For hedge funds, the timing has never been better. There are several developments in place currently to exploit the investment opportunities that are abound in the Middle East. And while there are still some restrictions to exploit these opportunities, the correct support – in terms of service providers, can make sure that hedge funds capitalise upon the full value.
Of late, the volatility in the Middle East markets and perceived value to be gained from current levels is a strong driver for funds in the region. There are also significant improvements in other aspects of the market in such areas as corporate governance. This should lead to increased confidence by managers to evaluate opportunities.
But while there are many areas of opportunity for managers to consider, there are still significant restrictions in gaining access to products to exploit this volatility and value scenario. Restrictions on foreign ownership and short-selling can limit the ability of managers to fully implement some strategies.
More institutions are offering products which are enabling access to opportunities, but there is still some way to go before these can be fully exploited.
In terms of products, absolute return strategies should feature strongly in new products launched, however, as mentioned above, there is still some weakness in that the ability for these strategies to be fully operational due to market structural constraints – for example liquidity, and a narrow range of securities that such strategies can be applied to. Where there is access is available, it may be relatively expensive in terms of both cost and timing, further limiting the scope for application of absolute return strategies.
As more regionally-based institutions expand their services to offer this access, the impact of costs and execution timing should improve greatly and be available over a wider range of securities.
At the moment, most strategies are still long only, although some managers are now applying some hedge features through products such as total return swaps. We expect to see that the introduction of ETF’s, which will also provide a new alternative for managers to manage exposure.
The traditional long only strategy is commonly understood by regional investors. Managers offering total return profiles may need to take extra efforts to explain the benefits to investors and there may also be some conflict with the investors own ethical criteria, such as compliance with Sharia’a.
While we expect to see an increase in absolute return style strategies, long only strategies will still be an important feature of the regional market offerings.
With many opportunities opening up, it is critical to ensure that the full value is capitalised upon. This can be done with the help of an experienced service provider that knows the path. Apex is a specialist fund administrator with a wide global presence. As such, we already have the tools to support the new market developments in the Middle East and know how to adapt these to the particular requirements of the market.
We are constantly aware of the structural changes taking place in the market and of the product developments being introduced by institutions such as prime brokers and regional investment banks. Our offices in Dubai and Bahrain are able to respond to managers and their investors promptly and with a full understanding of regional requirements – this adds great value to the service we provide.
By Craig Roberts, CEO, Apex Fund Services (Dubai)