For all who believe transparency is the lifeblood of a healthy financial industry, the demise of the investment analyst community in the UAE is a depressing development.
A good investment analyst is one of the most important cogs in the cycle of raising money and spending it wisely that is the raison d'être of financial services, indeed of all business activity. Without them, the process becomes more opaque, confusing and open to abuse.
From a self-interested viewpoint, analysts are also among the best sources a financial journalist can have. They understand the industries and sectors in which they specialise and are usually able to transmit their expert views in a digestible and accessible way. Good analysts' research is vital to good business news.
This is especially true in the Middle East, where the default position of many corporates is to provide as little information as possible on their business, especially in the "bad news" part of the cycle that has been the norm for the past few years.
Research analysts are a key part in the process of keeping the investor - from the man in the street with a few thousand dirhams to punt, to the professional institution with billions under management - well informed and well armed to make important investment decisions.
But the UAE is at risk of losing the indigenous, locally based store of specialist knowledge these experts possess. All around, the signs are that many investment banks and boutique financial houses believe they can do without local analysts.
Recent developments at Rasmalah, a mini-investment bank with a well-regarded research unit funded by Royal Bank of Scotland (RBS), have reinforced the trend. RBS, owned by the British taxpayer, has decided to close the Rasmalah unit.
Other finance houses based in the UAE have gone the same way recently.
Analysts have been among the main victims of the job losses at Shuaa Capital, and elsewhere there is a steady drip of research jobs being cut.
The local firms appear to have left the field to the major global institutions that deploy armies of analysts around the world. Banks such as HSBC, Goldman Sachs, Merrill Lynch and Deutsche still have big research capability for the region. (HSBC has 21 equity analysts in Egypt, Saudi Arabia and the UAE covering 141 regional stocks.)
Other global players, however, have decided it is not worth the effort. Nomura and UBS have pulled out of the locally based equity research business altogether; Credit Suisse has slimmed down dramatically.
Even in the biggest firms, there has been a trend to repatriate analysts to the banks' home turf, or ship them to another centre where research is being "consolidated". It may make financial sense, but it seems crazy to have to call an analyst in Moscow to get information on a Dubai-quoted stock.
The cutbacks and rationalisations are the result of a hard-headed approach to costs in the aftermath of the financial crisis and the economic fallout from the Arab Spring.
Research departments are easy targets as cost centres - expensive teams of analysts pumping out information without making an obvious contribution to the bottom line.
Because of the "Chinese walls" between them and other parts of the investment institutions, they are isolated and easily identifiable, rather like the advertising or marketing budgets - luxuries that can be afforded in boom times but the first to go in an age of austerity.
But it is a false economy. Apart from the damage done to the banks' intellectual credibility, it would probably cost more to rehire those people if and when the cycle picked up again.
Ironically, the news about Rasmalah came just as volumes on the Dubai Financial Market were soaring.
Some experts argue it is time to remodel the whole structure. Other information providers, such as newspapers, media websites and management consultants, charge for their services, and - in some cases - make a healthy profit.
But until a clear alternative emerges in the knowledge industry, there is no real substitute for good, honest investment research, even if it comes with a big bill.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
UAE currency: the story behind the money in your pockets
Countdown to Zero exhibition will show how disease can be beaten
Countdown to Zero: Defeating Disease, an international multimedia exhibition created by the American Museum of National History in collaboration with The Carter Center, will open in Abu Dhabi a month before Reaching the Last Mile.
Opening on October 15 and running until November 15, the free exhibition opens at The Galleria mall on Al Maryah Island, and has already been seen at the Jimmy Carter Presidential Library and Museum in Atlanta, the American Museum of Natural History in New York, and the London School of Hygiene and Tropical Medicine.
Emergency
Director: Kangana Ranaut
Stars: Kangana Ranaut, Anupam Kher, Shreyas Talpade, Milind Soman, Mahima Chaudhry
Rating: 2/5
Name: Peter Dicce
Title: Assistant dean of students and director of athletics
Favourite sport: soccer
Favourite team: Bayern Munich
Favourite player: Franz Beckenbauer
Favourite activity in Abu Dhabi: scuba diving in the Northern Emirates
Brief scoreline:
Burnley 3
Barnes 63', 70', Berg Gudmundsson 75'
Southampton 3
Man of the match
Ashley Barnes (Burnley)
Pad Man
Dir: R Balki
Starring: Akshay Kumar, Sonam Kapoor, Radhika Apte
Three-and-a-half stars
Game Changer
Director: Shankar
Stars: Ram Charan, Kiara Advani, Anjali, S J Suryah, Jayaram
Rating: 2/5
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Dubai Bling season three
Cast: Loujain Adada, Zeina Khoury, Farhana Bodi, Ebraheem Al Samadi, Mona Kattan, and couples Safa & Fahad Siddiqui and DJ Bliss & Danya Mohammed
Rating: 1/5
Killing of Qassem Suleimani