For Middle East funds, performance transparency can raise AUM

Contributor: Fouad Abou Alwan

For many international investors, the Middle East still represents a new frontier for compliance, transparency and fiduciary responsibility – as well as capital attraction.

There are many reasons: While abundant sources of energy represent a primary appeal, business development in the region is also increasingly characterized by an expanding services sector, population growth and an educated workforce.

While local companies and financial markets are maturing at an impressive rate, a pattern similar to Latin America, China and India 20 years ago, the Middle East still represents a region of the world that is often overlooked by international investors.

What stands between greater international investment, then, and the fertile business climate in the Middle East?

It’s certainly not due to any shortage of good investment ideas.

Instead, I find that international investors are looking for more assurance that globally recognized standards of performance and transparency will be applied to products and markets.

Clearly, the way business was conducted in the past requires more jurisdictional oversight to meet present needs.

While family connections and handshakes may have sufficed to close yesterday’s deals, today’s asset managers are looking for greater application of internationally recognized compliance and accounting standards before making a commitment:

• Knowing what you own: Determining the position of a security and the daily outcome of a trade is a given in the United States and Europe. Not so in one of the world’s most dynamic frontier economies. The outcome of a transaction bought and sold on the same day may not be possible here without a high level of sophisticated accounting.
• A single measure for performance: Applying Global Investment Performance Standards (GIPS) provides a fair representation of investment performance no matter where a trade occurs. Overseas firms looking for regional market participation with greater oversight and a longer information history are well-served by ensuring that their processes are GIPS-compliant.
• Successful international investing requires a passport: Launching a product in the Middle East is one thing. Being able to invest in and redeem shares of the product elsewhere is something different. Here, the emerging standard for cross-border compliance is UCITS, the acronym for Undertakings For The Collective Investment Of Transferable Securities. UCITS can be marketed within all countries that are a part of the European Union, according to Investopedia, provided that the fund and fund managers are registered within the domestic country.

As uniform standards for accounting and compliance help level the playing field, opportunistic international investors can compare “apples to apples” between the Middle East and elsewhere with this likely result: Transparent performance reporting will be followed by more enthusiastic investment commitments and higher AUM.

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