Page 97 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

CHAPTER 2 Entrusted Stewards 81

focused on the broader region (GCC or MENA funds), and funds that
invest globally or in emerging markets.
In the category of GCC equity funds (funds concentrated on
stock markets) the firm Markaz Research estimated in February that
there were 51 asset managers in the category with a total of nearly
$12 billion in assets under management. Of the top ten asset man-
agers in its ranking, five were Saudi entities, four hailed from Kuwait,
and one was from the UAE. 46 Several of the top ten institutions,
including Riyad Capital, HSBC Saudi Arabia, Samba Financial
Group, NCB Capital (Saudi Arabia), and the National Bank of Abu
Dhabi,were entities affiliated with full-fledged commercial banks.
The volume of assets under management of mutual fund man-
agers fluctuates as stock markets go up and down. In the highly volatile
Gulf markets, swings in market capitalization have been particularly
pronounced, with multiple boom-and-bust cycles experienced this
decade. Following a strong bull market from 2001 to 2006, equity mar-
kets suffered a severe correction in 2006 despite overall economic
strength and earnings growth that year. Markets then recovered but
declined heavily again in 2008 as a result of the global financial crisis
and the expected economic recession. According to the Markaz study,
regional equity managers were holding an average of 29 percent of
assets in cash by December 2008 (fleeing the sinking stock exchanges),
whereas only 6 percent of fund assets were held in cash in April of the
same year. 47
Although regional markets are developing, they remain far less
developed than the more established public markets in the United
States, Europe, and parts of Asia. Markets remain largely sentiment-
driven, with share prices often moving on the basis of retail sentiment
more than on the analysis of earnings forecasts and hard numbers.
One key measure of this is the percentage of assets held directly by
retail investors as opposed to professional asset managers. It is esti-
mated that, in the Arab world overall, total managed assets amount to
roughly 6 to 7 percent of total market capitalization, whereas the
norm in other emerging markets is 20 to 25 percent. In the more
mature markets of Europe, the percentage of managed assets is
believed to be around 40 percent, between five and six times the fig-
ure for the Arab world. 48 This figure suggests substantial headroom
for Gulf mutual funds to grow, and also indicates the challenge they
face in seeking to institutionalize what today are largely retail-driven
markets.