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from Global Investing:
A scar on Bahrain’s financial marketplace
Bahrain's civil unrest -- which had a one-year anniversary this week -- has taken a toll on the local economy and left a deep scar on the Gulf state's aspiration to become an international financial hub.
A new paper from the Sovereign Wealth Fund Initiative, a research programme at Center for Emerging Market Enterprises (CEME) at the Fletcher School at Tufts University, examines how the political instability of 2011 is threatening Bahrain's efforts in the past 30 years to diversify its economy and develop the financial centre.
Asim Ali from University of Western Ontario and Shatha Al-Aswad, assistant vice president at State Street, argue in the paper that even before the revolt, Bahrain lagged in building the foundations of a truly international hub in the face of competition from Dubai and Qatar.
Unlike DIFC (Dubai International Financial Centre) and QFC (Qatar Financial Centre), Bahrain insists upon local labor; currently 70% of employees in its banking and financial services industry are Bahrainis. Bahrain’s reluctance to hire non-resident talent has made Dubai...an alternative for those investors looking for a centre with more flexible labor practices such as DIFC provide... The constraints – a lack of formalized institutional and regulatory structure, along with an ad hoc business environment, underdeveloped infrastructure, and under-supplied skilled workforce – have negatively affected its growth and potential to become the financial gateway in the Middle East.
Then came the crackdown of protesters.
Its ruling Al-Khalifa family unleashed a ferocious extra-judicial crackdown against the opposition. It appeared the standard axiom of Gulf ruling families – securing legitimacy and counter-acting political opposition through redistribution of oil wealth – was sorely insufficient to address citizens’ grievances. These led not only to international opprobrium of the Bahrain government but also made foreign businesses reconsider Bahrain as a financial center – with many foreign business shifting workers and operations to Dubai... Indeed, confidence in Bahrain as a financial hub took a major blow along with its image as a stable, tolerant and liberal state.
It remains to be seen what impact last year’s pro-democracy uprising will have on the state of Bahrain and its ambition as a regional financial gateway– especially at a time when Dubai (DIFC) and Qatar (QFC) remain serious contenders to become dominant financial centers in the Middle East.
Bahrain had shown perseverance and strength in building its financial center, but democracy efforts and human right violations were able to threaten the hard work of more than 30 years.
Bahrain's sovereign wealth fund Mumtalakat, which is leading the country's efforts to diversify its economy away from the hydrocarbon sector, suffered a series of ratings downgrades last year as a result of sovereign downgrades. Mumtalakat is rated triple-B.
from Funds Hub:
GCC fund firms face structural flaws: Lipper
By Dunny P. Moonesawmy, Head of Fund Research for Lipper in Western Europe, the Middle East and Africa. The views expressed are his own.
Spare a thought for the fund managers trying to make their business work in the Middle East and north Africa (MENA) this year.
Those investing in home markets have faced the uncertainty and drama of the Arab Spring and the wear and tear on affected markets. The Egyptian Stock Exchange was closed for several months while in the Gulf Cooperation Council (GCC) countries, all markets ended the first half in the red (even if the Abu Dhabi index and the Saudi Tadawul All Shares resisted well, down 0.57 percent and 0.67 percent respectively.)
Moreover, the fund industry in the region faces some deep structural flaws.
Taking the GCC alone, there are 101 fund management companies in the region managing $28.5 billion of assets between them, according to Lipper data. Those firms run a total of 337 funds with average assets under management at $84 million; taking a median figure to iron out the inflating effect of a few bigger funds that figure is just short of $20 million. To see a graphic showing AuM by asset class in the GCC, click here.
The six biggest funds in the region had cumulated assets of $10 billion and represented over a third of the market at the end of September. To see a graphic of the top funds, click here.
from FaithWorld:
Top Islamic finance scholars oppose bid to improve corporate governance
Two of the Gulf's top Islamic finance scholars spoke out against efforts to reduce the number of boards they and their peers are allowed to sit on, challenging industry attempts to improve corporate governance. Bankers in the emerging $1 trillion Islamic finance industry say the concentration of hundreds of board positions in the hands of a few sharia scholars leads to conflicts of interest and hampers appropriate supervision.
Bahrain-based industry body AAOIFI is drafting rules to regulate scholars' shareholdings and the number of sharia supervisory boards a single scholar can sit on. "There is no need to limit the number of boards," Sheikh Nizam Yaquby, one of the most revered Islamic finance scholars in the Gulf Arab region, told a conference in Manama. He sits on several dozen sharia supervisory boards.
He said there was no similar criticism of other groups such as lawyers or accounting firms working for several banks: "Why should (sharia scholars) not be treated like other professionals in the field?"
Bankers say reforms launched by AAOIFI will likely fall short of expectations as scholars governing themselves are unlikely to cut into their own source of income, unless central banks force them to do so.
from FaithWorld:
Islamic finance in Gulf needs regulation boost
From Australia to South Africa, governments are scrambling to change the law to accommodate the $1 trillion Islamic finance industry, whose avoidance of toxic debt has looked increasingly attractive since the global crisis. But in the Gulf Arab region, birthplace of Islam and cradle of Islamic finance, governments have taken a more passive approach, which experts say is slowing the industry's growth.
"Aside from Malaysia, Sudan and Iran, no government has really owned the Islamic finance project," Humayon Dar, chief executive of London-based sharia advisory and structuring firm BMB Islamic, said.
In Malaysia, there is a national sharia council that sets rules for Islamic financial institutions. Rules are standardised under the central bank, which has made an active push towards supporting Islamic finance. In the first three quarters of 2010, the Malaysian government accounted for 62.5 percent of all Islamic bonds, or sukuk, issuances globally, valued at $18.4 billion, according to Thomson Reuters data. By comparison, not one sovereign sukuk came out of the Gulf Arab region during the same period.
Saudi Arabia's laws, by definition, require organisations to adhere to sharia, a set of Islamic legal principles that include a ban on interest. Its central bank does not even differentiate between conventional and Islamic banking. Yet the growth of Islamic banking in the kingdom, the Gulf Arab region's biggest market, is hindered by the lack of clear laws, a 2009 report by Blominvest Bank, the investment banking arm of Lebanon's Blom Bank Group, said.
Many Islamic lenders, for instance, are wary of providing mortgages given the lack of clarity in Saudi Arabia over their ability to foreclose on properties in default. Lawyers and bankers say these concerns are putting pressure on Saudi housing demand and prices. A Saudi mortgage law has been in the works for over a decade but it's still unclear when it will come to pass.
from FaithWorld:
Mideast banks, funds seek to tap Muslim women’s wealth
Emirati housewife Sarah Alzarouni brushed past a group of women clad in floor-length black robes, some with only their eyes showing, to enter through the frosted doors of one of Dubai Islamic Bank's women-only branches. Clutching a Louis Vuitton bag to match her designer head scarf, Alzarouni greeted the female tellers and bank manager with three kisses on the cheek and sat down to do business.
"I am much more comfortable working with ladies than in a mixed environment," Alzarouni, 27, said. "When I come here, I feel like one of them. They understand my needs and I can move freely, not having to always think where I am and whether my (scarf) has moved. As a Muslim, it is really important for me to deal with an Islamic bank. "
Many affluent Muslim women share Alzarouni's sentiments and they are increasingly turning to Islamic banks to manage their money. These women are looking beyond basic banking services to sophisticated products to grow their wealth while complying with Islamic principals that include a ban on interest.
According to a report by Boston Consulting Group, women in the Middle East controlled 22 percent, or $500 billion, of the region's total assets under management in 2009. Financial institutions in the conservative Gulf Arab region, where many women are reluctant to mix with men outside their families, are tapping into the niche, with women-only bank branches and investment funds mushrooming.
Read the full story by Shaheen Pasha and Martina Fuchs here.
from Funds Hub:
Morning line-up: Banks find love in the hedgies, and heroes in our midst
News and views on the hedge fund industry from Reuters and elsewhere:
Big league hedgies buy banks - Reuters
Saving the world, one trade at a time - Economist
The quant fund in need of a renaissance - FT
Message to FoHFs: Work harder; cut fees - Reuters
Gulf cash set to flow? - Bloomberg
from MacroScope:
Traffic back on Dubai roads
Dubai’s traffic – the bane of pre-financial crisis life in the city -- is back.
At rush hour, queues of cars snake along the Gulf Arab boomtown’s highways. But this time, nobody is complaining. At least not yet.
For many, the relief felt at the sight of such signs of economic recovery still largely outweighs the annoyance at having to once again spend a good part of their day behind the steering wheel.
Dubai taxi drivers can’t believe their luck.
Only six months ago, these drivers – most of them men from Pakistan and India – saw the amount of money they were able to send home each month plummet as the global financial crisis drained Dubai’s streets of their usual clients, mostly tourists and business people. Now, while not back to the levels before the slowdown, they say they are earning a decent wage again.
Signs that things are picking up are not only to be found on the city’s roads. Dubai’s luxurious malls – home to the world’s largest indoor ski slope and shark-filled aquariums – were often glaringly empty over the past months, but are slowly filling up with shoppers again.
from Funds Hub:
Morning Line-Up
Hedge fund stories from the past 24 hours from Reuters and elsewhere:
London mayor Johnson accused over hedge funds' election donations - The Guardian
Deephaven Capital's Bhatia plans Asia fund - Bloomberg
Gulf-focused fund to tap returning appetite - Financial Times
Royal Dutch Shell pension fund to expand alternatives allocation - Wall Street Journal
PREVIEW - E-mails key in Bear Stearns hedge fund managers trial - Reuters
from Commentaries:
Dubai builds, but they don’t come
There is something surreal about the financial crisis that has engulfed Dubai.
A small desert emirate, without significant hydrocarbon reserves, Dubai finds itself geared to the eyebrows in the midst of a global downturn. Deutsche Bank estimates its external debts at about $74.3 billion. That, for the record, is 107 percent of the emirate's expected 2009 GDP, or more than 14 times its government revenues for 2006 (the latest year for which data is available).
But it isn't just the extreme leverage that is surreal. Dubai has long borrowed heavily to invest. The real twist comes from the wacky way that Dubai has chosen to invest its borrowed cash.
True, not all of Dubai's money-making schemes were foolish. The development of DP World, a ports services business, made eminent sense, given the emirate's status as a trade hub. And this has proved reasonably successful.
But some of its "get rich quick" ideas were about as sound as something out of Gulliver's Travels -- the attempts of the state of Lagado to extract sunbeams from cucumbers, for instance. Into this category one might put the attempt to conjure a financial centre out of the desert, or to build luxury housing on sandbanks in the Arabian Gulf. Or, indeed, the attempt to create a sovereign wealth fund, Istithmar, without having any surpluses to inject into it in the first place.
Outsiders have long marvelled at this "build it and they will come" approach. Now its shortcomings are becoming clear. Much of Dubai is half-built and they probably won't come.
Istithmar, for instance, used leverage to pursue an investment strategy built around luxury goods, retail and financial services. It is not hard to see why this has hit the rocks. Istithmar's parent, Dubai World, is in the process of restructuring some $12 billion of the debt it has taken on.
Dubai is the victim of the proverbial ‘tall poppy syndrome’; whereby its prominence was exalted in the media and is now being (often) vitriolically criticised. Some of that criticism is well founded. The Gov is over leveraged, the risks they took in some cases, were absurd. However, in many ways, Dubai’s unfolding mirrors the state of play of many indebted governments. They just got into debt more dramatically and outlandishly than others! Ultimately what we see in Dubai and in the world today is a total collapse of corporate governance and broader social ethics.
from Funds Hub:
Morning line-up
Hedge fund stories from the past 24 hours from Reuters and elsewhere:
Analysts' picks beat mutual funds - FT
New kids on the prime brokerage block - WSJ
Citadel gearing up to be the next Goldman? - Seeking Alpha
US hedge fund eyes Gulf opportunities - Reuters
