Aberdeen Asset Management has set up its first Middle East office in the newly established Abu Dhabi Global Market. Andrew Paul
, senior executive officer, explains why.
“We’ve built up a good client base in the Middle East on a fly-in and fly-out basis,” says Andrew Paul, senior executive officer of Aberdeen Asset Management’s new Middle East operation. “That’s enough if you want to engage with the big investors such as sovereign wealth funds and big banks, but for the level below that – local distributors and local banks – you need to have more touch points. You benefit from having a local presence.”
Paul, who arrived in Abu Dhabi four weeks before we talk, is explaining why it was time for the Aberdeen-based asset manager to put full-time staff on the ground in the Gulf.
His reasoning will be familiar to many of the international asset managers that have set up sales, marketing and, in some cases, investment management teams in the Gulf countries.
However, Aberdeen has gone against convention by deciding not to set up shop in one of the more established jurisdictions in the region, such as those of Bahrain, Qatar or Dubai; instead, the firm opted for the region’s newest finance centre, the Abu Dhabi Global Market (ADGM).
Aberdeen is in fact the first international asset manager to open for business in ADGM, whose offices occupy a portion of Al Maryah Island in Abu Dhabi. As Paul explains, “it’s exciting to be there at the start”.
ADGM, like the Dubai International Financial Centre (DIFC), is a free zone offering a legal system based on English common law, in which companies can be wholly foreign owned. That was attractive to Aberdeen, a global company that operates in 25 countries and manages $403 billion, as of June 30, 2016.
However, as a jurisdiction, the Abu Dhabi zone is less well established than its partner in Dubai. While the DIFC began operations more than a decade ago in 2004, ADGM only issued its first financial licence in January 2016. Why did Aberdeen choose the Abu Dhabi zone when it could have joined many of its peers in setting up operations in the DIFC?
“We couldn’t depart from an important rule,” says Paul. “We feel we should be where the wealth is. In the UAE, that’s Abu Dhabi.”
Indeed, not only is Abu Dhabi home to numerous sovereign wealth funds – the largest of which, the Abu Dhabi Investment Authority, is among the biggest in the world – it is also where many of the UAE’s local banks, distributors and high-net-worth individuals are based.
Paul says there were other advantages to being among the first to set up there. The team at ADGM were eager to aid the company’s application, introducing Aberdeen to the zone’s regulator, the Financial Services Regulatory Authority, and helping to mesh Aberdeen’s internal policies with those of the free zone.
Besides which, Dubai is only a 90-minute drive away, meaning Paul and business development colleague, Lucy Draper, can easily go there and back in a day for meetings.
Aberdeen is hoping the timing of the company set-up will prove to be fortuitous, though Paul admits the macroeconomic situation of the Gulf countries faces challenges at the moment. Since they fell steeply in 2014, oil prices have stayed well below the average seen over the past decade, causing governments in the Gulf countries to scale back spending plans and, in some cases, to turn to global bond markets to fund their budgets.
These shortfalls have affected funding levels at some of the big institutional investors in the region, in some cases causing them to withdraw money from their external managers.
One of the benefits of setting up a local presence, says Paul, is that Aberdeen should be able to diversify its clients in the Middle East so it is not dependent only on these large institutions.
“A lot of the big investors are going cashflow-negative, so it’s more important now than ever to have a broad client base,” he says. “The benefit of having a local office is to reach local banks, insurance firms, local distributors and, in time, family offices.”
Aberdeen is also hopeful that the end-of-service-benefit scheme in the UAE, which requires companies to pay a lump sum to staff when their employment ends, may develop over time into a kind of occupational pension scheme, with assets available for third-party companies to manage. Again, having a business on the ground improves Aberdeen’s chances of capitalising on this trend.
That said, Paul says Aberdeen’s ethos, in general, is to buck trends rather than follow them – this is why he is not concerned that some other international managers have recently withdrawn staff from their Gulf offices.
“We are a long-term player and we’re quite contrarian,” he says. “The fact that some of our peers have been winding down their businesses in the region is, to us, a sign that we should get engaged. The oil price will bounce back. The regional governments will find a new equilibrium. In fact, it’s probably a good time, when clients are not investing, to develop relationships and go through the pain of an office set-up. It means that, rather than coming in at the top of the market, we’re already established when money starts to flow again.
“Strong economic fundamentals mean that in the long term, the Gulf region will develop into even more of a global wealth hub than it is today.”
Aberdeen expects to employ four full-time workers at its Abu Dhabi office, who will work alongside another two Middle East-focused colleagues based in London. The team will continue to report to Nigel Norman, head of Middle East and Africa business development, who is based in the London office.
The Abu Dhabi office will handle sales and marketing for the foreseeable future, leaving investment management to the firm’s existing teams of fund managers in the UK. The firm’s business model, which is “as simple as could be” in Paul’s words, will be to channel flows into the firm’s largely Luxembourg-domiciled fund range. As well as the UAE, Paul and his team will cover markets such as Saudi Arabia and Kuwait. He is confident that Abu Dhabi is the right place to do it from.
“For an asset manager who wants to service its growing client base, it makes sense to be based on the ground,” he says. “Abu Dhabi and the region is a key area of growth for Aberdeen in the long term.”
©2016 funds global mena