Fund managers based in Hong Kong are branching out to the Middle East to capitalize on fresh opportunities for investment and fundraising, as well as the talent pool in the area, amid growing headwinds globally and US-China geopolitical tensions.
Industry participants assert that fund managers in Hong Kong play a unique role in bridging the growing geopolitical divide between China and the Middle East. Establishing a base of operations in financial centers of the Middle East is becoming increasingly valuable to them.
According to a survey done in November and December by the Hong Kong Investment Funds Association, over 50% of fund managers believe there are opportunities in Dubai (57%), Abu Dhabi (52%), and Saudi Arabia (57%).
The Financial Services Regulatory Authority (FSRA) of Abu Dhabi granted in-principle approval for Hong Kong-based hedge fund Infini Capital Management to open an office there last month, the company announced. It stated that this would pave the way for it to join the ranks of the first Asian hedge fund manager in the free zone and international financial hub known as the Abu Dhabi Global Market.
Tony Chin, the founder, CEO, and chief investment officer of Infini Capital, stated, “There is obviously a lot of coverage about deepening investments between Greater China and the Middle East, and we are watching these closely to leverage our expertise in both markets.”
According to him, dual-listing companies in the Middle East and Hong Kong, for instance, might offer relative value and event-driven investment opportunities.
Saudi Exchange’s equities are now investable for local funds and retail investors after the Hong Kong Stock Exchange accepted it as a recognized stock exchange in September of last year.
Within the Gulf Cooperation Council (GCC), which includes Saudi Arabia, Kuwait, the United Arab Emirates (UAE), Qatar, Bahrain, and Oman, Infini Capital is also keeping an eye on new listings, equities, and bond activities.
To take advantage of the most recent opportunities, the hedge fund manager is raising US$1 billion for its fund. In the upcoming year, it anticipates having more than 10 employees in Abu Dhabi.
Arte Capital, an asset manager with its headquarters in Hong Kong, agrees with Chin. The company opened an office in Al Khatem Tower, which houses Infini Capital, last year. In November of last year, Arte obtained financial services authorization from the FSRA to carry out regulated activities.
“We see a unique opportunity in the strengthened relationship between China and the Middle Eastern countries,” said Ethan Chan, Arte’s founder and chairman. “Asset managers like us are in an excellent position to connect the resources, companies, and capital between the two regions.”
In November, Arte opened a US$1 billion fund for Chinese companies looking to expand into the Middle East, with the support of the government organization Abu Dhabi Investment Office (ADIO). According to Chan, China and Abu Dhabi provide the funding for the Arte China-Arab Strategic Fund.
The UAE and China’s bilateral non-oil trade increased by 18% to reach US$72 billion in 2022, according to ADIO at the time.
“We are gathering some very high-quality portfolio companies in new energy, new materials, media, and new-energy vehicles,” Chan stated. He also mentioned that his company intends to deploy approximately US$500 million soon and find co-investors, including family offices and sovereign wealth funds, to match the fund’s commitment in each transaction.
The Middle East, particularly the GCC, has amassed significant wealth from oil and gas, according to Muneer Khan, a partner and regional head for the Middle East at the law firm Simmons & Simmons. This wealth has trickled down to the economies and contributed to the creation of more private wealth.
“There’s a lot of wealth generated in the Middle East at both the sovereign and institutional level and private level, such as family offices, which will benefit hedge fund managers when raising capital,” he said. “We’ve seen a huge increase in asset managers from the US, Europe, and Asia flying in on marketing visits and trying to raise funds here.”
Fund managers based in Hong Kong and China may find the additional fundraising channel useful in the event of a slowdown in the second-largest economy in the world. “When things are difficult in your market to raise capital, it can force you to look elsewhere,” Khan said.
Talent is another factor influencing fund managers’ Middle Eastern expansion.
Given the rapid global growth of multi-strategy, multi-manager platforms, Khan claimed that there has been a talent war among portfolio managers.
According to Chin of Infini Capital, “The location further opens new talent pools, particularly from Europe, with a lot of good talent in London and Paris willing to relocate to Abu Dhabi.”
According to Khan, some incentives for the talent in the industry are a low tax environment, a reasonable cost of living, and easily accessible visa programs.
The UAE has no personal income tax and exempts regulated investment managers from corporate tax, which allays concerns among high earners like hedge fund and portfolio managers about higher taxes, he said.
Though still in its early stages, the Middle East is seeing an increase in the number of fund managers with headquarters in Hong Kong. Even so, there are still difficulties despite the cordial ties between the two areas.
“Global headwinds and the US-China tension have impacted [the Middle Eastern investors’] interests in investing in China,” said Arte’s Chan. “It’s not that straightforward.”
However, it is not insurmountable either. Before they can take advantage of the opportunities in the Middle Eastern market, asset managers “need to bring good investment targets to the table and help investors make money,” the speaker stated.
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