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Gulf oil cash becomes a magnet for global money managers

Global asset managers have their sights set on the Gulf as the oil-rich region emerges as a rare source of spare capital in a market laid low by the war in Ukraine, Covid lockdowns and inflation.

Officials and executives said the United Arab Emirates was a prime target for money managers seeking to tap this liquidity. Many are looking to base themselves in the financial centres of Dubai and Abu Dhabi as a launch pad for fundraising across the region, where soaring crude prices are delivering huge government surpluses.

“Western funds are coming all summer long, which never happened before,” said Mohammed Afkhami, managing director of Dubai-based Magenta Capital Services, a regional adviser to some of the largest global fund managers. “They are worried about missing the boom.”

Sovereign wealth funds in Saudi Arabia, Kuwait, Qatar and the UAE are seen as some of the last bastions of available capital, with governments keen to invest their energy riches in global markets.

According to Afkhami, institutional investors in the Gulf have increased their allocation to overseas funds by 30 to 50 per cent.

The region’s sovereign funds are also increasing their investment in private equity, infrastructure and real estate to protect themselves from stock market volatility. Afkhami said Gulf sovereign funds, which oversee $3tn to 4tn in assets, were likely to increase their allocation to private assets from 30 to 40-50 per cent in the coming years.

Global asset managers are already expanding in response to this growing demand.

CVC and HPS set up offices in the region last year, while Apollo this year expanded a partnership with Abu Dhabi’s Mubadala, one of the UAE’s largest and most active investors.

Hedge funds have also identified the UAE as a good trading location, partly because of low tax rates for staff.

Millennium Capital, a US-based hedge fund, is “actively looking to grow” its office of more than 30 people in the Dubai International Financial Centre — the city’s finance hub — said one person with knowledge of its plans.

“The priority is to broaden optionality for new and existing talent,” they said. “This is particularly the case for roles in trading, but also across all areas of the organisation as the firm has responded to the increasing demand for Dubai.”

Money managers are seeking to base themselves in the financial centres of Abu Dhabi and Dubai as launch pad for fundraising across the region © Mike Hewitt/FIFA/Getty Images

The attractions of a UAE base include a timezone that spans Asia and Europe, salaries free of local tax, and that places such as Dubai managed to keep their economy open with relatively low coronavirus rates. Dubai’s new wealthy residents include Asians fleeing lockdowns, cryptocurrency billionaires and remote workers taking advantage of flexible visa schemes.

The Dubai International Financial Centre was launched in 2004 and is now home to about 30,000 workers. Last month it held a roadshow in New York and San Francisco and had meetings with prospective financial services clients.

According to one person with knowledge of the details, other hedge funds that are considering expanding into the UAE include US groups such as Exodus Point, Point72, Verition and UK-based Brevan Howard.

BlueCrest, the former hedge fund that is now a family office, has at least two portfolio managers, one of whom is focused on oil, and an analyst based in Dubai, according to LinkedIn. The fund managers started there last November.

LMR Partners, another UK-based money manager, was incorporated into the DIFC in April. The companies either declined to comment or did not respond to requests for comment.

And a year ago, London-based quantitative hedge fund Florin Court Capital opened an office in Abu Dhabi, consisting of trading, operations, research and marketing.

“We needed a more eastern timezone since we do extensive trading in Asian markets,” said founder Doug Greenig, adding this was “a better solution than having people working at 4am out of London”.

Greenig said the Abu Dhabi Investment Office, a government body focused on attracting foreign investment, had provided “financial incentives” to support its plans there.

In Hong Kong, political unrest, punitive Covid measures and growing Chinese control are causing fund managers to look elsewhere. ARCM, a Hong Kong-based hedge fund, is considering an office in Dubai, one person briefed on the decision said. ARCM did not respond to a request for comment.

Abu Dhabi Global Market, the capital’s financial centre, is also fielding strong interest from asset managers in Hong Kong, according to other people briefed on the situation.

Dubai officials are also trying to lure UK-based funds that have lost their easy access to EU markets. “With Brexit, they don’t have that advantage, so they can consolidate their operations out of the DIFC,” said one official.

However, much asset management business in the UAE consists of marketing and client management, while investment decisions are made and executed in the financial hubs of New York and London.

UAE officials are working on a scheme to persuade fund managers to build larger on-the-ground operations and move more staff to the region.

“It’s all very well to come here to raise money, but what the Middle East now wants is for asset managers to build real operations here, with decision makers based here conducting real investments into the real economy,” said one official.

Some also warn of parallels with 2008, when the Gulf region was initially unaffected by the global financial crisis.

“We do live in a global interdependent world, and as we saw in 2008, the economic decoupling was relatively shortlived,” said May Nasrallah, founder of deNovo Corporate Advisors. The region was unable to avoid an economic slowdown, debt overhang and eventual restructurings in the wake of the global crisis.

She said the Gulf was now better placed to avoid economic shocks, with less external exposure and lower debt levels. “However, as we continue to live in a global interrelated economy, we will eventually be impacted by the contraction, stagflation and predicted recession in Europe and the US.”

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