Middle East Investors Eye PE, Alternatives

Large institutional investors in the Middle East are increasingly switching towards alternative investments such as private equity and hedge funds to generate returns in volatile global markets, a study released on Monday showed.

The Gulf Arab region is home to some of the world’s largest sovereign wealth funds and family investment offices, which are major sources of revenue for global fund managers.

Historically, these investors have preferred conservative products such as government bonds and index-replicating funds, but that pattern is changing fast as pressure to generate returns increases, the asset management arm of French bank Natixis said on Monday.

“The study shows an acknowledgement by institutional investors that the old rules of investing no longer apply and confirms the need for new investment strategies to address the unique challenges of modern markets,” Jamal Saab, managing director and regional head at Natixis Global Asset Management, said in the statement.

About 69 per cent of Middle Eastern institutional investors polled by Natixis expected to increase allocations to alternatives and other assets not correlated with the main global market trends during the rest of 2013. Meanwhile, 93 per cent forecast alternative investments would perform better this year than they did in 2012.

Almost half of the investors forecast equities would be the top-performing asset class this year, with three in four planning to raise their equity allocations for the rest of the year.

“Institutions are mindful that they need to meet both short- and long-term objectives, and they see stocks as the best way to achieve that balance in 2013,” said Saab.

Private equity investments are gaining allure among sovereign funds such as the Abu Dhabi Investment Authority, which has been beefing up its internal private equity division.

Only 59 per cent of institutional investors in the region believe that citizens in their country will have enough assets to address their liabilities when they retire, the Natixis survey showed, but 84 per cent are confident of meeting their own long-term liabilities.

Natixis’ asset management arm managed $785 billion of assets as of March 31, 2013.