Which trends, such strengthening UAE-China ties and increasing limits on foreign ownership of banks, do you anticipate having the most influence? How do you foresee investors responding to these developments?
Among the global factors—US/China trade talks, US Elections, Global & EM GDP growth indicators, oil prices, central banks action and Brexit have some influence on our regional financial markets. Local factors do have strong impact as well, including the increase in foreign ownership of banks in UAE which can have a meaningful influence by driving in passive inflows, especially because banks are generally heavyweights in Indices. However, there are other variables which can move share prices in the banking sector; this includes NIM (Net Interest Margin) evolution, asset quality, further M&A/ consolidation, etc. Another factor is the leveling of off-plan sales for the real estate sector; it will be interesting to see if companies can stimulate demand at lower price points. Also, further reforms to help population growth (or at least stabilization), perhaps going away from the employer sponsorship regime, is another variable. Another one is increased sector diversification of our regional stock markets, especially in under-represented areas such as education, healthcare, airlines, retail chains, and F&B. This could invigorate investor enthusiasm – however this will play out over a multiyear time period. Finally, Expo 2020 will feature prominently in the news over the coming year, and this is another important consideration.
There are some saying that Expo 2020 will give a needed added boost to Dubai, particularly the financial sector. How do you assess Expo 2020's impacts on the economy and on the financial sector?
The main sectors benefiting from the Expo would be tourism (including hotels) and retail. Telecoms could get a short-term boost as well. Real estate companies would not benefit directly but would get a chance to promote their assets to a larger (and new) audience. We think the immediate benefit for the financial sector is limited. Over time, as concepts and ideas get commercialized, banks will be able to capitalize on intermediation both in lending activity and merchant banking activities (through the generation of fee income). Dubai aspires to be a financial hub—between Singapore and London. From this perspective, the Expo should have a role to play as it is a unique opportunity to showcase Dubai to the rest of the World.
How will Dubai reach its always increasing ambitions and pioneer the future of financial hubs?
In 2019, Dubai has risen up the ranks of the Global Financial Centres Index (GFCI) to eighth position, representing its highest ever ranking. The city is the only financial center within Middle East Africa and South Asia (MEASA) region to appear within the top 10 rankings, placing it alongside other pivotal financial hubs such as London, New York, Hong Kong, and Singapore. With more than 24,000 professionals working across over 2,200 active registered companies, the DIFC comprises the largest and most diverse pool of industry talent in the region. DIFC's Wealth and Asset Management market which was reported to be USD424 billion in 2018 is equivalent to approximately 30% of the GCC's combined GDP. Dubai has consistently risen within the rankings since the Index was launched 12 years ago. The city's steady ascent has been driven by DIFC's remarkable success in building an ecosystem that fosters financial industry growth. DIFC key to success has been the continuous pursuit of excellence and a focus on innovation. DIFC strengths include the business environment, the access to human capital, its great Infrastructure and its reputation. Given the above, and considering the uniqueness of its regional positioning, transport infrastructure, lifestyle quality and tax-free environment, Dubai is well positioned to become the leading Financial Hub within the East-West corridor.
How does Al Mal Capital seek to position itself as these new opportunities begin to take shape and the UAE looks to a rebound?
Al Mal is one of the leading financial institutions in the UAE and is uniquely positioned to benefit from Dubai expansion as a financial center. The breadth of our platform, our ESCA license and the backing of a strong shareholder (Dubai Investments) enable us to attract the best talents and to structure world-class financial products and solutions. Our platform is scalable which means that we can not only act as a hub for local and international product management but also as a local distributor of international 3rd party products. When it comes to UAE assets, Al Mal is well positioned across the value chain. For instance, Al Mal UAE equity fund has the best and longest track-record on the UAE equity market with an 80% out-performance since inception (2016). We have always been at the forefront of real estate and private equity investments and continue to invest in local assets mainly thanks to the support of Dubai Investments. We also believe that local and regional capital markets activity will soon recover, triggering renewed appetite for IPOs and new issues. We aim to play a major role thanks to our corporate advisory capabilities.
How are investor demands changing, and what is Al Mal Capital doing to adjust to new trends to prosper with your clients?
In terms of investment solutions, clients continue to focus on three objectives: capital growth, yield and diversification. Ten years of sub-par global GDP growth, quantitative easing and zero / negative interest rate policy in developed markets considerably complicate the task of financial companies when it comes to achieve these targets. Indeed, Growth is a scarce resource and the price to pay for above average growth is becoming very expensive. Fixed income investments generate very low yield which is pushing clients into lower quality issues and less liquid products. Last but not least the correlation between asset classes is on the rise hence diminishing the benefits of diversification. One of the side effects of quantitative easing has been the rise of passive investing (ETFs) at the expense of active management. With ETFs (Exchange traded products) being a scale business, only a few mega players have been able to remain profitable on that segment. Beyond investment solutions, the behavior of clients is changing as well. The DIY (“do it yourself”) is becoming a key trend in our industry. Wealthy clients are very often successful entrepreneurs and they want to keep the lead on their investment decision. There is thus less appetite for delegation of portfolio management but increasing demand for high quality information and differentiated solutions. The rise of digitalization is enhancing this trend while creating a very different investor experience than in the past. Financial companies need to adjust their value proposition would it be at the client interface level but also in terms of content and operational set-up. In the years to come, blockchain technology is likely to transform even further the financial industry through more decentralization and the rise of new asset classes. Al Mal Capital seeks to adapt its product offering and business model in order to effectively match the changing behavior and demand of our clients. We view the rise of digitalization and blockchain as a unique opportunity for nimble and creative franchises such as Al Mal Capital. Nevertheless, we realize that these trends are also creating challenges such as increased competition from non-traditional players (neo-banks, internet & social media companies, etc.). Finally, a very important aspect of the financial industry is regulation. Since the global financial crisis in 2008, regulators have been deploying immense efforts to protect investors through imposing strict rules on investors risk profiling and the way financial products are managed and distributed. We view enhanced regulation as an opportunity as it creates the necessary barriers to entry. For instance, we have adapted the way our highly successful MENA equity offering is accessible to investors. While Al Mal equity fund domicile used to be local, our flagship strategy is now investable through a UCITS Luxembourg fund domicile. We also decided to partner with a European Group such as Azimut (USD 60 billion assets under management) to broaden our distribution capabilities. This implies that our investment strategy is now accessible to both retail and institutional investors in the Middle East, Asia, Australia, Latin America, and Europe. This is a major milestone in our journey to become the MENA equity manager of choice for international investors and achieve critical scale.
2020 marks an impressive 15 years for Al Mal Capital. What are your strategic priorities and vision for Al Mal Capital as we look beyond 2020 and at the next decade?
From day one, Al Mal Capital' vision has been to be considered as the investment institution of choice in the MENA region. We are among the few local institutions who have survived over the last 15 years. Still, we believe that we are only at the start of our story. There are tremendous opportunities ahead of us and we believe that we are uniquely positioned to seize them. Our first strategic priority is to serve our clients in the best way. This means that the whole firm needs to work hard and efficiently to deliver high-performing, differentiated and compliant solutions with impeccable client servicing. Nowadays, a financial company can only focus on a few verticals. We thus stick to our core offering which include direct investments, corporate advisory, asset management, and capital markets. While these services have been directed towards local clients, we believe the time has come to offer our capabilities to international investors as well. The Middle East region is going through major reforms including the accessibility of our regional capital markets to the rest of the world. The intention to float by Saudi Aramco and the recent inclusion of Saudi Arabia and Kuwait in the major international indices showcase the strong willingness of Middle East leaders to promote the region as a destination of capital (instead of a source of capital). We believe it is part of Al Mal mission to facilitate international investments into the UAE and the Middle East.