulloch added: “Regulation in financial services as a whole is only going in one direction.
“In order to protect vulnerable or inexperienced investors, we may see moves to increase the suitability requirements for certain funds that are complex or have high-risk ratings.
“There could even be rules around certain funds, as well as certain investment instruments only being allowed to be advised to ‘professional’ investors.”
Attractive proposition
So, is the UAE retail investment space still attractive to firms?
Are there enough business opportunities?
Stuart Ritchie, director of wealth advice at AES, said: “While it’s a relatively small market, in comparison to more mature regions, it’s a growing market with increasing numbers of HNWI and UHNWIs.
“As such, we would expect to see this region continue to attract new products and reputable investment providers as industry competition intensifies in developed markets.”
Medda added: “The UAE market is highly intermediated by banks and financial advisers, which offers managers a massive sales force if a partnership is made with selected players.
“History has shown that a strong on the ground presence, willingness to partner in marketing efforts and the right product range allow for interesting business opportunities.”
Range of funds
The risk in 2016 was that the ‘offputting’ fees would disuade firms from launching funds in the market, ultimately leading to a lack of options for investors.
So, are there currently enough funds available for financial advisers in the UAE?
“The region is lagging behind the rest of the world with regards to both the range and quality of funds on offer,” Ritchie added.
Azimut’s Medda said: “The diversification of available funds is clearly an issue.
“There is a clear lack of diversification in strategies, whereas fixed income and income generating funds are predominant versus equities strategies and there is too much focus on globally known names which leads to a poor choice for customers.
“Whoever the adviser is, the investor would mostly see the same names at the end of the day.”
Khanna said: “Whilst currently a range of funds are available, in the interest of consumer choice and benefit, we hope that a wider range of funds will be available in every strategy and category to enable advisers to create optimally constructed portfolios to suit every client risk profile and preference.”
Investment cravings
Everyone in the investment space has a different of opinion of what is best for investors.
Given the lack of options, what would the industry like to see in the UAE?
AES’ Ritchie said: “It would be great to see Vanguard enter the market with their low-cost funds and accounts, though it will take time for all of the big industry players to specifically target the region. Vanguard only set up an office in the UK in 2009, so it may be a while until they focus on smaller markets such as the UAE.”
Medda said: “There is a lack of specialised boutique niche strategies. Also, given markets volatility, we should see more flexible/multi-assets strategies pick-up, similar to what we saw in Europe and UK after the 2008 market shock.”
Nexus’ Khanna added: “We would like to see low cost passive funds enter the market as we believe that these will ultimately be beneficial for clients in terms of cost saving and performance.”
However, there are some that believe that the products are “already there”.
McCulloch said: “The wider industry needs to evolve away from high commission paying instruments, and change the offering to focus on creating good value solutions, which are available, and help clients achieve their financial freedom.”
Future
It is very hard to make predictions, especially with covid-19 and the regulatory merger.
But people in the industry believe the future is bright for the UAE retail space.
Khanna said: “The UAE offers a sound and robust regulatory and tax environment for funds for those who are domiciled here and those who prefer to benefit from the aspect of UAE being a regional financial and investment hub.
“Moreover, the UAE also benefits from a multinational talent pool, complemented by world-class infrastructure, serving the sophisticated, mass affluent, and high net worth markets.”
Medda added: “The foundations for a bright future are there. It is now all about execution and we believe the merger of SCA with the Insurance Authority has the potential to further compel a positive regulatory environment for the business.”
