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The importance of proximity

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Interest in the Middle East as a market for alternative investment products has never been greater.

Interest in the Middle East as a market for alternative investment products has never been greater. The development of the Dubai International Financial Centre and the growth of the financial industry in Qatar and Bahrain have focused attention on opportunities for asset managers in a region characterised by rapidly growing wealth and increasing investor sophistication.

The burgeoning interest among Middle East institutions and individuals in Islamic investments has also turned the spotlight on efforts to devise products that comply with the tenets of Shariah law. This poses certain challenges for the hedge fund industry, with Islam’s prohibition of the payment of acceptance of interest, but financial engineers and religious scholars are examining how to create structures that provide attractive levels of performance while conforming with Shariah principles.

It is against this backdrop that GAM opened an office in Dubai last September, drawing on the local private banking experience of its parent, Julius Baer, as well as established relationships with state and corporate institutions, individual and family investors in the region. With the increasing economic stature of the Gulf states in the global economy, it is the appropriate time to establish a permanent base in a region that promises to become an even more important market in the future.

The past few years have highlighted the role of sovereign wealth funds that seek to achieve a balanced and diversified deployment of income derived from states’ petroleum resources. At the same time, the region has experienced a widespread professionalisation of its financial services industry as local institutions offer a growing range of Islamic and non-Islamic products and services. Additionally, the entry into the market of Western banks is bringing their own expertise and operating procedures into the market.

In a region that sets great store by relationships, it’s also important to demonstrate a long-term commitment. Companies that have a permanent presence can provide a higher level of service than those with representatives who occasionally visit from elsewhere. This will prove a key advantage in what is becoming an increasingly competitive environment.

As a global investment manager, GAM has long-term relationships with clients such as the big private banking and distribution houses, some of which have also recognised the need for a permanent footprint in the Middle East, and for whom our presence in Dubai is a logical extension of the global service we provide to them.

The Middle East offers a number of advantages to providers of alternative funds such as GAM. First, the absence of the tax considerations found in Western Europe, for instance, removes the obstacle of unfavourable tax treatment to the distribution of offshore hedge funds and funds of hedge funds. Secondly, Dubai’s adoption of the principles-based regulatory approach developed by the UK’s Financial Services Authority gives a significant advantage to providers that have long-term experience of this kind of supervision and policy adherence.

Another principal benefit of a local presence is the growing interest in investment from clients elsewhere in the world in a region that remains comparatively under-researched. GAM recently launched a hedge fund that will invest up to 90 per cent of its assets in the region. Middle Eastern markets are not only booming but, at present, largely uncorrelated with those in Europe and North America, making it an attractive investment theme for diversification as well as growth. Establishing a permanent investment office locally could be the next step.

Craig Wallis is group head of institutional and fund distribution with GAM

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