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  1. 1. Industry Overview, Potential, Challenges & Proposed Solutions UAE Mutual Fund Industry & Regulations June 2006 UAE Central Bank Seminar 2006
  2. 2. Global Perspective Source: Bloomberg, June’06 <ul><li>Assets Under Management: US$ 16.0trillion </li></ul><ul><li>Number of Funds: 55,000 </li></ul><ul><li>Global Market Capitalization: US$ 43.7trillion </li></ul><ul><li>AUM / Mkt. Capitalization: 37% </li></ul>20-25 % 40 % 70 % 80 % EM Italy Europe USA 7 % GCC Current 20% 37% By 2010 By 2015
  3. 3. GCC Industry Potential …Market Capitalization Approach At Peer Level AUM in GCC (20%): US$ 160bn Five Year CAGR by 2010: 23.0% Industry Size by Revenue (1% fees): US$ 1.6bn p.a. At Global Avg. AUM in GCC (37%): US$ 297bn Five Year CAGR by 2015: 20.2% Industry Size by Revenue (1% fees): US$ 2.9bn p.a. 2010 2015
  4. 4. GCC Industry Potential …Savings Approach (measured by bank deposits) At Peer Level EM - AUM in GCC: US$ 175bn 40 % 50 % 85 % 100+ % EM Italy Europe USA 17.6 % GCC Current By 2010 <ul><li>GCC Bank Deposits: US$ 322bn </li></ul><ul><li>GCC Deposits to grow: 10% </li></ul><ul><li>GCC Deposits by 2010: US$ 438bn </li></ul>
  5. 5. GCC Industry Perspective & UAE Standing <ul><li>GCC Assets Under Management: US$ 56.89bn </li></ul><ul><li>Number of funds (all asset classes): 402 </li></ul>
  6. 6. UAE Relative to GCC …Market Capitalization Approach UAE: 3 rd Place & High Industry Potential Even On Short Term Basis Closest to EM Averages Due to Laws & Regulations 803.17 13.77 10.70 58.86 108.37 151.91 459.54 Market Capitalization (US$bn) 7.08 56.89 Total 18.15 2.50 Bahrain 0.74 0.08 Oman 0.16 0.10 Qatar 14.67 15.90 Kuwait 7.96 12.10 UAE 5.69 26.16 Saudi Arabia % of Market Capitalization (%) AUM (US$bn) Country
  7. 7. UAE Relative to GCC …Savings Approach (measured by bank deposits) UAE: 4 th Place Closest to EM Averages & due to Laws & Regulations 322.9 10.7 9.8 23.5 46.7 101.7 130.5 Bank Deposits (US$bn) 17.6 56.89 Total 13.70 2.50 Bahrain 0.80 0.08 Oman 0.40 0.10 Qatar 34.05 15.90 Kuwait 11.80 12.10 UAE 20.04 26.16 Saudi Arabia % of Bank Deposits (%) AUM (US$bn) Country
  8. 8. UAE Industry Potential 40 % EM 11.8 % UAE Current By 2010 Savings Approach 20-25 % EM 7.7 % UAE Current 25% By 2010 Mkt. Cap. Approach <ul><li>Market Capitalization Approach (25%): US$ 38.0bn </li></ul><ul><li>Savings Approach (deposits growing at 10%): US$ 59.0bn </li></ul><ul><li>Growing at CAGR by 2010 of 32.0% : US$ 48.5bn </li></ul>
  9. 9. So Where Is The Problem? <ul><li>“ Savings Culture” Just Emerging </li></ul><ul><li>Bull Market delayed “Savings Culture” by 4-Years </li></ul><ul><li>Wealth Management Industry Barely Developing </li></ul><ul><li>Public & Private Pension Funds Absent Role </li></ul><ul><li>No Tax Benefits – ( but that did not stop Bahrain and Kuwait) </li></ul><ul><li>Issue of Credibility : </li></ul><ul><ul><li>Mutual Fund Regulations </li></ul></ul><ul><ul><li>Enforcement </li></ul></ul>
  10. 10. Regulations
  11. 11. The Family Tree of Laws & UAE Central Bank Board Resolutions Commercial Banks Investment Banks Financial Institutions Intermediaries Federal Law No.10 of 1980 : forming the UAE Central Bank & effectively appointing it as a regulator Representation Offices UAE Central Bank Board of Directors Resolution No. 164/8/94 Investment Companies Business Article (2) Banking, Financial, Investment Consultations Business Article (5) 2 Pages 11 Pages UAE Central Bank Board of Directors Resolution No. 89/3/2000 2 Pages 26 Year = 15 Pages of Regulations
  12. 12. Investor Concerns <ul><li>Industry is UNDER-REGULATED </li></ul><ul><li>Too general and commingling of various functions under one license </li></ul><ul><li>Article (1) Section (h): re Investment Trusts </li></ul><ul><ul><li>An Investment Trust is not a standalone legal entity </li></ul></ul><ul><ul><li>It is held in the Trustee’s own name </li></ul></ul><ul><ul><li>Does not give certainty in case of bankruptcy of Trustee </li></ul></ul>
  13. 13. Solutions <ul><li>Short-Term : Additional regulatory guidance to Article (1) Section (h) re Investment Trusts </li></ul><ul><li>Long-Term : Expand investment related regulations ( But Not to Over-Regulate ) </li></ul><ul><ul><li>Recognize the various business activities: </li></ul></ul><ul><ul><ul><li>Investment management </li></ul></ul></ul><ul><ul><ul><li>Fiduciary Functions & Obligations </li></ul></ul></ul><ul><ul><ul><li>Mutual Funds </li></ul></ul></ul><ul><ul><ul><li>Fund Administration </li></ul></ul></ul><ul><ul><ul><li>Intermediation </li></ul></ul></ul><ul><ul><ul><li>Investment Banking, Underwriting, Market-Making & Research </li></ul></ul></ul><ul><li>Enforcement & Compliance </li></ul><ul><li>Pension fund reforms (public & private) </li></ul>
  14. 14. Conclusion <ul><li>Industry prospects are promising </li></ul><ul><li>The opportunity & intention to unlock value is here </li></ul><ul><li>The “Key” is: </li></ul><ul><ul><ul><li>Establishing a comprehensive regulatory framework for the investment management/banking industry </li></ul></ul></ul><ul><ul><ul><li>Calling for an Investment Management Reforms Committee ( a coalition between the UAE Central Bank & industry participants) </li></ul></ul></ul>
  15. 15. Thank You Haissam Arabi Managing Director SHUAA Asset Management

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