Page 96 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

80 PART I Background and Context

created by asset managers. Investment houses, in contrast, tend to
manage funds directly and develop the internal capabilities for doing
so. Unlike banking franchises, which serve a full range of customers,
investment houses focus on high-net-worth individuals and institu-
tional clients who are capable of making large investments in sophis-
ticated and risky investment funds.
Not surprisingly, investment houses in the region sprang up in
the wake of the oil boom of the 1970s and again in the sustained
boom of the 2000s. It’s noteworthy that the early pioneers of the
investment house category were established using investment bank-
ing licenses. Investcorp, for example, has been engaged in transac-
tions since 1982 and is registered as a “wholesale bank” under the
supervision of the Central Bank of Bahrain. 45 Investment banking
licenses enabled Investcorp and other principal investment firms
such as Arcapita (formerly First Islamic Investment Bank) to partici-
pate in the arrangement of investments and then sell those invest-
ments to third-party investors. While these entities were established
as banks, in fact they behave more like private equity shops that
elsewhere in the world would be considered nonbanking financial
institutions.
It’s also important to note that, from the time of the oil booms
and associated wealth creation, international asset management firms
and fund managers have actively courted Gulf clients. The wealthiest
GCC families have long held accounts and assets with leading US and
European financial institutions such as Goldman Sachs, Morgan
Stanley, Merrill Lynch, UBS, and Barclay’s, among others. In the past
decade, global firms have increased their commitment to the region,
establishing offices in financial centers in Dubai and Qatar, building
teams with regional expertise and relationships, and seeing the Gulf
as a key growth market for wealth management. The focus of our cur-
rent analysis, however, is on the rise of investment houses based in
the region itself.

Sizable Mutual Fund Industry
As investable wealth in the region has grown, investing in listed
equity (stock) markets has been a natural first step for many
investors. It is common for Gulf-based banks and asset management
firms to offer their customers an array of mutual funds, including
funds focused on the home country (e.g., Saudi equity funds), funds