Saudi Arabia has the largest mutual fund industry in the regionJEDDAH: Gulf Cooperation Council (GCC)-based mutual fund assets rose by 9 percent or $2.3 billion in the first half of 2010, the "GCC Mutual Fund Industry Survey 2010" said Wednesday. According to a study, the global mutual fund industry regained some lost ground in 2010 and the Gulf Cooperation Council countries (GCC) witnessed a flurry of new funds. The study, sponsored by Abu Dhabi Council for Economic Development, Qatar Financial Centre Authority, PricewaterhouseCoopers, Dow Jones Indexes, and Emirates NBD, said global fund assets fell by 6.9 percent q-o-q at end-2010Q2. Worldwide funds experienced $92 billion in net outflows in 2010Q2 (outflows were $103 billion in Q1) according to ICI, with continued flows into long-term funds, while short-term funds saw outflows. The study noted that according to the Investment Company Institute, the global mutual fund assets at the end of June 2010 stood at $21.4 trillion, a jump of 5.4 percent to from a year earlier. Assets under management, however, were still 18 percent lower than the peak of $26.15 trillion at the end of 2007. The partial recovery in mutual fund assets largely emanated from the rebound in global equity prices from a year earlier. "The global market for Islamic financial services, as measured by Shariah-compliant assets was estimated to have increased 25 percent by year-end 2008 from 2007. Much of this growth can be attributed to indexes, which, by screening investments for compliance with Sharia law, help to reduce research costs and compliance concerns that investors would otherwise face in constructing Shariah-compliant investment portfolios. Through benchmarking and screening, index providers will play a key role in the future of investing in the GCC," the study said. Money market funds have experienced outflows since 2009Q1 due to a near zero interest rate environment. Equity fund assets declined compared to the first quarter, but were still higher on a year on year basis. GCC mutual fund industry is relatively young and accounts for a fraction of global mutual fund assets, the study noted. Saudi Arabia has the largest mutual fund industry in the region. Fund managers located in the GCC are estimated to control about half of global Shariah-compliant fund assets. Fund managers located in Saudi Arabia, in particular, dominate the Shariah-compliant fund segment. In general, ranking of GCC domicile locations relates to the size of each country's asset management industry. "However, while the position of the UAE ranks higher as an asset management center in the GCC, it ranks lower as a fund management center. In other words, UAE has a relatively large number of asset management firms operating in the country, but these choose to domicile a significant portion of their mutual funds in other jurisdictions," it said. Equity funds in the GCC saw net outflows in the Jan. 29-June 20 period for which data were available. Fixed income funds also witnessed outflows against the background of flows and ebbs of regional debt restructuring news. The only category to witness inflows was Islamic money market funds reflecting risk aversion. The only country in the GCC that saw any meaningful increase in net new cash flow into funds was Saudi Arabia. GCC domiciled fund assets rose by 9 percent or $2.3 billion in the period covered. Investor sentiment was weighed down in the United Arab Emirates following the impact of the global crisis, decline in oil prices, fall in real estate prices, and debt concerns. Tight liquidity resulted in banks bidding for deposits which further crowded out investor demand for mutual funds. After a quiet year in 2009 in terms of fund launches, 2010 witnessed a pick up in new fund launches in line with a partial recovery in sentiment and desire by fund sponsors to cater to the changed investor appetite. The first locally listed exchange traded fund in the GCC was launched early in the year. Mutual funds tracked in our dataset that are domiciled in United Arab Emirates saw minor net outflows in the covered period. The decrease affected predominantly equity funds. In Saudi Arabia, there were 340,515 subscribers (about 1.4 percent of the population, down from 2.5 percent of the population in 2005) in 241 funds in Saudi Arabia at end-2010Q2, according to data from the Saudi Arabian Monetary Agency (SAMA). The number of subscribers was down by 8,959 or 2.6 percent quarter-on-quarter and down by 28,730 or 7.8 percent year-on-year. The number of mutual funds subscribers declined by 15,816 in the first six months of 2010. Fund assets stood at $26.4 billion (+11.7 percent y-o-y) at end-Q2, of which $5.2 billion were in foreign assets (+45.5 percent y-o-y and 24.2 percent q-o-q) and $21.2 billion in domestic assets (+5.7 percent y-o-y and 2.6 percent q-o-q). Fund assets were up 10.5 percent from end-2009 to end 2010Q2, with domestic assets up 7.2 percent and foreign assets 26.1 percent. Mutual funds that were domiciled in Kuwait saw net outflows of $603 million in the said period. The decrease was across the board in various fund categories. Investor preferences in Qatar shifted towards more conservative assets as in the rest of the region. In Bahrain, in terms of the profiles of investors, the share of individuals in fund assets peaked at 49 percent of total fund assets in 2008Q1 and declined to 25 percent in 2010Q1. Overall assets of mutual funds domiciled in Bahrain were roughly unchanged in the period covered, the repot further said. Dr. Giyas G?kkent, group chief economist at NBAD and author of the survey, noted that "policymakers in a number of GCC member states have identified asset management as a focus sector in the development of their economies. This may raise two fundamental questions for policymakers. First, what are the factors that drive the growth of the asset management industry and second, who drives the agenda for the growth of this industry and, in particular, the mutual fund segment."
