By Yasmine Dargahi
Mondrian Alpha has spent five years placing Middle East marketers in investment managers building out an EMEA sales presence. We have put together extensive research on all teams and individuals marketing to the region and have included some of our data in this piece. Furthermore, we have interviewed 10 Middle East marketers who have kindly anonymously shared their insight with us.
Institutional investors based in the GCC have combined assets under management of around $3.5 trillion (2016) of which $2.9 trillion is accounted for by Sovereign Wealth Funds. The next two largest pools of capital are also associated with governments, pension funds and government owned institutions, and have combined AUM of $530bl.
With Europe’s $22 trillion of AUM (2016) why have so many managers chosen to focus on the Middle East and why does it become a crucial part of a manager's EMEA strategy?
The particularity of the Middle East is that it is dominated by Sovereign wealth fund investors which have the most prestigious capital for a fund manager. Capital is highly concentrated – there is approx. $2.9 trillion of investable assets spread across only 11 of these investors and this is projected to grow by another trillion by 2021.
The size of these investment organisation allows them to give large amounts of money to a manager. Specifically, their alternatives portfolios are some of the most developed. For example, Qatar Investment Authority has approximately $50bl of capital in hedge funds and is known for some of the largest hedge fund tickets.
Another unique attribute of the region is the loyalty of investors. It may take a long time, longer than anywhere else, and commitment to build relationships and trust with investors in the Middle East. But once a marketer has, investors are loyal clients and long-term investors who won’t redeem as soon as there is a performance down. Partnering with institutions in the region can be key for a business – investors tend to start with an allocation and continue to add capital – it’s not a one-off investment.
With so much concentrated capital, the opportunity for large and high-quality investments, the Middle East would seem like an obvious market to target, however, it is often the last priority for international managers across asset classes when building out an EMEA business.
There is a fear of the region and multiple misconceptions. Managers have this image of ample tea drinking, discussing family, exclusivity among locals, and opaqueness. While this is certainly happening in the family office and retail space, it is limited in the institutional space, which is much like Europe in sophistication and professionalism.
Managers often seek our advice when considering a Middle East marketing hire; we consistently get asked the same questions and notice the same misconceptions. We try to address these in this paper.
1. Women cannot market in the region - Myth
It is clear when speaking to women in the role that this is a topic that almost always comes up with a prospective employer and sometimes with colleagues - especially portfolio managers who need to be proven wrong by going on a roadshow with a female marketer in the region.
However, based on our mapping of active fund marketers, 20% of London based sales people targeting the Middle East are women. The consensus is that women don’t avoid going to any countries in the Middle East and do not feel uncomfortable, don’t feel that they have a disadvantage, and don’t feel that they are not taken seriously.
Examples of high ranked women in finance include Farah Foustok, the CEO of Lazard in the Middle East, Carmen Haddad who was appointed CEO of Citi Saudi Arabia in 2017 and Amanda Staveley, the British business woman famous for her connections with Middle East investors who played a prominent role in Qatar Investment Authority’s investment in Barclays in 2008.
2. Allocators are mostly locals - Myth
In the institutional space, there is a real mix of international and local allocators, and many of the locals are internationally educated. The proportion varies by country with the UAE, Qatar, and Oman having more internationals than locals in the role and Bahrain, Kuwait, and Saudi having more locals in the role.
While the allocators who marketers interact with on a day to day basis are diverse, C-level roles are increasingly dominated by locals. One marketer noted that “there is indigenization – CIOs of sovereign wealth funds used to be foreigners but now at the top there are only locals even if they don’t have the same skill set in many instances. Investors are tired of paying an international too much.”
3. Shariah compliant funds are necessary - Myth
Shariah compliant investments and funds are in accordance with Islamic Principles - Islam strictly prohibits interest. Essentially one cannot make money from money. This can be interpreted in vast ways and in some interpretations, one is not able to invest in funds at all. In practice, Sharia funds respect certain rules on how interest is paid and gained. Moreover, there are social restrictions imposed – the alcohol, gambling, pornography, tobacco, ancillary activity, pork production, bank (and any other banking institutions involved in interest) sectors cannot be invested in. Lastly, the contract between the two parties involved cannot have “unacceptable uncertainty” which could cause a dispute.
Most investors in the region don’t require Sharia compliant funds. If required, it is usually by retail investors. However, the ability to customise a fund is crucial as most investors will ask that the above sectors be removed because they are in a Muslim country.
One marketer pointed out the similarity between Sharia restrictions and ESG noting that ESG has similar requirements and can be even stricter.
4. Speaking Arabic is crucial to success as a marketer - Myth
There is a consensus amongst marketers that speaking the language is not necessary. With sophisticated investors, business is conducted in English. While the language is helpful in building a connection, what is more important is understanding the culture. This is easier if one has Middle East roots which gives an advantage but can be achieved by someone without, who completely immerses themselves in the region’s ethos and customs. The non-Arab marketers who have been successful are the ones who have devoted their career to the region. Many have also spent some years living there.
One marketer mentioned that when they go outside the large institutional investors, they sometimes bring an interpreter – one example was for meetings with a $7bl family office in Jeddah. They have a successful partnership now with this investor
5. Relationships are more important in the Middle East – Truth
Relationships are more important to investors in the Middle East. The consistency of representation of a firm builds trust vs sending a different person every time. In fact, if we observe the tenures of Middle East focused marketers across asset classes in London, the average years at a firm is eight years, much higher than for other regions. To gain credibility a marketer needs to demonstrate loyalty both to their clients and their employer.
Many investment managers get excited about the big pools of capital in the region and start to cover it, giving up and retracting after one or two years when results don’t come fast enough. The region is used to that and looks out of for that.
Investors want to see commitment to the region and that a marketer will be present on the ground if things go wrong, not just to get their investment initially. One marketer who covers investors across EMEA pointed out that in contrast to Europe where product alone dominates, in the Middle there is a real combination of the product and the relationship with the marketer, especially when the investor is a local.
6. A marketer must be aware of cultural intricacies – Truth
A strong marketer will be aware of the region’s religious holidays, the customs, and the different working hours - the weekends are Friday/Saturday and the working hours are usually 7:30/8am until 12/1pm resuming after the temperatures have begun to cool from 3/4pm until 7/8pm.
Moreover, it is important to have an appreciation of how seniority works in the Middle East – rank is important in the region. The way investor teams behave with their seniors and how a marketer should behave with different seniorities is different than it is in Europe.
Finally, a marketer should be familiar with the customisation required for investors to consider a fund and should represent a flexible investment manager who has committed to the region and will make the required changes to their strategy.
7. The region has the longest lead times – Truth
When speaking to marketers, the average lead time is two years, longer than other markets. One fundraiser even gave the example of a seven year sales cycle. The decision-making process is different in the Middle East – firms tend to be more bureaucratic and hierarchal and this can result in a “laisser faire” attitude – no one will stick their neck out. There are many committees, but the final decision is always made by the top individual who usually has many other board positions and whose time is limited. The portfolio management and analyst teams are a mix of internationals and locals but this end decision maker is usually a local. This and the many layers of hierarchy means that there isn’t always clear connectivity between the analyst teams and the decision maker, creating longer and more challenging sales cycles for marketers.
Other explanations could include the shorter work days in the region and Ramadan/ summer holidays which can remove up to four months of decision making. Also, investors are further away from a geographical standpoint and rely on individuals coming to the region to update them- they don’t have the same access and resources as investors based in New York or Singapore.
8. Marketers must be based locally to adhere to regulation – Myth
Many small alternatives houses with centralised global/ EMEA teams as well as large global asset managers, including JP Morgan. Wellington, Fidelity, and MFS for example have London based Middle East marketers. There are approximately 70 London based asset raisers covering the region.
While it might be more convenient for a marketer to be based locally, investors actually prefer that the marketer is based where their firm’s portfolio managers and analysts are based, closer to the news and is able to travel to them to update them.
Regulation doesn’t stop a marketer from being based abroad if they are targeting the institutional space. There are stricter rules for speaking to retail investors and in this case funds also need to be registered. If a marketer is pitching to institutional and qualified investors (Sovereign wealth funds, pension funds and regulated family offices) then the restrictions do not apply and only some small precautions need to be taken. For example, in Saudi Arabia, Kuwait, and Bahrain, a marketer based abroad and visiting should only have generalist discussions with clients in a meeting and not talk specifically about a product. The rational is that if one is having product specific conversations in the country itself then their funds should be registered. This same rational means that a marketer can send by email any fund documents as long as the email comes from outside of the country.
9. Consultant Relationships are important in the region – Truth
The region was particularly impacted by the financial crisis having had large exposure to structured products. Investors have become more savvy and sophisticated– one noticeable change is that while they were slow to affiliate themselves to consultants, they have become very reliant on them. The most focused on the region are Cambridge Associates, Hamilton Lane, Stepstone, Albourne, and Willis Towers Watson.
10. The Middle East is challenging to market to - Truth
There is a fear of the Middle East in general. It is an unknown. By many it is conceived as a war zone. Certain events, including the recent murder of Jamal Khashoggi’s in the Saudi embassy in Istanbul, can raise ethical debates about which countries managers should transact with. Therefore, it can be challenging for a marketer to communicate the differences of the region to western institutions and marketing the region to portfolio managers internally. Many are at first reluctant to visit the region with a marketer. Once they are convinced by a first trip then they are usually willing to go back.
Another factor making the Middle East challenging to market to is logistics. The infrastructure in the cities is poor and slows a marketer down. Also, for marketers based internationally, the flights to the region are often inconvenient.
A manager’s main buyer in the Middle East is the government while in Europe the channels are more diversified. The bureaucratic nature of these government institutions creates a challenge for marketers.
Business is conducted differently in the region – in addition to the cultural intricacies, one point that consistently comes up is that investors in the region tend to frequently disappear for months at a time and it is important not to take it personally. Phones and emails are frequently not answered. Getting to the right individuals is not like anywhere else – it’s difficult to reach investors.
The key and accelerating trend is that the region wants to have better control on its assets and how they are invested.
One unexpected initiative to that end has been consolidation. In 2017, Abu Dhabi completed the merger of Mubadala Investment Company and International Petroleum Investment Company (IPIC) – the newly combined Mubadala merged again this year with Abu Dhabi Investment Council (Adic) and now has combined AUM of over $200bl. Abu Dhabi also merged its First Gulf Bank and National Bank of Abu Dhabi in 2017. There have also been talks of Oman merging its two Sovereign wealth funds.
Gaining more control on assets is allowing the Gulf’s players to focus more on internal investments, investing back into the region. There are big projects in Saudi Arabia and the UAE for example, created to invest in the future of the country through developing the region and the economy.
This increased desire for control and investing locally is making in house investments, co-investments and local investments more common among investors. An asset manager can address this by investing in the region and creating products for the region. This would require teams of investment professionals dedicated to looking at investments in the region and then being able to sell Middle East focused funds to investors in the region. The region is interested in attracting capital from outside and increasingly asset managers will be asked the question by investors – “What are you doing for our country and its development?”
Ernst & Young (2017). Rapid change on all fronts. The EY GCC Wealth and Asset Management Report 2017.
Terrapinn (2018). Middle East Investment Summit 2019.
Ublfunds.com.pk. (2018). Shariah-compliant Investments | UBL Fund Managers. [online] Available at: https://www.ublfunds.com.pk/individual/resources-t...[Accessed 22 Dec. 2018].