The asset management market in the Gulf Cooperation Council (GCC) region is poised for significant growth, with projections indicating it could reach approximately $500 billion in onshore assets by 2026. This substantial leap from $400 billion at the end of 2022 comes as GCC countries experience robust capital inflows, favorable oil prices, and substantial trade surpluses, according to the latest report from Strategy & Middle East, a part of the PwC network.
The report highlights that despite the complexities of the global market, the GCC’s asset management industry exhibits substantial growth potential. This growth is fueled by a combination of factors, including strong capital inflows, favorable oil prices, and significant trade surpluses. Additionally, the region has attracted wealthy individuals, with the UAE, in particular, being projected to attract the most millionaires globally in 2022. Furthermore, an increased appetite for Initial Public Offerings (IPOs) resulted in the Middle East raising a record amount in proceeds, exceeding $20 billion in 2022.
The global economic landscape has become increasingly complex, leading many global asset managers to reconsider their investment strategies. Rising interest rates, tightening liquidity, fallout from high-profile bank failures, and heightened competition for environmental, social, and governance (ESG)-related investments are among the challenges pressuring the asset management industry to adapt rapidly.
These developments coincide with asset managers facing growing challenges in generating alpha, which refers to returns above the market average. Traditional business models are also grappling with declining margins, digital disruption, and intensified competition for talent.
The report underscores that these global trends are particularly amplified in the GCC countries. The GCC region has limited participation from institutional investors in the capital markets, an underdeveloped savings culture, and investors who generally prefer offshore investing.
However, amid these challenges, the GCC region is benefiting from several favorable factors. Recent years have witnessed significant capital inflows into GCC countries, driven by favorable oil prices. Furthermore, the region has experienced remarkable growth in IPOs, making the asset management industry more competitive with offshore investing. Enhanced sophistication in product offerings and supportive regulatory initiatives have also played a crucial role in this growth.
“These trends position GCC asset managers for significant growth in the coming years. We forecast that the industry will continue to grow above the global average, reaching nearly $500 billion of onshore assets under management by 2026, up from $400 billion at the end of 2022,” the report predicts.
To navigate the industry’s challenges and leverage prevailing tailwinds, the report outlines six key actions that asset managers must undertake to formulate a winning strategy. These actions include enhancing the performance track record, establishing segment-specific operating models and value propositions, building effective sales functions, revitalizing the product range, harnessing digital tools, and considering non-organic growth opportunities.
The need to reassess investment strategies arises as the global asset management industry faces difficulties in generating alpha and confronts pressures from margin erosion. Studies indicate that portfolio managers struggle to create incremental value for investors as their role becomes diluted by technology, streamlined access to capital markets, lower transaction costs, and increased investor sophistication.
Digital disruption from fintech companies, offering distribution platforms and robo-advisory solutions powered by artificial intelligence (AI), has further contributed to the commoditization of the asset management business and heightened investor preference for passive asset management products.
The report’s conclusion highlights that due to difficulties in maintaining profitability, asset managers are compelled to pursue strategies aimed at reducing costs, introducing inventive investment products, and adopting scalable business models, often through collaborative partnerships. Furthermore, asset managers are facing the necessity of increasing their investments in the recruitment and retention of highly skilled portfolio managers. Additionally, they find themselves in heightened competition for talent, including with technology companies.
In summary, the GCC asset management market is poised for substantial growth, driven by a confluence of favorable economic factors and a growing appetite for investment in the region. Despite global challenges, the industry is expected to thrive in the coming years, provided asset managers adapt to changing dynamics and seize the opportunities presented by evolving market conditions.
