Global managers flock to Middle East as competition heats up for trillions in assets

Global money managers are flocking to the Middle East in search of fruitful collaborations, putting boots on the ground in a key region where stakeholders are keen to find not just service providers, but long-term, symbiotic relationships.

And those that will emerge the winners will be aware of that need to give something back to the region, sources said.

“There’s a real sea change in belief about being on the ground — and that doesn’t just apply to investment managers in liquid assets, but also asset servicers and others in the value chain,” said Tony Gaughan, partner, investment management and wealth sector leader for EMEA and the U.K., consulting at Deloitte. “We’re now seeing firms moving from a model where they had a relationship manager covering (the region) — probably an expat — to opening an office in Abu Dhabi or Dubai. There’s also, quite reasonably, people in the kingdom saying, ‘If you want to allocate assets from ourselves, what are you going to do for our local market?’”

That includes providing training, locating a head office in the cities, and contributing to the economy. Sovereigns and others will want to see giving, “not just trying to take from the region. The winning (model) is not a local office with salespeople in it,” Gaughan said.

European and global managers tare building relationships at the senior level with governments and stakeholders. Managers will need to know the regulators, key stakeholders in sovereigns and other asset owners in order to help shape and assist with the policy agenda in the Middle East, Gaughan said. “That’s going to be a critical element of building relationships on the ground.”

Last year, Pensions & Investments reported on a slew of hedge funds setting up shop in Dubai in particular, looking to access the talent pool and investment opportunities on offer in the emirate.

Now, a growing number of mainstream money managers have gained authorizations to operate in the local market and open offices, with financial centers in Abu Dhabi and Riyadh proving to be the most popular options.

Recent authorizations include for AXA Investment Managers and Morgan Stanley Investment Management, which received their "financial services permission," for allowing the firms to conduct operations within Abu Dhabi's financial center.

Meanwhile, Fiera Capital and Ninety One Gulf Capital were granted in-principle approvals, according to a statement provided by Abu Dhabi Global Market, which means a license will be granted on certain preconditions such as establishing an office space within the ADGM.

The latest firm to secure its license to operate in the ADGM is U.S.-headquartered PGIM, which has $1.33 trillion in assets under management. The firm marked its formal entry into the Middle East with an office in ADGM and its financial services permission license, and has worked with clients in the region for many years, it said. PGIM appointed Emira Socorro as senior executive officer, leading the new office in Abu Dhabi.

And in April, the Saudi Arabia unit of BlackRock, the world’s largest asset manager, made waves when it said it would establish a Riyadh-based multiasset-class platform to invest across public and private markets, with an initial anchor investment of up to $5 billion from the kingdom’s sovereign wealth fund, Public Investment Fund.

The new platform — which will be fully integrated with BlackRock’s investment capabilities — will support foreign institutional investment into Saudi Arabia, while also looking to broaden local capital markets and drive investor diversification across asset classes, BlackRock said at the time. Further, BlackRock Riyadh Investment Management aims to develop the market’s Saudi-based asset management talent, already having launched a graduate program in Riyadh and teaming up on talent development initiatives with the about $750 billion PIF.

BlackRock, which has been in Saudi Arabia for years, hopes to "bring more global investment to the kingdom and (is) excited to do so with a partner like PIF, who has a similar global perspective and is a long-term, strategic investor around the world," a BlackRock spokesperson said.

Regarding the Middle East in general, the spokesperson added that the region is an important market for BlackRock, "both in terms of the investment opportunity for our clients, and for the continued growth of our international business. We have longstanding client relationships in Kuwait, Qatar, Saudi Arabia and the UAE and we look forward to continuing to build on these partnerships over the long term."

The region’s appeal is clear in the numbers: There are trillions of dollars in assets held by sovereign investors, while Boston Consulting Group’s Global Asset Management 2023 report showed that assets under management in the Middle Eastern region grew to $1.3 trillion in 2022 — up $100 billion over the year.

Assets managed in Abu Dhabi Global Market soared by 226% over the year ended June 30, according to ADGM, although a spokesperson said actual values were not disclosed.

By the end of June, the number of asset managers operating in ADGM reached 112, managing 141 funds.

The Gulf Cooperation Council also has a long and storied history of sovereign wealth funds, including Saudi Arabia’s PIF, the about $993 billion Abu Dhabi Investment Authority, and the $969 billion Kuwait Investment Authority — the oldest sovereign wealth fund in the world. Asset values are according to sovereign investor data and research firm Global SWF.

“The Middle East, and the Arabia Gulf market in particular, has rapidly become a key component of the global financial ecosystem,” said Mohammed Abdulmalek, head of the Middle East at PGIM. “The private wealth across the Middle East provides wealth and asset management firms with a compelling reason to establish a presence in the region. Over the last three years, while many regions faced pressures on investment allocations, the GCC has emerged as one of the few areas with surplus capital ready for global investment.”

“The region is very diverse, and investors have varied and complex mandates that extend beyond financial rewards,” said Mike Freno, chair and CEO of money manager Barings. “In fact, sovereign wealth funds have been critically important to driving economic transformations for several Middle East countries.”

U.S.-headquartered Barings, which has $409 billion in assets under management, opened an office in Dubai in April as part of a long-term strategic decision to meet growing demand and better serve its client base in the region.

Douglas Bourne, head of Middle East at Schroders, said: “The obvious appeal is the ability to work with some of the largest and most sophisticated investors in the world. They invest across asset classes and continue to explore new ways of gaining exposures whether through traditional funds and mandates or looking to develop joint ventures and other strategic relationships with international partners.”

“The challenge is that they understandably expect first-class service, and one needs to ensure any entrant to the market has sufficient infrastructure of personnel and systems in place to provide a world-class client experience,” Bourne added. Schroders has an office in Dubai. Its Middle East AUM was not immediately available.

Although the top three sovereign wealth funds in the Middle East — ADIA, PIF and KIA — may be obvious targets for money managers, they “shouldn’t ignore that there are important sovereigns in Kuwait and Oman as well,” Deloitte’s Gaughan said. “I think what’s more interesting is that, in many of these countries, there are second-tier municipal sovereign investors that don’t really get the profile internationally that they perhaps would if they were in other parts of EMEA,” he said.

There are at least 10 other sovereign wealth funds and public pension funds in the Middle East with between $30 billion and $250 billion in assets, according to Global SWF data, while there are “many sovereign investors (that) have more than $10 billion — small vs. the largest, but still sizable and doing interesting things. So being on the ground you can build relationships with each of them, understand how the region works and priorities,” Gaughan said.

The Middle East also has a maturing retirement market, sources said, with a need for more savings and investment options in the next 30 years. That’s also leading many banks in the region to think about their savings and wealth industries — meaning competition for global managers.

“While the (domestic) segment of the investment industry is small today, it’s one that we forecast to be growing. Whilst everyone talks about global investment firms wanting to be there, the fact is there are domestic, regional firms in the industry,” Deloitte’s Gaughan said, adding that some banks have already spun out wealth or investment divisions. “As the investment opportunities become greater, in listed and private, we’ve seen people who want to build their own firms and attract assets,” such as in real estate and private equity. So global managers will need to think about that future competition, Gaughan added.

There are also differences in environmental, social and governance issues, with Islamic or Shariah-compliant finance sometimes affecting the way parts of the Middle East will invest. Exclusions from gambling, for example, will affect how managers can run investments.

“One of the diverse capabilities we bring to the region is offering Islamic finance to clients who wish to incorporate principles of religion into their investment," PGIM’s Abdulmalek said. "Understanding local investment needs to help clients execute on their strategic priorities is a crucial part of working with clients in the Middle East.”

Bourne noted that while Schroders has more than 20 years of experience with Islamic finance, the firm also deals with clients in the Gulf that do not approach business through such a lens, and a deep knowledge of its workings “is not a prerequisite” to setting up operations in the region.

There is also a raft of other considerations and projects underway in terms of ESG. The United Arab Emirates, for example, has its “UAE Net Zero by 2050” strategic initiative in place — a national push to reach net-zero emissions by 2050 and the first Middle East and North African nation to do so, it said. Saudi Arabia aims to reach net-zero emissions by 2060 through a so-called circular carbon economy framework, focused on four R's related to carbon and energy flow: reduce, reuse, recycle and remove.

And while the World Economic Forum’s Global Gender Gap Report, published in 2023, estimated that the wider MENA region will take 115 years to reach gender parity, efforts are underway on that front, too. Saudi Arabia’s Vision 2030 includes aims to increase women’s participation in the economy and increase female employment to 30%.

Although that period to reaching gender parity is striking, the same report estimated that it would take North America 95 years to close its own gap.

“As the Middle East undergoes a transformative shift in investment strategies to reflect the region’s economic landscape, the interest in sustainable and impact investing is rising, driven by a growing awareness of ESG factors amongst local investors,” Abdulmalek added.