DIFC Seminar Outlines Vast Opportunities for Regional Funds Industry

Eye of Dubai:A seminar organised by the Dubai International Financial Centre (DIFC) today on the emerging opportunities for the regional funds industry presented an exciting outlook for the sector over the next few years.

Senior DIFC and Dubai Financial Services Authority (DFSA) officials joined international legal experts and top investment bankers to discuss the changing regulatory and market landscape for the funds industry in the region.

Nasser Al Shaali, CEO of the DIFC Authority said: “The asset and funds management industry is still young but due to the vast wealth concentration in the region, we can expect the GCC to become an international centre for asset management in the next decade. Managed funds, and in particular Sharia compliant funds, are attracting a wave of new, more sophisticated investors.”

Speaking about the role of Dubai in fostering the growth of the regional industry, Al Shaali said: “As international interest in the MENA region continues to grow, Dubai’s aspirations of becoming a centre for global trade is fast becoming a reality. Regional wealth is being reinvested in the Middle East and the role of fund management has become more prominent. In just four years, DIFC has succeeded in attracting some of the leading and most respected names in the global banking industry.”

Dr. Nasser Saidi, Chief Economist of DIFC pointed to the new developments that are throwing open vast new opportunities for fund management providers in the GCC region. “The Middle East is predicted to be the fastest growing region for high net-worth individual (HNWI) assets. With mutual fund penetration rates at very low levels across the GCC, there are tremendous opportunities for growth,” he said.

Structural and policy developments including increased infrastructure investment, economic diversification and new openness combined with the planned GCC monetary union are contributing significantly to the development of the funds industry, he said. Islamic finance and Islamic funds, he pointed out, will be one of the major drivers for the industry over the next few years.

Dr. Saidi underlined the need for diversifying the asset base to reduce risks. “A visible trend in the Gulf region during the period 2005-2006 was the large participation in the stock market run, with almost no diversification of the asset base. Given the volatile nature of equity markets in the current backdrop, mutual funds can act as a good vehicle for diversified investment, especially for small household investors and funds with no front-end fees,” he said.

Outlining the potential for using DIFC as a platform for distributing funds in the region, he said that as of the first quarter of 2008, over 1,400 domestic and foreign funds were marketed and sold in DIFC. He stressed on the need for nurturing the industry in the region and DIFC so that fund registration, administration and management are undertaken locally instead of only marketing foreign funds to high net-worth individuals in this region. He also suggested encouraging the mutual fund industry to invest in bonds, Sukuk and stocks from the region, which offer the most promising returns for investors.

Michael Zamorski, Managing Director, Supervision, DFSA and Simon Gray, Director, Supervision, DFSA outlined the recent changes in regulatory developments that have opened new avenues for funds and investment management companies. Both officials stressed that the DFSA adopts a consultative approach in developing regulations and actively listens to industry stakeholders before introducing changes in the regulatory framework.

Other speakers at the seminar included Roderick Palmer, Managing Partner of Walkers (Dubai); Dean Rolfe and David Smith, both Tax Partners at PricewaterhouseCoopers; and Hari Bhambra, Senior Partner, Praesidium.

Islamic finance needs to be wary of pitfalls-DFSA

KUALA LUMPUR: The booming Islamic finance industry needs tighter regulation to avoid the problems plaguing conventional global financial markets such as the sub-prime crisis, the Dubai Financial Services Authority said on Monday. The $900 billion global Islamic finance industry has been touted as a safe haven as conventional markets falter, since it forbids speculative transactions and requires all deals to be based on underlying assets.

"When you're caught up in the euphoria of growth, sometimes standards slide," said Michael Zamorski, the Dubai authority's managing director for supervision told Reuters on the sidelines of an Islamic finance forum. "Whenever you have a fast-growing industry segment, they need to make sure that their human capital and the infrastructure are sufficient to ensure that the activities are conducted prudently."

Islamic finance is based on the sharia which forbids investments involving interest payments, contractual uncertainty, gambling and weapons. Demand for sharia-compliant assets has soared as record energy prices fuel a boom in Middle East petro-dollars and the Sept. 11 attacks create a suspicion among some Muslims towards the West. Islamic assets are growing at an annual pace of around 20 percent and are set to hit $2 trillion in 2010 from $900 billion now, Ernst & Young forecast in February.

Zamorski said the industry's main challenges were the lack of sharia scholars and a global uniformity in sharia standards. "The more harmonisation there is, the better the liquidity of products," he said, referring to the need to synchronise the differing sharia standards.