The wealthy, would-beinvestors of the Gulf shouldbeproviding a bonanza for ambitiousmutualfund managers.
Yet the region’sfundindustryremainsrelativelyunderdevelopedcompared to itscounterparts in Western markets, wheremutualfunds and their managers have achieved pop iconstatus. For instance, it’s been twodecadessince Peter Lynch stepped down as the head of Fidelity’s Magellan Fund, yetheremains one of the mostrecognizable men in American business.
The Gulf’sfund managers are decidedly more behind-the-scenes, catering to a smaller slice of the general population and preferring to focus their marketing efforts on family offices and institutions. But that’sslowlychanging, according to the head of investment management and chiefinvestmentofficer for Morgan Stanley SaudiArabia, FarhanMahmood.
Mahmood, a charteredfinancialanalysthimself, was a recentguest of the C.F.A. Emirates Society, wherehepredictedthatinvestmentfundswill continue to grow in popularityacross the region. But first fund managers have to convince a skeptical audience that active investingisworthwhile. “The fundindustryisundergoing a transformation,” Mahmoodsaid. “Institutionalinvestorswithheavyexposure to equities in the ‘90s opened the door to hedgefunds and privateequity. The feeling nowis: Performance isn’tcomingfrom the active fund managers, sowhypay for them?”
Between 1980 and 2005, the portfolio of the averagemutualfundinvestor rose 7.3 percent. The averageequityfund rose 10 percent duringthatsameperiod. And if youhadbought a basket of stocks tracking the S&P 500, youwould have beatenthemboth: The S&P index rose 12.3 percent duringthat 25-year period.
Besides the obvious questions surrounding the merits of active investing, Gulf investors are saddledwithother obstacles, such as an evolvingregulatoryenvironment, weakcorporatereporting standards, and a lack of institutionalinvestors. Add to thislist the terrifyinglylowpercentage of free float - lots of big industries are owned by the government - and an investorcanbecomefairlyreluctant to participate in the marketshere. Concentration isalso an issue. In the Saudibanking world, for example, 96 percent of the marketisdominated by the 10 largestbanks in SaudiArabia.

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