High liquidity to fuel Gulf hedge funds

(DENNIS B MALLARI)   

The Middle East is set to become increasingly active in the global hedge fund industry, with the UAE and Qatar playing potentially dominant roles in the region, according to research conducted by Mirabaud.

Worldwide, total industry assets under management stand in excess of $2.68 trillion (Dh9.8trn).

Mirabaud forecasts that hedge funds will become increasingly attractive to the region’s ever-more sophisticated regional investors, especially given the high levels of excess liquidity in the Middle East.

Gilles Rollet, CEO of Mirabaud (Middle East) Limited, said: “Globally, hedge fund centres have emerged from the most sophisticated financial centres, such as New York, London, Hong Kong and Singapore.

The relevant defining attribute of each of these locations is the maturity of their capital markets. While Middle East capital markets have not yet reached the same level of maturity, they are quickly moving in the right direction.

In the UAE and Qatar, in particular, the markets and the level of regulatory oversight continue to achieve significant progress.

“The DIFC has even taken the step, through its regulating body the Dubai Financial Services Authority, to create a Hedge Fund Code of Practice, giving legal weight to the effort to make Dubai a centre in the hedge fund industry,” said Rollet.

Increased institutional investment in the regional capital markets, especially the UAE, is another sign of the maturity of markets here, Mirabaud’s research found.

Globally, at a time when most traditional investments are generating low levels of returns, institutional investors are increasingly attracted to alternative asset classes such as hedge funds.

Rollet added: “A hedge fund-friendly environment can be seen to emerge from a region with high levels of excess liquidity and strong degrees of professionalism among regulators and service providers.

In the UAE and Qatar, we are now seeing professionalism from both regulators and service providers grow steadily.

Both countries have governments that are committed to forging legal structures that allow for increasing financial sophistication.

If current trends continue, these two countries will emerge as hedge fund centres and will stand on par with Singapore, Hong Kong and even London and New York.”