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June 2006
Industry Overview, Potential, Challenges & Proposed Solutions
UAE Mutual Fund Industry & Regulations
UAE Central Bank
Seminar 2006
2
Global Perspective
Source: Bloomberg, June’06
• Assets Under Management: US$ 16.0trillion
• Number of Funds: 55,000
• Global Market Capitalization: US$ 43.7trillion
• AUM / Mkt. Capitalization: 37%
20-25 % 40 % 70 % 80 %
EM Italy Europe USA
7 %
GCC
Current
20%20% 37%37%
By 2010 By 2015
3
GCC Industry Potential…Market Capitalization Approach
At Peer Level AUM in GCC (20%): US$ 160bnUS$ 160bn
Five Year CAGR by 2010: 23.0%
Industry Size by Revenue (1% fees): US$ 1.6bn p.a.
At Global Avg. AUM in GCC (37%): US$ 297bn
Five Year CAGR by 2015: 20.2%
Industry Size by Revenue (1% fees): US$ 2.9bn p.a.
2010
2010
2015
2015
4
GCC Industry Potential…Savings Approach (measured by bank deposits)
At Peer Level EM - AUM in GCC: US$ 175bnUS$ 175bn
40 % 50 % 85 % 100+ %
EM Italy Europe USA
17.6 %
GCC
Current By 2010 • GCC Bank Deposits: US$ 322bn
• GCC Deposits to grow: 10%
• GCC Deposits by 2010: US$ 438bn
5
GCC Industry Perspective & UAE Standing
• GCC Assets Under Management: US$ 56.89bnUS$ 56.89bn• Number of funds (all asset classes): 402402
By Assets Under Management
Saudi46.0%
Kuwait28.0%
UAE21.3%
Bahrain4.4%
Oman0.2% Qatar
0.1%
By Number of Funds
26.87%
12.69%
11.44%
1.24%
1.00%
46.77%
0% 10% 20% 30% 40% 50%
Saudi
Kuwait
Bahrain
UAE
Oman
Qatar
6
Country AUM
(US$bn)Market
Capitalization (US$bn)
% of Market Capitalization
(%)
Saudi Arabia
26.16 459.54 5.69
UAE 12.10 151.91 7.96
Kuwait 15.90 108.37 14.67
Qatar 0.10 58.86 0.16
Oman 0.08 10.70 0.74
Bahrain 2.50 13.77 18.15
Total 56.89 803.17 7.08
UAE Relative to GCC…Market Capitalization Approach
UAE: 3rd Place & High Industry Potential
Even On Short Term Basis
Closest to EM AveragesDue to Laws & Laws & RegulationsRegulations
7
Country AUM
(US$bn)Bank Deposits
(US$bn)% of Bank
Deposits (%)
Saudi Arabia
26.16 130.5 20.04
UAE 12.10 101.7 11.80
Kuwait 15.90 46.7 34.05
Qatar 0.10 23.5 0.40
Oman 0.08 9.8 0.80
Bahrain 2.50 10.7 13.70
Total 56.89 322.9 17.6
UAE Relative to GCC…Savings Approach (measured by bank deposits)
UAE: 4th Place
Closest to EM Averages & dueto Laws & RegulationsLaws & Regulations
8
UAE Industry Potential
40 %
EM
11.8 %
UAE
Current By 2010
Savings Approach
20-25 %
EM
7.7 %
UAE
Current
25%25%
By 2010
Mkt. Cap. Approach
• Market Capitalization Approach (25%): US$ 38.0bnUS$ 38.0bn• Savings Approach (deposits growing at 10%): US$ 59.0bnUS$ 59.0bn
• Growing at CAGR by 2010 of 32.0% 32.0% : US$ 48.5bnUS$ 48.5bn
9
So Where Is The Problem?
• “Savings Culture” Just Emerging
• Bull Market delayed “Savings Culture” by 4-Years
• Wealth Management Industry Barely Developing
• Public & Private Pension Funds Absent Role
• No Tax Benefits – (but that did not stop Bahrain and
Kuwait)
• Issue of CredibilityIssue of Credibility:
– Mutual Fund Regulations
– Enforcement
Regulations
11
The Family Tree of Laws & UAE Central Bank Board Resolutions
CommercialBanks
InvestmentBanks
FinancialInstitutions
Intermediaries
Federal Law No.10 of 1980: forming the UAE Central Bank & effectively appointing it as a regulator
RepresentationOffices
UAE Central Bank Board of Directors Resolution No. 164/8/94
Investment CompaniesBusiness Article (2)
Banking, Financial, InvestmentConsultations Business Article (5)
2 Pages
11 Pages
UAE Central Bank Board of Directors Resolution No. 89/3/2000
2 Pages
26 Year = 15 Pages of Regulations26 Year = 15 Pages of Regulations26 Year = 15 Pages of Regulations26 Year = 15 Pages of Regulations
12
Investor Concerns
• Industry is UNDER-REGULATEDUNDER-REGULATED
• Too general and commingling of various functions
under one license
• Article (1) Section (h): re Investment Trusts
– An Investment Trust is not a standalone legal
entity
– It is held in the Trustee’s own name
– Does not give certainty in case of bankruptcy of
Trustee
13
Solutions
• Short-Term: Additional regulatory guidance to Article (1) Section (h)
re Investment Trusts
• Long-Term: Expand investment related regulations ((But Not to But Not to
Over-RegulateOver-Regulate))
– Recognize the various business activities:
• Investment management
• Fiduciary Functions & Obligations
• Mutual Funds
• Fund Administration
• Intermediation
• Investment Banking, Underwriting, Market-Making & Research
• Enforcement & Compliance
• Pension fund reforms (public & private)
14
Conclusion
Industry prospects are promising
The opportunity & intention to unlock value is here
The “Key” is:
Establishing a comprehensive regulatory framework for
the investment management/banking industry
Calling for an Investment Management Reforms
Committee (a coalition between the UAE Central Bank
& industry participants)
Thank You
Haissam ArabiManaging Director
SHUAA Asset Management