Are multi-manager funds on the rise in Qatar?

by  — 8 March 2014

There is increasing evidence that multi-manager funds are becoming an increasingly popular model in the retail investment climate of the Middle East. A case in point is the recently launched open-ended shiraa funds that will be distributed to private and wholesale clients of QIB and QInvest, writes Simon Watkins, examining how such trends match global offerings.

For both QIB and QInvest, a tie-up looks highly advantageous from every perspective. For QIB, through such funds, it will be able to offer the sort of asset management structure that has been favoured in the developed markets.

Doha-based QInvest and Qatar Islamic Bank (QIB) have jointly launched a range of multi-manager funds, which are perfectly attuned to the changing nature of global asset markets, both in terms of risk correlations and returns, highlighted Ataf Ahmed, head of asset management at QInvest.

“There are three versions, each offering a different return profile with different levels of risk, which is reflected through the asset allocation,” Ahmed said, adding that the open-ended shiraa funds will be distributed to private and wholesale clients of QIB, Qatar’s largest Islamic lender by assets, which holds a 47 percent stake in QInvest. 

Indeed, even before the latest mini ‘blow up’ in the emerging and frontier markets at the beginning of this year, there was increasing evidence that multi-manager fund management was becoming a popular model among the Middle East’s retail investment sector.

“The ongoing effects of the global financial crisis – lower economic growth, contraction in the corporate sector, and near-zero interest rates in many countries, both within the emerging markets and developed markets world – have prompted many investors to re-assess their risk/reward parameters,” said Marc Chandler, global head of strategy for Brown Brothers Harriman in New York. 

Broader plans

In this vein, the three new QInvest-QIB shari’ah-compliant funds are part of broader plans to launch as many as 30 funds over the next three years, on a managed account platform introduced last year by QInvest, which has around USD750 million (QAR2.7 billion) in capital, and are designed to cater to investors whose risk appetite may change over time, added Ahmed.

For both entities, such a tie-up looks highly advantageous from every perspective. For QInvest, it accords with its strategy of streamlining its operations and focusing on its investment banking and asset management business lines, while also creating a deeper and broader relationship with QIB. On the other hand, QIB will be able to offer the sort of asset management structure that has been favoured in the developed markets.

QAR2.7 billion - The capital that QInvest has on a managed account platform.

Marketed as an investment one-stop shop, multi-manager funds first appeared in the 1980s in developed markets, but became more prominent as an investment model in the 1990s, designed as they are to make an investor’s life easier by bringing together a range of specialist managers into a single fund.

One of these fund types invests in a range of other funds controlled by different asset managers (funds of funds). The other appears to be the type that QIB is looking for with QInvest, that is, the manager of manager (MoM) fund in which external managers are appointed with specific expertise to invest separate tranches of the provider’s portfolio.

Open architecture

This would certainly appear to be the aim of the new QInvest-QIB tie-up, with a notable adjunct benefit to this objective being that it is occurring concomitant to the recent launch of the QInvest Managed Account Platform (QMAP). 

QMAP is the world’s first open architecture shari’ah-compliant managed account platform and provides investors with the opportunity to select from a range of high-quality funds that are managed by top-tier professional teams. Indeed, it is already working with Eagle Capital Management, Edgewood Management, and GAM, and has built the platform’s operational processes in conjunction with Nomura International.

“The platform will allow shareholders and investors to invest in asset structures not only of the multi-manager variety but also in a wider structural architecture, such as mutual funds and hedge funds, managed by globally recognised investment managers,” underlined Tamim Hamad Al Kawari, QInvest’s CEO, in Doha. 

He added, “QMAP is a pioneering solution managed by a professional team of experts and associated with world class groups, in which fund managers, for instance, have to pass strict selection criteria covering investment processes, operational and risk controls. The first funds have been off to a strong start and are already amongst the best funds within their peer groups.”

“The aim of these funds is to add an extra layer of diversification, either through holding funds that have already gone through a process of diversification themselves, or by segmenting a portfolio and outsourcing its management to individuals who have been identified as having proven experience in a particular area,” said Chandler.

Certainly in this context, the QIB link should add another strength to the MoM mix for QInvest’s operation, given the likely boost in its distribution capabilities over and above its non-Qatar offices in Riyadh and Istanbul. It should also help tackle a lack of scale that is common across Islamic fund managers.

Such scale would undoubtedly assist in keeping the total expense ratio - including legal and administrative charges – of the QInvest-QIB funds within the typical range of two percent to 2.5 percent, although no formal announcement on this has yet been made. 

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