Distressed selling, an urgent sale of assets due to negative market conditions, of assets at a lower price will ironically ensure that 2009 is a positive year for investors in the GCC and around the world, said senior executives at United States investment bank Morgan Stanley, which manages assets worth billions of dollars in the Gulf.
The region, which is viewed by international investors as a destination for portfolio diversification, can attract additional funds if it improves its transparency records, said James Dilworth, managing director of investment management unit at Morgan Stanley.
Revival of the financial markets, especially the credit market, possible by the end of the year, will be the first sign of recovery of the global economy, he said.
Outlining a range of "interesting investment opportunities" during the prevailing distressed times, he said leveraged loans, high yield debts and convertible bonds will provide ideal space for investment in 2009. Unleveraged returns from the leveraged loan markets could be as high as 20 per cent on investments, Dilworth said.
Big institutional investors and "sophisticated" investors have either returned to the markets or will return in a near future as "liability benchmarks need to be met" he said.
"Sophisticated investors are picking up distressed assets being sold. Furthermore, institutional investors cannot remain off the market for long because they have commitments to meet," Dilworth said.
"The cost of keeping the assets is high at the moment and individual companies would like to dispose them and raise capital. Investors trying to get out of have private investments is providing an opportunity for asset buyers," Dilworth said citing the reason behind his optimism. "Fixed income space has a lot of investment space," he added.
Economic activity in 2009 will also emerge out of a "forced allocation change", Morgan Stanley officials said.
"Investors have to rebalance their portfolio and will have to reallocate their funds. For an example, they may extract money from private equity and real estate and put it into public equity," said Michael Samaha, managing director at Morgan Stanley's DIFC branch.
Private equity remains a "huge opportunity" Morgan Stanley officials said.
"It is not that investment opportunities will be any less interesting. People who have bought large funds are looking to move out and this is an investment opportunity. There is a huge amount of money coming into private equity space," Samaha said.
"This year will also be a good for launch of private equity fund considering valuations of companies are much more balanced and transparent today," he said.
Both outflow and inflow of funds in from the GCC in broader terms has diminished, Morgan Stanley officials said.
"With the price of oil coming down the flow may be hampered. However, it will not in levels comparable to oil," Samaha said, expanding on Morgan Stanley's expectations on outflow of funds from the GCC.
"International investors look to the region to diversify their portfolios. "But the GCC economies need to improve their track records of transparency and corporate governance," Samaha said.
The much talked about 'common market' will not on itself usher transparency in the region but GCC states will have to make individual efforts, Samaha added.
There is a tendency among GCC sovereign wealth funds (SWFs) to focus on investments within the region they added but may change their strategies in future, Morgan Stanley officials said.
'Alternative' segments comprising private equity, hedge funds, real estate and infrastructure of investment comprise as high as 20 percent of a typical GCC SWF, Samaha said.
Morgan Stanley, which had to lay off staff in the wake of the economic downturn, will be launching five funds in 2009 that specialise in private equity, real estate, credit and secondary markets, Dilworth said.