Let’s take a look into the influx of Hedge Funds and Asset Managers to the UAE and their impact on the market.
In recent months, it is hard to meet with either a client or a candidate without this topic being brought up, whether we’re discussing the impact that this will have on the recruitment market or the microeconomic impact on the regions FS ecosystem, it is undoubtedly a key topic of conversation.
Dubai’s Buy-Side landscape has historically been dominated by the Sovereign Wealth Funds and Family Offices, however, over the last 18 months there has been a large transition in which international hedge funds and asset managers are now viewing the UAE as their next destination. With a number of shops already on the ground and over 50 license applications rumoured to be in the pipeline. In this post we will take a look at the reasonings behind this, the impact this will have on the market and what this may potentially mean to you as a job seeker or hiring manager looking to retain or hire fresh talent.
It is undeniable that the evolution in the fund management landscape can only be positive for the growth and development of the market, but why are these powerhouses now viewing the UAE as their next conquest? Firstly, the liquidity that the region offers is a large pull factor, fund-raising has been a massive challenge for almost all funds internationally over the last 12 months and this has happened to perfectly align with an increased appetite from the SWFs for Fund-to-Fund investment into Hedge Funds and other alternative investment platforms. Whilst there has been a slight shift in the past decade, there is still a lot of weight carried around being in the region to gain investment from the region. The SWFs and FOs are now estimated to hold around a 2.4% share in hedge funds globally. Therefore, a number of funds are conscious that the Sovereign money could be the answer to stop the bleeding and rebuild their AUM.
Location also plays a large role, the UAE is often seen as the centre of the globe which is reflected when looking at time zones and the ability this gives Dubai to navigate the World’s Financial Markets with ease. With Asia 4-6 hours ahead, Central Europe and London 2-4 hours behind and Wall Street a mere 8 hours behind, it’s hard to argue that Dubai isn’t one of the top positioned financial centres. Alongside this, it offers easy access to a number of the high growth EMs across Africa, Asia and Eastern Europe.
Historically, the products in the region have been relatively vanilla, especially on the DCM side of the spectrum with bonds and traditional structured financing being the priority for many corporates looking to raise debt. Securitisation has almost been a taboo word in the local market with very little appetite for products such as CLOs and CDOs. With the Hedge Fund’s focus on achieving ‘Alpha’, typically this can only be achieved through taking risks through holding long and short positions alongside a mix of exotic products. This in-turn will inevitably put pressure on Sell-Side sales teams to start to push boundaries and structure more exotic products for the corporates and funds. From speaking with sales professionals in the market, most are of the opinion that the uptake in the evolution of products has been slow thus far but many are conscious that times are changing.
Now it is hard to say what impact this will have on the recruitment market due to the lack of fund maturity and the fact that many of these funds are still to fully integrate and establish themselves within the DIFC or ADGM. By tracking what Millennium, ExodusPoint and Schonfeld (whom are arguably the catalysts) have done, I expect to see the senior leadership teams being carved out from internal transfers and international talent to begin with, before tapping into the regional market. This will further strengthen the quality of talent in the region and increase interest for opportunities in Dubai from leading international talent.
With the systematic strategies deployed by a number of Hedge Funds, it is inevitable that a bulk of the primary talent will need to come from international talent pools. Alongside this there is a lack of FM talent in the region at present with a very small number of quants and traders when compared to London or Paris. Again, we are likely to see an increase in the quality of professionals in these specialisms across the local market. I also expect to see a number of brokerages, custodians and market makers moving to the region as well to tap into the volumes and increased levels of activities.
On the AM and PE side, we are already starting to see high-profile movements from the Bulge Bracket IBs across to the Buy-Side which will hopefully create more opportunities in what can only be described as a lacklustre M&A recruitment market at present. Undoubtedly, as more funds open up shop in the region the secondary market will only improve and I think we should see a buoyant recruitment market bolstered by the new international talent available in the market.
It would be unfair to produce this article without giving credit to the DIFC, ADGM and multiple government initiatives for what has been achieved in such a short period of time. It can’t be understated the role that they have played in allowing the UAE to become the new hub that global funds & asset managers all want to be a part of.
The influx of Hedge Funds can only be a positive for the region and its financial services market. Whether it’s through product diversification, improving the regional talent market or making better use and improving dispersion of the liquidity available in the region. I feel that we will also see the development and growth of local funds in order to keep up, remain competitive and most importantly retain their staff. As the ecosystem grows, so too will the number of sub-funds, allowing for diversification of their investment mandates and coverage. It is an exciting time ahead and is guaranteed to propel the region forwards.
If you are a job seeker looking to explore the financial services market, or would like a confidential discussion about how Charterhouse Middle East can assist with your hiring requirements, please feel free to reach out to me directly at: adaniel@charterhouse.ae
