3.16 AM Monday, 4 December 2023
  • City Fajr Shuruq Duhr Asr Magrib Isha
  • Dubai 05:27 06:45 12:12 15:10 17:32 18:51
04 December 2023

Critical time for hedge funds

By Mohamad Al Kady


This year will be decisive for the future of the hedge funds market due to critical changes in the world economy after the US sub-prime crisis, according to Peter Clarke, group chief executive of Man Group.

During the ninth annual Hedge Funds World Middle East Conference in Dubai he said there would be a global challenge for hedge funds as the industry is now more complex and diverse than ever before.

“We are moving into a period where hedge funds are recognised as a core component of investor portfolios, with institutional quality providers setting the pace,” he said.

“The uncertainty, which looks set to be a keynote for 2008 is throwing up a wide range of new opportunities for skill-based managers adding further to the texture to the current hedge fund landscape.

“Long-term macro trends, such as demographic shift, climate change, and expected peak oil production, are also expanding the opportunity set. But this year will be a cornerstone for the industry and I expect that hedge funds will be able to prove their strong presence in the world economy,” he said.

Clarke pointed out that trends appear to support a concentration of capital as big funds will be getting bigger, in line with top quartile dynamic, in the private equity space.

He expected more flows of capitals for hedge funds supported by emerging market wealth and increased longevity. “Within the alternatives space more generally there is potential for the increased allocation to real estate and private equity to slow in favour of hedge as local real estate markets cool and private equity deal-making slows.”

He added that managing risks remain high on investors’ but also distributors’ agendas – as an example, with private wealth management among the fastest growing revenue generators for banks, the requirement for these distributors to have confidence in the provenance of what is being placed in these channels and the providers’ ability both to execute and support product post sale is important.

Antoine Massad, CEO of Man Investments Middle East, announced that Man Group is managing $72 billions, and the GCC region accounts for around 10 per cent of its total capital.

“The major trend in regional investments in hedge funds is the high institutional investments. We noticed that institutional investments represented 40 per cent of total Middle Eastern investments in 2007, while institutional investments accounted for only 10 per cent in 2000,” he said.

“The turmoil in global financial markets in the past six months has set a backdrop for hedge funds in the Middle East.

After more than two decades of using hedge funds, private investors from the GCC states have become familiar with their value as a source of additional return and downside protection in their portfolios. But the financial climate has not often presented as many opportunities and challenges as we see today,” Massad said.

He said fresh initiatives by financial regulators and the dynamism of local markets have made the GCC an attractive market for hedge fund providers.

Although all of these currently invest outside the region, this is likely to change soon as a result of strong demand for hedge funds that invest in local markets. He also predicted that Islamic financial institutions would create Shariah-compliant hedge funds by 2010.

“Islamic institutions and scholars are working on technical tools that will enable them to introduce new hedge funds complaint with Shariah guidance.

“It’s a complicated process and they are close to offer such new Islamic financial products,” he said.

The conference came in a critical stage in global economy as there is uncertainty at most international financial markets, and this brought hedge funds to the attention of many investors and making this year’s gathering especially pertinent.

The conference, organised by Terrapinn, has become a leading event in the region and about 600 delegates are meeting in Dubai to discuss the current events in global markets and their impact on hedge fund investors, and examining new areas with profit potential.

Nasser Al Shaali, CEO of Dubai International Financial Centre Authority, said regional capital markets are growing, deepening and offering both issuers and investors new instruments.

He said: “This is attracting more and more global interest from institutions and individuals looking for exposure to these markets because of their attractive returns and the diversification to portfolios that they offer.”

Al Shaali also highlighted the changing regulatory and investment environment in the region, along with strong economic fundamentals and increasingly sophisticated regional investors.

“We have a period of tremendous opportunity for both local and international firms operating in the field of alternative investments. As an alternative asset class that can lower risk across a portfolio of investments, hedge funds are an increasingly attractive option for investors in the Middle East – just as they are for investors across the world.”

Al Shaali cited international estimates showing that the Middle East wealth would reach $3.6 trillion by the end of 2008. “At the same time, regional financial and commercial markets are liberalising.
Companies based in the region are becoming more sophisticated about how they source capital for growth and expansion, and investors are demanding more advanced vehicles to preserve and enhance their growing wealth.”

The numbers


The worth of investments managed by Man Group


Middle East wealth by 2008-end