Gulf pension funds expands to $5tn …

Assets under management (AuM) in the Middle East and Africa (MEA) is expected to show up a compounded annual growth of 12% to $1.5tn and pension funds in the Gulf region to expand 9% to $5tn by 2020, according to PricewaterhouseCoopers (PwC).

Sovereign wealth funds based in the MEA will grow the fastest, with Asia Pacific also seeing a rapid rise in such assets, PwC said in a report.

The robust AuM growth in the MEA region comes against the backdrop of positive economic outlook, family businesses and entrepreneurship and population demographics, the report said.

In contrast, global AuM is expected to show a growth of about 6% to $101.7tn with assets under management in the SAAAME (South America, Asia, Africa, Middle East) economies set to grow faster than those in the developed world in the years leading up to 2020.

Finding that the penetration of the asset management industry in the Middle East and North Africa (Mena) is still low against global markets as mutual funds’ assets was around 2.5% of market capitalisation in 2012; it said “hence there is huge potential available to local and international players.”

PwC found that Mena-based high net worth individuals are moving their wealth back from developed markets to the region with asset managers and private banks doubling their share of assets in the past decade.

Furthermore, it has seen interest from foreign private banks to set-up operations in the Gulf Cooperation Council (GCC) region owing to strong economic fundamentals.

“The coming years will bring the industry higher volumes of assets than ever before… Asset managers must clearly outline the value they bring to customers while being fully transparent over fees and costs,” according to Graham Hayward, Middle East financial services leader, at PwC.

Diversifying economies, great investment opportunities and favourable regulation complemented by highlight events, Dubai Expo 2020 and Qatar FIFA World Cup 2022, will attract the capital inflow into the region, PwC said.

Global data indicates that the GCC asset managers control over half of the global Shariah-compliant fund assets, the report said in 2012, the global sukuk issuance was valued at over $100bn. Saudi Arabia and Bahrain were the main Shariah-fund management centres along with Malaysia.

Finding that family businesses in the Middle East are very powerful and influential, unlike other economies, as 75% of the private sector activity is controlled by such firms, PwC said the younger generation of these families consider themselves entrepreneurs as well as people who run small and medium enterprises.

The overall population in the Middle East is young with most people in their mid-career and more people entering employment than retiring shows the strong potential of pension fund growth, especially in the GCC.

The local population of the GCC countries who work for government entities are offered great state-administered pension funds, hence the 2011-2012 year-on-year growth was 9%-16%.

Therefore, PwC predicts pension fund assets will grow by 8.8% a year to reach $5tn by 2020 from a 2012 total of $2.4tn.

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