Islamic investments will be gaining greater prominence in the near future as GCC nations gear up to shift their citizenry away from state-sponsored benefits – onto pension schemes and private savings – to ensure better financial positioning for an aging population base.
“As more people live longer, they need to look after themselves, in the sense that they need to plan ahead for their future,” law firm Simmons & Simmons Middle East Regional Head Muneer Khan explained to IFN Investor.
Stating that it is massively in the interest of states to foster a savings environment and attract good quality financial service providers, Muneer said this long-term outlook strategy is a critical component to the GCC fund passporting initiative.
“The GCC region is under-penetrated for retail-focused fund management as there isn’t as big a culture of savings or investing,” Muneer contrasted with systems in the UK and the US – where tax-free savings wrappers are major factors.
“While in this part of the world, it is not an institutionalized part of the culture yet, I think it will become so once more products are available.”
Muneer said the GCC fund passporting scheme will help address the imbalance now enjoyed by institutional investors with vast resources. Citing examples like mutual funds or index tracker funds not listed on exchanges which retail investors in the domestic GCC markets do not have access to, “technically nobody can market them or offer them locally to retail investors here, even through a digital platform without local structures and/or promoters”.
With the funding passport regime, there will be more high quality, locally-domiciled fully-regulated Shariah compliant funds available to retail investors across the GCC region – due to the reduction of operational costs, as fund managers can spread risk across different asset classes and products. “The (fund passport) impact for retail market offerings is actually bigger.”
The GCC region is already home to several large international fund managers with strong presence in all market segments and have a large range of funds aimed at retailers – like BlackRock, Invesco and Franklin Templeton. An example would be BlackRock, which has a lot of assets under management are in its iShares range of exchange traded funds, which is targeting the retail segment.
Muneer further noted that a number of retails banks in the Middle East have already latched onto this opportunity to grow their retail customer base by registering collective investment schemes in Luxembourg and then marketing those funds back in home domiciles to both locals and expatriates.
Should the GCC fund passport regime be able to match or top the level of regulatory service and ease of registration compared to the European counterpart, Muneer was confident this initiative will be a game changer for the Middle East asset management industry.
The law firm’s Investment Funds Managing Associate Sami Ben Dechiche noted that a bigger economic element is at stake beyond savings and pension funds – involving the whole ecosystem of fund administrators and custodians.
“Luxembourg is an example of where a huge financial industry worth a lot in terms of GDP contributions was created; with jobs that included custodians, administrators, lawyers, accountants, auditors, fund managers and more.
“The state basically relies on them as this fund sector there is so big now, beyond just licensing and registration fees, because of these highly skilled job opportunities. I think the prize is to create a similar hub in the GCC.”
