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Dubai: In a world full of plain-vanilla funds, many regional asset managers are looking to set their offerings apart.
Some have highlighted their impressive track records over the past couple of years, or are looking at bringing in transparency through independent mutual funds administrators.
Others are lowering the entry threshold and/or marketing aggressively to retail and international investors. Still others are looking at independent ratings as a way to rise above their peers.
Ten regional funds received a rating from Standard & Poor's (S&P), the independent ratings agency. A small start, no doubt in a universe of more than 300 funds, but it certainly shows that regional fund managers are gearing up to stand up to independent scrutiny.
Cynics argue that funds are driven by marketing considerations rather than any real concern about transparency for seeking these ratings. Either way, the presence of an independent agency is hardly harmful for the region.
Fresh light
S&P certainly looks at regional managers in a fresh light. "The regional asset managers that we reviewed are taking disclosure and governance very seriously," says S&P in a report on the industry.
"All are aspiring to internationally recognised standards in terms of fund management 'best practice', though the speed of their progress towards that goal varies," it says.
Fund managers recognise that a lack of disclosure and transparency deters investors, and a number of investment houses feel they need to either domicile funds in the country with the strictest rules and best enforcement, or press for further changes domestically.
"This included, in some cases, the recognition of the desirability of outsourcing fund administration and custodian functions to internationally recognised names rather than keeping them in-house," S&P says.
Lack of a long track record has been a barrier as most funds have not demonstrated a consistent performance over time.
"The difficulty in assessing performance and the lack of proper investable indices with a long-term track record is common across all the funds in this region. This tends to result in a highly active approach to portfolio construction, especially for funds with broader mandates which tend to have large tracking errors and significant deviations from their benchmarks."
Of the ten funds reviewed, S&P gave four AA ratings and the others a single A- rating. Alison Cratchley, Associate Director at the agency, hopes to be able to double that figure by the end of the year.
S&P also finds regional fund fees to be quite steep, compared to the more developed markets of Europe and the United States.
"This is partly a result of very small levels of assets under management, which therefore cause the fund's total expense ratio to remain high (1.51 per cent to 4.6 per cent for the funds we reviewed)," says S&P.
Another key thread that ran across the report was the skillsets of asset managers and their teams, a view echoed by the fund managers themselves.
"The caliber of fund managers is important," says Shakeel Sarwar, head of asset management at SICO, which had one fund rated A by S&P. "We actively encourage our team members to pursue CFAs. It has become mandatory for our new hires to enroll in CFA programmes as soon as possible."
Recruiting and honing talent will be an important differentiator going forward. While the investment banks' marketing machinery may be able to attract funds sloshing around, it will take some skill to convert them into cold, hard returns. And they will find that the rates of return, more than anything else, can be the biggest differentiator for fund managers going forward.
- The writer is managing editor of Zawya.com
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