Mid-East wealth funds spur family offices to invest in Asia
A surge in investing interest from state-owned institutions and sovereign wealth funds in the Middle East in Asia has sparked the interest of other investors from that region, including family offices, industry experts told AsianInvestor.
“There was absolutely a home bias in the past but now less so. That’s mainly because sovereign wealth funds, particularly led by [Saudi Arabia’s] Public Investment Fund, are investing overseas and showing other regional investors that are great opportunities abroad," Gary Dugan, CIO of Dalma Capital Management, told AsianInvestor.
Dugan, based in Dubai, UAE, also runs the firm’s OCIO business, which deals with family offices and organisations in the Middle East as well as globally.
PIF, Abu Dhabi Investment Authority, Qatar Investment Authority and others have been increasing their investments in Asia in recent years in sectors ranging from healthcare, real estate, infrastructure, transportation and consumer services.
Qatar’s sovereign wealth fund most recently announced it would invest $1bn in Indian billionaire Mukesh Ambani’s retail unit, valuing the shopping company at $100 billion.
These entities have also opened offices in Asia in a sign of deeper engagement with the region.
Most Middle-East sovereign investors have at least one office in either Singapore, Hong Kong, Beijing or India.
RISING ASIA ALLOCATIONS
Dugan said he is trying to encourage wealthy Middle East families to allocate a bigger proportion of their portfolios to emerging markets such as India and China.
The job is made a little easier as the region's state-owned investors diversify their investments geographically.
Dalma Capital
“Over the next 10 years, we already know China will be a huge economy, and it is an undervalued market,” said Dugan, adding that India, also a large economy, is poised to become much bigger given its young population.
“Investors need to be allocating to these regions, where there is a diversity of investment opportunities,” he added.
That view is shared by other industry experts.
“From an investing perspective, there is much more interest in India than there is in the rest of Asia, both in public and private markets,” said Arjun Mittal, found and CIO of Abbey Road Investment Group, a multifamily office based in Dubai, UAE.
“Everyone – from Middle Eastern investors to Indian origin investors -- is actively looking at investment opportunities [in India].”
And while recent flows from the Middle East to Asia had slowed down, it is poised to pick up, said Mittal.
“There is a lot of interaction between the region and India right now, and you can see that with the growing number of conferences, investment symposiums etc that are happening,” he said.
Sovereign investors already have some exposure to China, he noted. “So if you are thinking about new exposure to more broadly Asia, then India is the next likely investment opportunity, especially if they have no exposure yet.”
Still, as Dugan noted, that doesn’t mean Middle-East investors are sidelining their local markets because there is “also a greater deepening of local markets along with very low and attractive valuations and strong growth.
“The bottomline is that domestic investor here has been very domestic market focused but now they are also going international.”
In particular, the UAE and Saudi Arabia have been leaders in Middle East and North Africa initial public offerings, according to an EY report and have attracted an increasing number of foreign investors to both financial markets.
The Dubai Financial Market, the emirate’s bourse, also hit an eight-year high in late July to cross 4,000 points.
Abbey Road
Investment Group
Year-to-date gains until then tallied to 25%, higher than the S&P 500, which was up nearly 20% back then.
The Saudi Tadawul exchange, however, has experienced mixed fortunes as investors were optimistic initially and then fretted over the country’s growth prospects, leading to recent outflows from stocks.
FOCUS ON LONG TERM
Dugan noted that in the OCIO business, one of the greatest challenges was to prevent clients from getting swayed by short-term trends and keeping them away from tactical views.
“Too often there is talk in the context of what the Federal Reserve said last week, instead of what might happen over the next 10-15 years,” he noted.
He said a lot of discussion with family offices have revolved around going back to portfolio optimisation models, looking at the risk-return characteristics of different asset classes over the next 10 years or so, trying to figure out how they work together in a portfolio and explaining that to families.
“It’s about showing them how much less risk they could take to try and achieve the same kind of results,” said Dugan.
He added that the aim is to encourage families to buy assets that are good value rather than fully valued.
He said wealthy families are ‘pleasantly surprised’ that they can stop worrying about what the Federal Reserve or any other central bank will do. “You get their focus back on long-term investing.”
He said that given the macroeconomic backdrop of rising interest rates and bubbling geopolitical tensions, getting families to think long term has been a ‘very challenging job over the past 12 months.
AsianInvestor will be hosting its Family Office Briefing in Hong Kong on November 28. For more details, click here.