MANAMA: The asset management industry in Middle East and Africa has reached around US$1.7 trillion as of the end of 2018.
Abdul Rahman Al Baker, Executive Director of Financial Institutions Supervision at Central Bank of Bahrain (CBB) told the participants of the 4th Middle East Assets Management Forum 2019 held on Monday at Gulf Hotel Kingdom of Bahrain.
As the industry grows, he added, opportunities will expand for asset management firms to further enhance their market share and increase their distribution channels to individual and corporate investors in the region.
Overall, he said, the prospects for growth of assets management industry in the MENA region are likely to be positive.
“This positive trend can be attributed to the rapid expansion and increasing sophistication of the Middle East and North Africa financial markets, the enhancement to the existing regulations governing assets management and capital markets, the growth of wealth of High Net-worth Individuals as well as the steady economic growth in the region.”
In Bahrain, he said, the assets management industry has been continuing to show strong growth during the past five years.
“Since the introduction of the Investment Business license by the CBB under Volume 4 Rulebook in 2006, the number of investment business licensees has risen to 51 as of the date, compared to 22 firms in 2006.”
“The three categories of investment license permit firms to undertake any or full range of assets management activities depending on their category, such as investing as principal, asset management, operating a collective investment undertaking, acting as custodian of financial instruments, or offering brokerage and advisory services on financial instruments to clients.
“As of the end of the first quarter of 2019, the total assets under management of investment firms reached US$20 billion, with an average growth of 9% per annum recorded over the past five years.
“This growth in assets is mainly due to the entrance of new investment firm licensees to the market and the introduction of new innovative products and structures by existing firms.
“The mutual funds sector is another fastest growing segments of assets management industry. With approximately US$7.4 billion in assets under management, through more than 2137 funds, the industry has been growing at steady base in recent years. Overall, there are 83 Islamic funds that are incorporated and registered in Bahrain with total assets amounting to US$ 1.4 billion as of March 2019.
The CBB, he said, through its enabling legislation, promotes the development of new products for investors in both conventional and Islamic financial markets, while at the same time providing credible regulation in both areas.
“The existing regulatory framework for Collective Investment Undertakings (CIUs) has provide for a full range of investment funds catering to various types of investors, from retail to high net worth individuals and institutional investors. In order to further enhance the existing CIUs framework, the CBB has issued Volume 7 Rulebook which provides a comprehensive rules and regulations pertaining to the authorization and supervision of CIUs domiciled or offered in Bahrain.
“The regulation has recognized the importance of expanding key areas such as the corporate governance, as well as the role and responsibilities of each relevant party of a scheme. It also expands the variety of funds that can be established in Bahrain, by introducing rules governing Real Estate Investment Trusts (REITs), Private Investment Undertakings (PIUs) and Exchange-Traded Funds (ETFs). In keeping with Bahrain’s leadership in Islamic finance, the CIU rules also provide a solid foundation for the establishment of mutual funds that comply with Sharia principles.”
“Furthermore, the Offering of Securities (OFS) Module under Volume 6 Rulebook contains detailed rules and regulation that covers the issuing, offering, floating and subscribing to different types and classes of securities, including Sharia compliant securities like Sukuk offered to the public or through private placement in or from Bahrain. The Module also provides the procedures and documentation that need to be submitted by the issuer for various types of securities that will be offered publicly or privately, as a part of their application to obtain the CBB approval in this regard.”
Generally, he said, the potential size of asset management sector is vast, and the accelerated establishment of the sector hinges on attracting the flow of potential funds into asset management industry. However, it is important to ensure that asset management industry has solid and strong foundations for future development and growth.
“Although there are several factors that need to be taken into consideration to further strengthen the growth of assets management industry such as properly addressing customers expectation, expansion of distribution channels and proper disclosure of the terms of investment, asset managers need to watch financial technology closely and adopt a responsive digital strategy and fintech solutions to further strengthen their market position. Basically, financial technology is growing at a rapid pace, something that has not gone unnoticed by traditional asset managers who can see the threat to their market share. As investors profiles and preferences change and technology continues to break new bounds, asset managers need to decide how to incorporate fintech into their strategies and or face being left behind.”
For asset managers, the advent of fintech is also affecting the way investment products are being distributed, how clients’ interface and investment advice is offered.
“It also promises a better customer experience by structuring products based on big data which reveals investors preferences or lowing costs by improving the efficiency of clearing and settlement in the back office.
Furthermore, he said, distribution channels should be more aggressively leveraged to specifically target a whole new class of tech-savvy investors, many of whom command unlimited access to more financial information and advice from their mobile devices than they could obtain from most financial advisors.
“The investment in technology and data management will also need to be increased in order to maximize the distribution opportunities, and to benefit from new opportunities offered by new technologies and social networks in attracting new potential investors and reducing the distribution costs. Currently, the majority of asset managers are not actively involved in social media, other than hosting a website. Technology in the form of social media, mobile phones and other devices will be pivotal in the collection and location of behavioural information that can be harnessed by asset managers to create appropriate products and reach more clients.”