The new head of asset management at the National Bank of Abu Dhabi discusses Ucits funds, savvy analysts, and why itâs fair for the UAE regulator to charge unequal fees. By George Mitton.
When he was a schoolboy at Howard Grammar in the south-east of the UK, Mark Watts’ maths teacher would play a game in which the students would pick stocks from the Financial Times. The following week, they would compare the prices.
The exercise so kindled Watts’ interest in investment that by age 15 he would cycle to his local bank and, still dressed in his school uniform, invest the proceeds of his paper round in low-cost shares. Watts’ enthusiasm grew during the privatisations of the Conservative government in the 1980s – he has a picture of then prime minister Margaret Thatcher in his office – and by his late teens he was set on a career in finance.
In 2010, Watts moved to the UAE to become head of fixed income and structured products at the National Bank of Abu Dhabi (NBAD). His background was in bonds – he began his career as a fixed income manager at Baring Asset Management – and he took to the job with enthusiasm.
“When I arrived we were predominantly a Mena equity house, with a large proportion of what we did via mutual funds,” he says. “My brief was to set up the fixed income business.”
By any measure, Watts has succeeded at his task. Fixed income assets have grown to compose roughly half the $2.2 billion managed by the business.
The growth has come alongside a shift in client make-up. Institutional mandates now account for about half the assets, and at current trends will soon account for the majority.
In May of this year, Watts was promoted to be managing director and chief investment officer of the asset management group, replacing former head of asset management, Alan Durrant, who left the region to become chief executive of Harwood Multi Manager. What does Watts hope to achieve now he is in charge?
“We’re looking to expand our reach internationally,” he says. “At some point, we’ll look to take on business development resources in the UK, Switzerland and Singapore. We’ve recently launched two Ucits IV funds, both of which are above $100 million.”
Watts hopes the Luxembourg-domiciled Ucits funds will attract assets from investors in the US and Europe, and he says he may launch more Ucits products if he sees a gap in the market.
Alongside this, he is hopeful that NBAD’s fixed income funds will gain more inflows now they are close to having a three-year track record. Together, these developments give Watts the confidence to claim that NBAD’s assets under management will double in the next 18 months.
Yet it will not all be easy. Like other companies operating in the UAE, state-owned NBAD must work within the new funds regime established by the Securities and Commodities Association (SCA) which regulates the onshore market in the country.
Lately, many asset managers have expressed concern about the fees the SCA plans to charge to register funds, which they view as unreasonably high. What does Watts feel about the plans?
“I have an atypical view on that,” he says. “I’ve said increase the fees. You’ve got a lot of foreign fund managers who’d like to distribute their funds into the UAE and make money. That takes the time and the energy of the regulator, and the regulator is being paid by the UAE public. I think charging a fee for a service is intrinsically the correct thing to do.”
Watts also thinks it is fair for charges to be unequal – ie. for the SCA to charge foreign-domiciled funds more than locally domiciled funds. He argues that the administrative costs of examining funds registered in foreign jurisdictions would be higher than for local funds.
But wouldn’t this unequal regime penalise distributors of international funds, putting their products at a disadvantage compared to local players, such as NBAD?
“I can see how some people would view that as protectionism, but I think there could be a valid economic rationale for it,” he says.
“The GCC has suffered over the years by too many fund managers coming into the market and running sub-scale funds which have carried high cost bases and delivered mediocre returns. If we want to grow a solid industry here, we ought to make sure the funds that are launched truly have demand and deliver returns because they’re in low cost structures.”
In short, Watts’ view is that it would be better if there were fewer asset managers, running bigger funds, who could afford to charge investors less. It is a sensible argument, though it seems unlikely that distributors of international funds will relish having to pay more than local firms.
Watts has other ideas about how the asset management industry can improve. One idea, which he has implemented at NBAD, is for members of his research team to analyse both equities and fixed income, rather than to specialise in one of the two. He says this is advantageous because companies courting investment have a tendency to tell analysts what they want to hear, for example, they give equity analysts a spiel about growth and investment, while bond analysts are told about paying down debt. Analysts who straddle both camps are less likely to be misled.
“When they go in and see a CFO [chief financial officer] of a company, the CFO can’t make his statements to suit the audience,” he says. “The CFO has to play it exactly down the line.”
Watts says NBAD is planning a number of new products in coming months, many of them designed to suit investors who want a source of income but want to reduce their exposure to bonds. NBAD plans to launch loan portfolios and funds, trade finance portfolios and funds, and money market fund solutions.
These changes take place amid a broader mission statement outlined by NBAD’s new chief executive, Alex Thursby, appointed this year, to be a centre of excellence in the “west-east corridor” a region loosely defined as including Mena, central and broader Asia.
With all these ambitious plans, it must seem that Watts has come a long way from playing stocks and shares in his school maths lesson.
©2013 funds global mena