However, it not only meant the dawn of a new Middle East. It completely opened up this lucrative region for U.S. asset managers.

Further Context

The Abraham Accords provided more than a bridge for Middle Eastern countries to conduct business with Israel. They represented a new “mindset” shared by Israel, its Arab neighbors, and America’s leadership. 

The potential for unbridled economic opportunity and prosperity for all participating countries is now the priority. Not long-standing political and religious tensions.

With the U.S. brokering the treaty, this new “mindset” makes the UAE more accessible and open for U.S. asset managers to expand and secure licensing.

The cloud of uncertainty has been lifted, and the next 6-12 months could pose significant opportunities for U.S. asset managers to increase their AUM. 

Why Should U.S. Asset Managers Care?

The Abraham Accords changed how business is conducted in the Middle East. Particularly, if U.S. asset managers have dealings with Israeli companies.

Israel and the UAE are America’s two largest Middle Eastern trading partners. However, until now, U.S. asset managers doing business with both countries had to walk on eggshells and tolerate long bureaucratic delays. 

Regional operations have always been bifurcated between Israel and the rest of the Middle East. With the Abraham Accords, the UAE abolished its Israel boycott law. In return, the U.S. Treasury Department removed the UAE from its “boycotting countries” list.

That means substantially friendlier ties between the UAE and the U.S. and reduced barriers to entry. Especially for U.S. asset managers and UAE institutions, including capital-rich Dubai SFOs (Single Family Offices) and MFOs (Multi-family Offices), wanting to invest with them. 

Private equity or VC shops from the U.S. establishing a presence in Dubai can now invest in Israeli tech companies from Dubai.

It’s also more accessible for U.S. asset managers to simultaneously invest in Israel and the UAE’s flourishing energy, tourism and travel, and health and pharma sectors. 

Moreover, the Abraham Accords show how quickly warmer relations can benefit everyone economically. 

• According to the Rand Foundation, the Abraham Accords could create as much as $1 trillion in new economic activity when fully realized over the next decade.
• The $3 billion Abraham Fund jointly formed between the U.S., Israel, and the UAE could reduce barriers in conducting business and lead to major investment initiatives.

Many of the largest U.S. asset managers saw opportunities from the Abraham Accords from the start.

With the Abraham Accords in motion for two years now, it’s not only easier for U.S. asset managers to get licensed now and conduct business in the UAE. It’s clarified how to get licensed and conduct business. Citibank, for instance, called the Abraham Accords a “perfect fit,” opening up exciting investment opportunities in the Middle East that were previously “unavailable.”  

Consistency eliminates risk. The Accords reduced the veil of uncertainty and formalized the regulatory process rather than ad hoc.  

Plus, consider the potential longer-term implications. Today it’s Dubai. Tomorrow it could be Saudi Arabia. 

Furthermore, asset managers looking to enter the Middle East may not only have a more accessible inroad to Dubai with reduced barriers. They may also now have a more accessible entrance into East and Southeast Asia.

Black Swan’s Role 

The UAE has long been an attractive destination for American asset managers. However, the Abraham Accords changed the business and regulatory landscape in the Middle East. Regulations eased, and openness increased with economic cooperation as the priority. 

Black Swan can serve as your quarterback for navigating this new era.  

At Black Swan, we have unique insights into the region and the interplay among regulatory agencies. While much of the focus of the Accords involves the Israel-UAE economic relationship, it also opens up opportunities for American asset managers. 

As a U.S. asset manager, Black Swan can help you leverage these warming ties and introduce you to the proper regulators and connections. We are a central repository firm focused on regulatory compliance and can assist you with your expansion needs to grow your AUM. We can help you with the licensing application and associated Compliance Manuals, referrals to placement agencies and tax counsel, and more. 

With doing business in the Middle East further codified, it’s never been clearer how and why to expand to the UAE as an asset manager to increase your AUM. We can help you every step of the way. 

The post The Abraham Accords in the UAE: Implications for Foreign Asset Managers appeared first on Black Swan Diagnostics.

Understandably, you might consider global expansion beyond U.S. borders. The world is big, increasingly borderless and full of capital with reduced regulations.

Global expansion should be seamless if you have a decade-long track record, a solid product base, and a minimum of $1B AUM. Foreign markets also respect a successful American track record. The U.S. has prestige, one of the deepest liquidity pools in global markets, and the world’s most liquid capital.  

The MENA (Middle East and North Africa) region particularly poses enticing opportunities for international expansion. It’s a booming population with capital ready to be deployed. With 6% of the world’s population and a GDP of $3.6 trillion, representing 4.3% of the global total, you’ll enter a market yet to scratch the surface of its potential.

For asset managers considering Middle East expansion, Saudi Arabia and the United Arab Emirates (UAE) are the clear crown jewels. 

Why Saudi Arabia and the UAE?

Saudi Arabia and the UAE represent almost half of the MENA region’s GDP. They have wealthy populations and valuable SFOs (Single-Family-Offices), MFOs (Multi-Family-Offices), venture capitalists and private equity. 

Moreover, there is no domestic bias. Saudis and Emiratis understand what a credible American asset manager can offer. 

If researching global expansion, the accommodating business climates and reduced regulations in these markets should intrigue you. 

Favorable Business Climate

Saudi Arabia

Saudi Arabia is the MENA region’s largest economy and represents one-fifth of its GDP. With long-term economic ties with the West, Saudis welcome American asset managers with the AUM and track record with open arms. 

Saudi Arabia’s Vision 2030 initiative is also enticing for asset managers considering global expansion. With Vision 2030’s objective to diversify the Saudi economy, getting licensed and selling mutual funds in Saudi Arabia has never been easier. 

Institutional investors will likely look to invest in U.S. funds that consistently outperform the S&P 500.

A Wealthy Population Tailor-Made for Asset Managers

Saudi Arabia hosts the most millionaires and billionaires in the Middle East, translating to many family offices, VCs and Private Equity firms seeking to invest with U.S. asset managers.  

High net worth family offices are highly concentrated. The top 80% control the majority of capital, and the Saudi Royal Family oversees the largest family office. Many others congregate in Jeddah and Riyadh.  

The Saudi VC and Private Equity spaces are also booming. As VC deals in the U.S. slow, Saudi deals increased 244% during H1 2022 and reached a record high of $584M.

UAE

A US asset manager looking to expand to the UAE will find the abundance of capital and business-friendly regulations enticing.

The UAE’s GDP has skyrocketed 247x since 1971 due to government initiatives and investor-friendly policies.

Out of 190 countries in the ‘Ease of Doing Business’ index, the UAE ranked 

• 16th in ease of doing business
• 1st in business efficiency
• 2nd in government efficiency
• 7th in economic performance

It is no wonder that over 1,500 American companies choose the UAE as their Middle Eastern hub. 

A Flourishing High-Net-Worth Community 

U.S. asset managers looking to get licensed and sell their funds in the UAE to SFOs, MFOs, and other institutional investors, will find many opportunities with Dubai’s active investment community and fast growingg high-net-worth population.

The number of millionaires moving to Dubai surpassed New York and Los Angeles ​in 2019. With this figure rising another 18% in H1 2022, Dubai is now on track to rank as one of the world’s top 20 wealthiest destinations by 2030.

Abu Dhabi and Sharjah also saw their high-net-worth population jump by 16% and 20%, respectively. 

This influx of wealth has created a robust family office, VC and private equity market. The UAE represents 55% of invested private equity in the MENA region, while Magnitt’s ranked ​​UAE first regionally for venture capital investments.

Many UAE private equity funds are family-owned and have a strong track record. Family offices also congregate in Dubai and aim to diversify investments into U.S. funds through a U.S. asset manager with a consistent track record.

Reduced Regulatory Barriers

Saudi Arabia

Saudi Arabia’s Vision 2030 has significantly opened the country to foreign businesses. It revamped investment laws, eased business regulations, increased international openness and competition and relaxed the regulatory and business barriers to entry.  

For U.S. asset managers seeking to sell and market funds to Saudi SFOs, MFOs, and other investors, these reforms mean: 

• Fewer bureaucratic hurdles to securing a license.
• Reduced regulatory costs.
• Compliance requirements that are hospitable for U.S. or foreign asset managers. 

The Saudi government has also opened many businesses to 100% foreign ownership without minimum capital requirements. Moreover, business licenses can receive approval in less than 24 hours. 

There is also no sales tax and “no tax payable on the salaries of foreign employees.” 

UAE

The UAE has business-friendly regulations for international expansion. There’s no personal income tax, no capital gains taxes, and more than 135 double tax agreements. 

Government initiatives like the “Golden Visa” program also encourage skilled foreign workers to come to the UAE.

Dubai has been the model emirate for global business expansion. Besides attractive tax laws and lax regulations, Dubai also has free zones where foreign businesses can operate free of income tax while retaining total company ownership. 

As Abu Dhabi, Sharjah, Ajman, Umm al-Quwain, and Fujairah attempt to emulate Dubai’s success, they have also witnessed an influx of foreign business expansion. 

What does this mean for U.S. asset managers?

Middle East expansion poses attractive opportunities to bolster your AUM. However, cultural and marketing nuances are essential in selling and distributing funds in relationship-based markets like Saudi Arabia and the UAE. At Black Swan Diagnostics, we have the resources, expertise and relationships to assist with this.

You can expand in these markets either on an offshore or onshore basis. Offshore expansion means you fulfill a country’s license and compliance requirements without having a physical office, resources, overhead or staffing on the ground. Onshore means you go through the regulatory and compliance hurdles while maintaining a physical office, staff and overhead.

With reduced regulatory barriers in Saudi Arabia and the UAE, regulators increasingly support international commerce by creating business-friendly markets.

If you’re interested in learning more about expanding into the Middle East and how we can help, let’s chat. Reach out to us at Black Swan Diagnostics today, and let’s create a game plan.

The post Expanding into the Middle East: Opportunities and Options appeared first on Black Swan Diagnostics.

Given the competitive, crowded and fragmented condition of the U.S. asset management industry, it is incumbent upon U.S. asset managers to look overseas to add AUM.  APAC (Asia-Pacific) sources of capital are attractive because wealth has grown in APAC regions, translating into a growing institutional investor base and the search for alpha and diversification into safe investments outside their local market.  APAC countries have been the fastest-growing asset management market among global markets and continues to grow at double digits.   Furthermore, the %AUM growth in the APAC region is greater than the %AUM growth in the U.S.  The APAC region has been a growing source of AUM for U.S. hedge funds and other licensed asset managers. Nonetheless, there is still tremendous potential for further growth. U.S. asset managers are at risk should they avoid increasing their AUM from APAC sources.  

Globalization

Globalization has had an impact on asset management and asset allocation choices for institutional investors in “developed” APAC countries or special regions.  This includes Japan, Hong Kong, Singapore, South Korea, Taiwan, and Australia.  Moreover, globalization and fewer restrictions on exchange listings (e.g., the rise of American Depository Receipts (ADRs)) have led to significant growth in cross-border transactions by institutional investors between the U.S. and other countries.  Differences in global regulations by country have narrowed, thereby reducing the

opportunities for regulatory arbitrage among asset managers. Overall, regulatory barriers-to-entry have been significantly reduced allowing asset managers to operate on either an onshore or offshore basis. This has led to material cost reductions for asset managers.  

Globalization issues for asset managers also include liquidity concerns, and how to deal with the arrival of Black Swan events such as the 2008 global asset liquidity crisis.  Liquidity becomes critically important during volatile markets.    U.S. markets offer one of the greatest liquidity pools of all capital markets and the liquidity of U.S. markets is considered by institutional investors in APAC countries as a safe haven with favorable risk-reward attributes.   Liquidity is multi-faceted but generally refers to how fast an asset can be bought or sold without substantially its price.  Recently, the key drivers of increased liquidity in U.S. markets include the proliferation of financial products through innovation, strong economic performance, and the fact that excess savings from emerging markets have already found its way to the U.S. in search of higher risk-adjusted returns.  

APAC Institutional Investors

Public and Private sector pension funds, superannuated schemes and investment companies are the leading institutional investors in APAC countries.  The value for APAC institutional investors of investing in global financial markets is to achieve higher risk-adjusted returns.  Surveys by Asia-Pacific-Based Institutional Investor Universe shows that 70% of institutional investor respondents plan to invest globally.  More recently, APAC institutional investors have responded to global economic conditions by becoming more conservative in the structure of their portfolios and diverting funds to what they believe are safer assets such as alternative assets and private assets.  Countries, like Japan, for example, have experienced negative real interest rates since 2016.   There is a hunger for yield (income) among investors in such environments.  Yield products that have a track record and provide alpha returns are very attractive in these countries.

APAC Profile of Overseas Asset Managers

The factors that institutional investors in APAC countries are looking for in an asset manager is directly related to investor attitude toward risk.  Most institutional investors in APAC countries view credibility, performance, consistency and reliability, as well as an enviable track record as factors when selecting an asset manager.  These factors are closely followed by fee structure or (MERs).  Considering the nature of global economic and financial conditions, their remain pockets of opportunities to increase AUM for U.S. asset managers and higher risk-adjusted returns for APAC institutional investors.  One of the most effective means of dealing with uncertain or adverse conditions for APAC institutional investors is diversification and to recruit active managers with a track record of prudent risk management.  A survey by FleishmanHillard reported in The Future of Asset Management in Asia 2022 indicates that overseas asset managers are “preferred for their performance (53%), track record (45%) and trustworthiness (43%) by investors over local players.”  This represents one of those pockets of opportunity for preferred U.S. asset managers to increase AUM in the APAC region.  

Conclusion

Given the competitive and fragmented structure of the U.S. asset management market, one way for U.S. asset managers to expand their AUM (and thereby, increase their revenue) is to diversify their business model expanding into APAC markets, raising AUM and providing a range of investment products. Many U.S. hedge funds already operate in the APAC market, while the growth potential is still substantial. Moreover, regulatory restrictions have been significantly reduced in APAC countries seeking to participate more in global financial markets and with pressure from the institutional investor class in those nations to do so; this makes raising capital in these markets manageable and highly cost effective.  For those in the U.S. asset management industry who satisfy the criteria of APAC institutional investors, evolving into a “global asset manager” and raising AUM, can be accelerated by attracting capital from APAC countries.  In the final analysis, it seems the right time for these U.S. asset managers to pivot to APAC countries for increasing AUM as an organic and more sustainable growth strategy.  

The post Expanding your AUM through APAC Licensing: When is the right time? appeared first on Black Swan Diagnostics.