THE PROSPECTS FOR THE ALTERNATIVE ASSET MANAGEMENT INDUSTRY IN THE MENA REGION

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1 DIFC Business Breakfast THE PROSPECTS FOR THE ALTERNATIVE ASSET MANAGEMENT INDUSTRY IN THE MENA REGION By Sohail Jaffer AIMA Middle East representa=ve 13 May,

2 CAPITAL RAISING IN THE GCC Source: DIFC

3 Words of the wise A great stock, though with small profits, generally increases faster than a small stock with great profits. Money, says the proverb, makes money. When you have a li@le, it is oaen easier to get more. The great difficulty is to get that li@le. - Adam Smith, The Wealth of NaIons. 3

4 SecIon 1 GCC INVESTOR PROFILE 4

5 Asset Management in MENA region A short- term opportunity to invest in interest rate differenials is influencing retail investment preferences Target returns have declined and are now expected (in aggregate) to reduce further into 2013 There is increasing appeite to invest GCC sovereign wealth in local markets or towards local objecives Sovereign Wealth Funds (SWFs) account for 88% of exising investable assets and 74% of new assets according to our study Second Ier insituional GCC investors are adoping a more sophisicated core/ satellite approach to their porbolios About half of all insituional investors referred to some form of core/ satellite approach defined as separate pots with different risk profiles and target returns Source: 2012 Invesco Middle East Asset Management Study 5

6 FTSE Survey MENA = GCC + Middle East (Levant) + North Africa Respondents by sub- region AUM s by respondents Source: FTSE Global Markets (Feb 2013) 6

7 FTSE Survey MENA = GCC + Middle East (Levant) + North Africa An increasingly diversified allocaion profile Source: FTSE Global Markets (Feb 2013) 7

Companies Bank Treasurers allocaing proprietary capital

8 GCC Investor segments Sovereign Wealth Funds InsItuIonal Investors Pension funds Insurance companies Investment Companies Bank Treasurers allocaing proprietary capital Family offices Private Banking clients Source: (Image) 8

9 What makes GCC Investor unique (1)? GCC investors have short Ime duraions Source: 2011 Invesco Middle East Asset Management Study 9

10 What makes GCC Investor unique (2)? GCC investors also exhibit unique and disincive asset preferences, of which the most important is their high exposure to tangible assets. Source: 2011 Invesco Middle East Asset Management Study 10

11 What makes GCC Investor unique (3)? GCC investors allocate 62% of their investable assets to direct investments while only 11% of expatriate assets use direct structures Source: 2011 Invesco Middle East Asset Management Study 11

12 SecIon 2 INVESTOR PERSPECTIVES ON HEDGE FUNDS 12

13 Merit associated with Hedge Funds An Investor PerspecIve Hedge funds provide economically important, risk- adjusted performance that provides investors with diversificaion benefits, even during the most difficult macroeconomic environment. An insituional investor, who adds hedge funds to the convenional 60/40 porbolio policy, can gain economically important benefits of diversificaion. Hedge fund volaility is reasonably low across investment strategies, compared to convenional asset classes. CorrelaIons between hedge funds and main asset classes are only slightly higher during recessions, suggesing that hedge funds are unlikely to threaten the stability of the financial system. Source : Study conducted by Centre for Hedge Fund Research, Imperial College Sample Period 1994 to

14 Deutsche Bank AlternaIve Investment survey Out with the old, in with the new EXPECTATIONS OLD NEW Industry growth driven by family offices and private banks Hedge funds may get an allocaion from the alternaive bucket within insituional porbolios Hedge funds offer outsized returns in all market environments Hedge fund fees will collapse The fund of funds model is broken Industry growth backed by insituional investors Hedge funds no longer viewed as a separate asset class Hedge funds expected to deliver steady, predictable return streams Greater alignment of interest between managers and investors Funds of funds a@ract insituional capital with an evolved business offering Source : Eleventh Annual Alternative Investment survey Deutsche Bank

The weighted average return target for investors hedge fund porbolios in 2013 is 9.

15 Deutsche Bank AlternaIve Investment survey PredicIons for hedge fund industry AUM in 2013 (1) Industry assets will reach $2.5tn by 2013 year end. The reducion in cash levels from funds of funds over the next 6 months (March August 2013) is expected to contribute an addiional $7.2bn to industry assets. The weighted average return target for investors hedge fund porbolios in 2013 is 9.2% Nearly 80% of insituional investors are targeing 5 10% for their hedge fund porbolios in 2013 The proporion of investors who are considering making their first early stage investment has increased two fold since last year Source : Eleventh Annual AlternaIve Investment survey Deutsche Bank 15

16 Deutsche Bank AlternaIve Investment survey PredicIons for hedge fund industry AUM in 2013 (2) A net 43% of investors, measured by HF AUM, are planning to increase allocaions to equity long/short managers in 2013 Equity long/short is the most sought aaer strategy in 2013 Global macro coninues to be the most challenging strategy for hedge fund investors to source Global emerging markets are the most sought aaer investment region in 2013 Source : Eleventh Annual AlternaIve Investment survey Deutsche Bank 16

17 Deutsche Bank AlternaIve Investment survey PredicIons for hedge fund industry AUM in 2013 (3) The proporion of investors with no restricion on their allocaion size as a percentage of a fund s AUM is increasing year- on- year. The use of investment consultants is becoming increasingly prevalent 50% of consultants recommend that their clients adopt a risk- based approach to porbolio construcion The endowments and foundaions have been the quickest to adopt the risk- based approach to porbolio construcion Source : Eleventh Annual AlternaIve Investment survey Deutsche Bank 17

18 Deutsche Bank AlternaIve Investment survey Billion dollar US foundaion speaks Hedge funds have a bad rap in They have performed as expected and the media needs to stop focusing on short Ime periods. MulI- billion dollar public pension fund speaks When you invest in a hedge fund, you take on both investment risk and operaional risk, however you are only rewarded for investment risk. With managed accounts, you greatly miigate the operaional risk Asian- based fund of funds speaks The whole Asia hedge fund space will remain very challenging in 2013, though we see an increasing number of new opportuniies. Source : Eleventh Annual AlternaIve Investment survey Deutsche Bank 18

19 Credit Suisse Survey Hedge Fund Investor AppeIte and AcIvity Where Investors Assets Are Likely to Flow in 2013 by Strategy Source : The 2013 Credit Suisse Global Survey of Hedge Fund Investor AppeIte and AcIvity 19

20 Credit Suisse Survey Hedge Fund Investor AppeIte and AcIvity Return ExpectaIons for 2013 Investors predicions on best performing Hedge Fund strategies in 2013 Source : The 2013 Credit Suisse Global Survey of Hedge Fund Investor AppeIte and AcIvity 20

21 Preqin Report 1Q13 Hedge Fund Spotlight ProporIon of Investors searching for New Funds by Fund Structure Source: Preqin 1Q13 Hedge Fund Spotlight 21

22 E&Y Survey - Global Hedge Fund Market (1) Manager selecion and redempion criteria For 76% of Hedge Fund managers, performance is the most important factor for selecion process. For 82% of investors, the management team is a top consideraion in the selecion process. Although managers and investors agree that performance is a major reason for fund redempion, 84% of investors also feel that changes in key personnel would trigger fund redempion, compared to only 30% of managers. Past performance is a key investment criteria, but not barrier to entry Source: E & Y s Survey of Global Hedge Fund Market

23 E&Y Survey - Global Hedge Fund Market (2) Cost of doing Business is Up 66% of Hedge Fund managers have either added headcount in the front office or expect to in the near future. 70% + of Hedge Fund Managers do not expect to increase outsourcing in the next 2 years. 58% of managers are making technology investments in compliance, 54% in risk management and 52% in investment management systems. Source: E & Y s Survey of Global Hedge Fund Market

24 E&Y Survey - Global Hedge Fund Market (3) Investors demand more risk management and transparency, but are not willing to pay for it. 89% of investors value shadow accouning, but only 53% feel it is worth passing on the cost to the fund. 70% of managers currently pass on the cost of D&O insurance to the fund, but over half of investors say it is unacceptable for managers to pass on this cost. 68% of managers pass on the cost of regulatory registraion and compliance to the fund, but about half of investors say it is unacceptable for these costs to be passed on to the fund. Source: E & Y s Survey of Global Hedge Fund Market

25 E&Y Survey - Global Hedge Fund Market (4) Funds of funds demanding and gexng concessions, paricularly on fees 95% of funds of funds are gexng fee breaks in return for concessions. 83% of funds of funds offer larger mandates in exchange for lower fees. 56% of funds of funds offer longer lock- ups in exchange for lower fees. Investors support for emerging and start- up funds is increasing Source: E & Y s Survey of Global Hedge Fund Market

26 SecIon 3 GROWING ATTRACTION OF THE DIFC 26

27 FTSE Survey MENA = GCC + Middle East (Levant) + North Africa Sexng up operaions in MENA: What investors want Source: FTSE Global Markets (Feb 2013) 27

28 FTSE Survey MENA = GCC + Middle East (Levant) + North Africa Investors look for improved liquidity and lower market risk Source: FTSE Global Markets (Feb 2013) 28

DIFC Playing a major role (2004 Present) Plaborm to access regional wealth and investment opportuniies 100 percent foreign ownership Zero percent tax

29 DIFC Playing a major role (2004 Present) Plaborm to access regional wealth and investment opportuniies 100 percent foreign ownership Zero percent tax rate on income and profits (guaranteed for a period of 50 years) A wide network of double taxaion treaies available to UAE incorporated eniies Source: DIFC 29

30 OpportuniIes for DIFC Encouraging more HF Managers to establish their firms in the region. Example Permal, Man Investments,Invesco, LGT Capital To conclude MOUs with other regulators including ESCA in UAE to permit passporing of funds into other GCC jurisdicions. 30

Mission To provide an interacive and professional forum for our membership and act as a

industry and to be its pre- eminent voice To develop sound pracices, enhance industry

investors, the media, regulators, governments and other policy makers Leadership Andrew

31 Mission To provide an interacive and professional forum for our membership and act as a catalyst and promoter of the industry s global development To provide leadership to the industry and to be its pre- eminent voice To develop sound pracices, enhance industry transparency and educaion, and to liaise with the wider financial community, insituional investors, the media, regulators, governments and other policy makers Leadership Andrew Baker, CEO Kathleen Casey, Chairman Source: AIMA Jiri Krol, Director of Government and Regulatory Affairs 31

Thank you Sohail Jaffer Deputy CEO FWU Dubai Services GmbH Al Fa@an Currency House Bldg., Level 16 Dubai InternaIonal Financial Centre Dubai UAE Tel: +971 44175 422 Fax: +971 44175 555 Email: S.

32 Thank you Sohail Jaffer Deputy CEO FWU Dubai Services GmbH Al Currency House Bldg., Level 16 Dubai InternaIonal Financial Centre Dubai UAE Tel: Fax: The information in this presentation does not constitute a sales offer, investment advice or an offer for the acquisition of financial products or instruments, and shall not in this regard imply legal obligations for the FWU Group or anybody else towards the readers of this presentation. This presentation is solely intended to provide information on matters of interest for the readers and such information is not meant to replace the knowledge and the judgment of the readers who should make all appropriate inquiries.

INFRASTRUCTURE SUKUK SOHAIL JAFFER DEPUTY CEO, FWU GLOBAL TAKAFUL SOLUTIONS 18 NOVEMBER Global Leader In Takaful Expertise

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