Gulf warms to outsourced investment market

Unsplash/Adam Neiland

• Industry is expanding worldwide, with assets set to pass $4trn by 2026
• Family offices driving rise in demand for outsourced services in Gulf
• Dubai’s Dalma Capital acquired specialist in December

A growing number of Gulf businesses and wealthy individuals are outsourcing their investment management, experts have told AGBI.

Market volatility and a desire to invest in more complex assets are pushing up demand for outsourced chief investment officer (OCIO) services, they said.

The Gulf’s increased focus on governance and compliance – plus a recognition that third-party providers can grant access to funds at lower fees – are also driving institutions, family offices and high net worth individuals to join the global trend for investment outsourcing.

“We are seeing a rise in enquiries and workload in the Middle East,” said Rob Ansari, Mercer’s head of investments and retirement for India, the Middle East, Turkey and Africa.

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He spends around two-thirds of his time answering questions about outsourced investment from current or potential clients, he added. 

The OCIO industry is well established in the US and UK, where it developed to serve the large number of pension funds with $50 million to $500 million of assets under management.

Such funds are big enough to desire a rigorous approach to investing and portfolio management, but small enough that the expertise might not be available in house.

OCIO providers now work with a broader range of organisations, sometimes making investments for clients and sometimes simply consulting. As a result, the industry’s size is measured in assets under advisory, rather than management. 

The total value of assets under advisory is forecast to exceed $4 trillion by 2026, up from $2.66 trillion last year, according to Florida-based consultancy Chestnut Advisory Group. The US market accounts for about two-thirds of the global total.

“The industry is growing like a weed,” said Ravi Venkataraman, Chestnut’s managing partner, who previously headed the OCIO business at Mercer. 

“I have no doubt it will catch on in the Middle East as it has elsewhere.” 

In December Dubai's Dalma Capital acquired Global CIO Office, based in Singapore. Dalma’s Global CIO division, headed by chief executive Gary Dugan, has about $2 billion of assets under advisory. 

Dugan said: “The OCIO sector is relatively new in the areas we are targeting, which is single and multi-family offices, and small wealth management businesses.

"Some ask us to help with strategic and tactical asset allocation and product selection, and some employ us to keep them updated on developments in the global economy and markets. 

“There remains a focus on alternative assets, particularly in the area of private debt.” 

The industry has been slower to develop in the Gulf partly because the market is “bifurcated”, according to Venkataraman. “You have the massive sovereign wealth funds, which have teams of 100-plus doing the job, then lots of merchants, family offices and small businesses, but not that critical mass of mid-sized institutions,” he said.

Wealthy individuals and family offices in the Gulf have traditionally preferred to manage their wealth themselves, but Ansari said this was changing. 

“Interest in OCIO services has grown massively in the last two years in particular, with family offices the ones knocking on our doors the loudest and most frequently,” he said. 

These organisations are interested in "professionalising" wealth management and succession planning, he added. Younger generations are often more in tune with trends such as environmental, social and governance investing, and want help to achieve their goals. 

An estimated AED3.67 trillion ($1 trillion) of assets is set to be transferred to the next generation in the Middle East over the next decade, according to Dubai International Financial Centre. Last summer the free zone launched the region’s first Global Family Business and Private Wealth Centre. 

Family offices from Asia and elsewhere are setting up in the Middle East to tap its liquid capital markets. The UAE was expected to attract the world’s largest net inflow of millionaires in 2022, gaining 4,000 individuals, said a report from wealth consultancy Henley & Partners. 

The region’s OCIO industry could expand further as more providers offer a “one-stop shop to investors”, said Ed Bardowski, a US-based partner at Aon, which has also reported an increase in enquiries from Middle Eastern clients.

Market turbulence caused by high inflation, rising interest rates and the war in Ukraine is boosting demand further, according to Ansari. 

“These conditions drive clients to diversify and invest in alternative asset classes to ensure their portfolios are fit for purpose through different economic cycles. For many, if they want to move into those exotic, complex assets, they need extra eyes and hands.”