Middle East’s Asset Management Industry Outperforms Global Trends, Fosters Transformation

In a surprising turn of events, the Middle East’s asset management sector has defied global economic challenges and showcased remarkable resilience, with assets under management (AUM) reaching $1.3 trillion in 2022. According to a recent report by management consultancy Boston Consulting Group (BCG), the region experienced a 7% growth rate last year, starkly contrasting the global trend of a 10% decline in AUMs to $98 trillion.

The report, titled “Global Asset Management 2023: The Tide Has Turned,” examines external and internal factors impacting the industry, urging asset managers to adapt and transform their businesses amidst market uncertainties, fee compression, rising costs, and technological advancements.

Markus Massi, Managing Director and Senior Partner at BCG, emphasized the critical juncture facing the Middle East’s asset management industry, urging leaders to reassess their operations to regain the profit growth witnessed in previous years. Massi highlighted the need for a true transformation, as the industry can no longer rely solely on market performance for revenue growth, particularly in an environment where such growth is no longer guaranteed.

While global markets faced one of the most challenging periods since the 2008 financial crisis, there is optimism that recovery will prevail as economic headwinds subside. However, the report noted that after keeping interest rates at record lows during the Covid-19 pandemic to stimulate economies and financial markets, central banks are now shifting their focus to combat inflation. This change in strategy has impacted the global asset management industry, particularly in equity markets. In contrast, the Middle East exhibits a more positive growth outlook, driven by continued higher oil income and comparatively positive equity market developments.

BCG estimates that if global asset managers maintain their current strategies, annual profit growth will be around 5%, only half the industry average in recent years. To return to historical levels of growth, asset managers must reduce costs by 20% overall and diversify their revenue mix, generating at least 30% of turnover from higher-margin products.

The report advises asset managers to pursue alternative investments and explore private market opportunities to enhance profitability. It outlines four primary pathways for firms to enter the alternative market:

• Building in-house capabilities
• Acquiring multiple firms and utilizing an affiliate or boutique structure
• Purchasing an independent alternative firm
• Establishing partnerships
  

With its investors’ strong preference for private assets and limited alternative investment instruments, the Middle East presents a conducive environment for such strategies.

Moreover, technology is identified as a vital enabler for asset managers to create personalized client experiences and unique products, differentiating themselves from the competition. BCG Principal Farouk El Hosni emphasizes the need for organizations to evaluate and optimize costs across the entire value chain while focusing on their distinctive strengths. El Hosni asserts that embracing change is the only viable path forward for the industry.

In conclusion, the Middle East’s asset management sector has emerged as a shining example of resilience and adaptability, surpassing global trends and fostering transformation. With assets under management reaching $1.3 trillion in 2022, the industry’s growth defied economic headwinds. However, the report by Boston Consulting Group stresses the importance of ongoing transformation to sustain profitability in a changing landscape. By embracing alternative investments, diversifying revenue streams, and harnessing the power of technology, asset managers in the region can secure their position as leaders in the ever-evolving global market.