After posting 14% growth in 2020, experts say the Saudi asset management industry is well-positioned to play a key role in providing the required impetus to the overall recovery of the economy.

According to Ovais Shahab, head of Financial Services at KPMG in Saudi Arabia, a resilient asset management industry has weathered two-fold challenges faced by the drop in oil prices and the Covid-19 pandemic, with investor’s redemptions being restricted and asset prices holding steady or recovering.

“We noticed that the major asset managers posted AUM growth of 14% since 31^st December 2019. A few public funds and more than 50 private funds were launched until 30^th September 2020,” Shahab told Khaleej Times.

Steady growth in revenue, profits

Amid the pandemic risk and economic slowdown, Saudi asset management companies managed to accumulate SR471 billion in assets under management (AUM) last year, representing a rise of 14% from December 2019 to September 2020, according to the latest available data.

KPMG recently published the first edition of its Asset Management Analysis, which looked at the financial results of 12 major asset management companies controlled by the Capital Market Authority (CMA). It stressed the dynamic shift in investment strategies and business plans that occurred as a result of the Covid-19 crisis, as well as how investor behavior has modified in past months.

Domestic focus

The overarching reason for the asset management industry's strong success in 2020, according to Shahab, is the industry's domestic emphasis on investments and dependence on influential and institutional investors.

“While the industry showed durability and quickly provided multi-asset products backed by a strong capitalization of fund managers operating in the industry. Investor’s trust was retained as they were able to move to capital-protective assets when equities and debts were creating uncertainty. Affluent and institutional investors reflected their long-term outlook on the economy and flexibility to liquidity constraints as a result of the government's broader economic measures,” Shahab said.

Resiliency to go on

The Covid-19 crisis made us aware of the consequences of unforeseen events. We will continue to strengthen our handling of the situation and our resiliency to such events, even though we cannot foresee how the situation will develop. We expect increased competition in the market and investors seeking more efficiency from their fund managers. Based on our conversations with leading industry executives and review of the current state of the asset management industry, firms would need to differentiate themselves by demonstrating cross production of investment ideas to produce alpha and creating digital enablers to provide customized services.

Retail investor’s risk appetite has already been affected. They are forced to follow a diversification agenda as part of their ongoing risk management. The Saudi Arabian fund manager’s UHNWI client base will continue to be critical in sustaining stable AUMs.

“We are also seeing a global increase in ESG investments, and it is only a question of time till ESG becomes a peak of the agenda item for both investors and fund managers in Saudi Arabia,” Shahab stated.

Due to forthcoming privatizations and the presence of distressed assets as a result of the pandemic, KPMG predicts an increase in the deployment of required capital to start-ups and entrepreneurs through venture capital or private equity-style investments.

“As the risk/reward appetite grows in the market and fund managers change their investment strategies accordingly, we expect fund managers to deliver a diversified investment suite to potential investors,” says Khalil Ibrahim Al Sedais, office managing partner at KPMG in Saudi Arabia.