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Cautious investors look to due diligence tools

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In recent months, market gyrations have shaken hedge funds and investors throughout the world, and the Middle East has not been immune to increasing risk aversion among investors.

In recent months, market gyrations have shaken hedge funds and investors throughout the world, and the Middle East has not been immune to increasing risk aversion among investors. Nevertheless, the region continues to see solid allocations because investors there have only recently considered seriously the role of alternatives (excluding property) in their portfolios, and even today allocations often remain below levels viewed as appropriate for optimum diversification.

As a result, over the past few years and accelerating in recent months, the Middle East and North Africa has become an increasingly important market for PerTrac Financial Solutions, as investors throughout the region increase their exposure to hedge funds. And if anything the market turbulence has increased demand for PerTrac’s flagship analytical platform because of the more urgent focus on conducting due diligence on managers.

A year ago, investors were principally focused on performance, and while risk was certainly a significant factor in their decisions, it was not the overriding imperative it has become now. In the wake of six weeks of volatile performance, however, the entire marketplace is concentrating on capital preservation.

In addition, a requirement specific to the region is driving PerTrac sales in the Middle East. One of the key distinguishing aspects of the Middle East investment market is the importance placed on compliance with Islam’s Shariah principles. The volume of investment in Shariah-compliant products including funds continues to grow, and the number of products available has increased dramatically over the past couple of years.

PerTrac’s products play an important role in the Shariah compliance process by allowing investors to conduct screening at the beginning of the investment process. By identifying funds that invest in areas deemed inadmissible by Islam such as tobacco, alcohol and gambling early in the fund selection process, investors can save precious due diligence resources for funds with the best chance of meeting their needs.

The ability to search for compliant products is reliant on database providers flagging up adherence to Shariah principles, and they in turn depend upon accurate information from funds. However, with capital scarce across the fund marketplace, hedge fund managers have become more accommodating in providing information, which is essential to appeal to Shariah-compliant investors.

In recent months PerTrac has continued to expand its business and client base in the Middle East, winning new customers in Dubai, Qatar, Bahrain, Lebanon, Abu Dhabi and Kuwait. Dubai has had some success in attracting fund providers, and a number of existing clients from North America, Europe and Asia have set up marketing and other operations there that use PerTrac products.

Interest has grown in Abu Dhabi from commercial banks that have started to invest their own and their clients’ capital in hedge funds, as well as from public and private entities. An important new market is sovereign wealth funds, several of which use the PerTrac Analytical Platform as they diversify their assets into alternative investments. In Bahrain, a long-established financial centre, PerTrac also has won business, most recently from wealth managers and banks.

PerTrac will continue to focus on the Middle East in the coming months as investors look to put cash to work in the markets again. With tools for manager screening, analysis, due diligence and portfolio management, PerTrac’s one-stop shop should continue to appeal to the burgeoning alternative investment market in the Middle East.

Mark Weller is managing director for Europe, the Middle East, Africa and Asia at PerTrac Financial Solutions

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