Hedge Funds in the Middle East

1
Hedge Funds in the Middle East

• Antoine Massad
• May 2007

2
Important notes
Information contained herein is provided from the
Man database except where otherwise stated.
Potential investors should note that alternative
investments can involve significant risks and the
value of an investment may go down as well as up.
There is no guarantee of trading performance and
past or projected performance is not necessarily
a guide to future results. The performance data
do not take account of the commissions and/or
costs incurred on the issue and/or redemption of
units. Investors redeeming bonds/shares before
the Maturity Date can do so on a monthly basis,
but may be subject to a redemption fee. This
presentation is issued by Man Investments Ltd
which is authorised and regulated by the
Financial Services Authority. Man Financial
Limited, an associated company of Man Investments
Ltd, is the futures and foreign exchange broker
to several of the Companies mentioned. This
material is only to be communicated to persons
outside the UK and should not be relied upon by
any other person. www.maninvestments.com
3
The global hedge fund industry
4
Hedge fund marketTotal assets and number of
managers1

• Increasing numbers of sophisticated investors are
  invested in hedge funds
• Funds of hedge funds are estimated to account for
  about 25-30 of total hedge fund assets
• Total hedge fund assets are only about 2-3 of
  global equity market capitalisation

Source Hedge Fund Research, Inc. (HFRI). 1As at
31 March 2007.
5
Changing strategy dynamics
Source Hedge Fund Research, Inc. (HFRI). 1As at
31 March 2007.
6
Selection criteria used by institutionsChoosing
their hedge fund investments

• Early Days
• Reputation
• Track record
• Downside protection (guaranteed)
• Relationship

• Current Environment
• Track record
• Reputation of company/individuals
• Involvement in investment process
• Level of transparency
• Quality of service
• Regional presence

7
1986

• Man Investments establishes an office in Bahrain
  in 1986
• Handful of illiquid regional equity markets
• Initially offered managed futures
• Introduced a capital guarantee
• Exclusively private clients

8
In the year 2000

• Man Investments still the only locally registered
  firm, offices in Dubai and Bahrain
• Proliferation of regional markets, but still
  illiquid
• Wide range of strategies, bias towards long/short
  equities
• Still limited supporting infrastructure
• Private clients account for 90 of assets

9
2007

• A rich and diverse market that is expanding
  rapidly
• Local equity markets increasingly liquid, other
  investment opportunities emerging (property,
  development, inward investment)
• Growing base of institutional investors (about
  35 of assets)
• Supportive regulatory environment and
  infrastructure has emerged (e.g. Bahrain Central
  Bank, DIFC, Qatar Financial Centre)
• Far wider range of strategies, structures new
  sources of Alpha being identified all the time

10
Characteristics of the region

• Middle Eastern investors are sophisticated
• High acceptance of hedge funds by both private
  and institutional investors
• Main product preferences
• Private investors
• Principal protected (safety)
• Structured products (diversification)
• Around 65 of money raised from private clients
  is invested in principal protected structured
  products

• Institutional investors
• Fund of hedge funds
• Single managers
• Tailor-made products
• Structured products
• New Alternatives

SlideID-14463
11
Developments in the Middle East

• Money inflows to hedge funds in 2006 remained as
  in previous years
• Become a more accepted asset class
• Expected to grow 15 year on year
• Slight decline in private client investments
• Compensated by increase in institutional investing

SlideID-14465
12
Outlook for the Middle East

• Investor confidence in hedge funds is unchanged
• Inflows expected to remain at high levels
• Rapid increase in institutional investments very
  likely
• The composition of assets under management (today
  60 private money, 40 institutional money) will
  change in the coming years towards a 50/50 split
• Strong competition from regional stock markets
  and real estate markets
• IPO boom, infrastructure absorbing some liquidity

SlideID-14466
13
The road ahead

• The Middle East offers huge opportunities, but
  the industry also faces significant hurdles
• Sourcing capacity and new sources of alpha is
  increasingly challenging
• Clients are demanding higher levels of service
• There is increased competition from other asset
  classes
• Regulatory environment is likely to become more
  complex

14
Conclusion

• The Middle East continues to offer significant
  opportunities for funds of hedge funds, but to
  maintain a competitive advantage, managers must
• Continue to meet the performance promise super
  risk-adjusted returns with diversification
• Deliver increasingly high standards of client
  service
• Invest in innovation and product development to
  access new strategies and managers and thus
  secure future performance