The Gulf region is struggling to develop a local fund industry as it lacks a strong retail investor base, executives and experts said on Monday. The region has provided a portion of its oil wealth to international fund managers but is yet to develop its own fund industry, which would help provide the depth regional capital markets need to better absorb economic shocks. Most mutual funds in the region only manage $10 million to $15 million and the industry is highly fragmented. “The mutual fund industry is driven by middle-income investors and you don't have that (market segment) here in the Middle East,” Daniel Enskat, senior managing director at Strategic Insight, a mutual funds consultancy, told Reuters during an industry event in Manama. He said about $150 billion was invested in mutual funds in the region, only 5 to 10 percent of which came from retail investors. Enskat said the region's assets were highly concentrated with its sovereign wealth funds and a few rich individual investors, forcing asset managers to accept low fees. “International fund managers are coming here just to have established relationships when that retail market begins to grow,” he said. The global financial crisis was amplified in the region as most of its domestic investments had gone into equities and real estate and its fixed-income markets lack depth. “There is an imbalance in the region between what's invested in private equity and real estate and what is invested in mutual funds,” said Roberto Demartini, a fund analyst at ratings agency Standard & Poor's. “The locals haven't completely bought into the concept of investing in funds, because people like to trade and invest their money in equities themselves,” he said. Tarek Sakka, chief executive of Saudi asset manager Ajeej Capital, said family investors in Saudi Arabia, the largest Arab economy, were increasingly turning to professional asset managers. “There's been a significant destruction of wealth in this region, in particular in Saudi Arabia,” he said. The Saudi Arabian stock market suffered a crash in February 2006, before it was further hit during the financial crisis alongside other markets in the region. “They've just taken too many hits for them to think ‘I can do it on my own',” he said. Demartini said the local industry could attract more money if there were only one or two established fund domiciles, reducing the number of standards under which Middle Eastern funds are managed. Middle Eastern funds are spread across a number of domiciles.
