The outlook for GCC asset management industry is bright despite the impact of global financial crisis on the region, says an expert.

'The global financial crisis triggered a chain reaction, which reached the GCC almost simultaneously, negating talk earlier of a 'decoupling' with other financial markets,' said Securities and Investment Company (SICO) chief executive Anthony Mallis.

'For asset managers, the dramatic decline in market valuation in the GCC led to lower returns, very substantial domestic and foreign investment asset outflows, the liquidation of funds, institutional failures/near failures, reduced investor confidence, a regulatory shake-up, rebalancing of asset allocations and substantially reduced revenues for asset managers.

'Despite the impact of the crisis, however, we believe that there are positive growth opportunities for the GCC asset management industry, although we remain concerned that a number of key challenges still need to be seriously addressed,' Mallis said ahead of a forum that will study the impact of the global financial crisis on the GCC investment management industry.

The Fund Forum Middle East 2010 conference will be held from tomorrow to Wednesday.

According to SICO, global assets under management, which declined by 17 per cent in 2008, recovered to $ 110 trillion by the end of 2009. Total regional assets under management have stabilised, although some major Mena mutual funds declined by up to 94 per cent during the past two years.

GCC stock markets lost nearly two-thirds of their value during the crisis; 18 months later, they have hardly regained the lost ground.

Regional stock market liquidity has witnessed a noticeable downtrend for the past three years: the total value traded in the first half of this year was $165 billion, down 45 per cent compared with the corresponding period in 2009.

'Investors are now more risk-averse - they are seeking greater scope for alpha and more effective risk controls,' said Mallis.

'Clients are shying away from complex structured products in favour of more simple, traditional products. At the same time, investment managers need to reassess their business models, provide greater specialisation and focus, and ensure consistency of returns.'

Several factors underpin SICO's optimistic outlook for the GCC investment management industry.

The industry is still relatively underpenetrated, with a conventional AUM-to-market cap ratio of 0.1 per cent compared with 2.6 per cent in the US. The total size of the GCC investment pool - estimated at $2.7 trillion - remains largely untapped. More than 95 per cent of these funds are invested in offshore markets, and could potentially flow back into regional markets.

Regional growth prospects are strong, due to a combined GCC economic growth rate of more than 5 per cent, attractive stock yields and growth potential, the expected opening up of the Saudi market to foreign investors, the migration of retail money into institutional funds, and the channelling of funds from real estate and other illiquid assets into equity and debt instruments.-TradeArabia News Service