GLOBAL – Middle East sovereign wealth funds and pension funds will continue to shun all but prime European assets – and the demands they make on fund managers are increasing – according to a director of Wafra Capital Partners, the fund management subsidiary of the Kuwaiti pension fund.
Head of European operations Rachid Ouaïch told the Association of the Luxembourg Fund Industry conference this week that Middle East institutional investor appetite was "easy to summarise".
"Prime, prime, prime – that’s all they’re looking for in Europe right now," he said.
A straw poll showed that 45.5% of conference attendees rated raising capital as the issue most likely to keep them awake at night. However, Ouaïch said Wafra could – if needed – approach the royal family as a source of capital. In some cases, institutions investing in Wafra Capital funds are backed by influential family members empowered to engage in one-to-one negotiations.
In return, regional investors are demanding much more from fund managers, he said. "They want us to be more involved in the investment itself by investing at least 10%. They want us to have skin in the game."
More challenging is a typical requirement – probably specific to Middle East investors – for a quarterly dividend.
"It's hard to argue because they'll say, 'Well, if you're so confident in the fund's performance…'"
In the meantime, the fund manager is under pressure to bring down costs, a requirement made more difficult by additional costs associated with its remit to acquire only Shariah-compliant assets.
"We're still in a teaching phase, especially when we're selling assets and we have to explain to buyers the structure we put in place when we acquired them," he said. "When banks are willing to finance us, and they’re new to the Shariah-compliant market, we have to explain to them how."
Among its cost-control efforts, the firm has outsourced all but the fundraising and asset management functions – and Ouaïch said he expected other fund managers to do the same. "Investors want specialisation," he said. "All that's left to outsource is myself."