More home spending key for Gulf investment industry

The Gulf investment management industry can only grow and cope with the crisis if governments are prepared to spend oil revenues at home and provide better regulation, the head of Bahrain-based investment bank SICO says.

Capital markets in the Gulf Arab region are in an early stage of their development with bond markets in particular lacking the depth to enable broad secondary trading.

The local investment management industry has mostly focused on channelling revenues of a six-year long oil boom that ended last year into the regional property markets, which started to see a downturn late last year.

Ninety-five percent of the Gulf's investment pool has been invested outside the region by its sovereign wealth funds, high-net worth individuals and other private entities, according to Anthony Mallis, chief executive of SICO.

"Governments have to start encouraging capital markets in the region, there has to be a political decision for this to be developed," Mallis told Reuters in an interview late last week.

"We need much deeper capital markets to have an active asset management industry ... Investors have no real alternatives to equities and real estate. The region's savings have gone into external assets and real estate."

Investment houses in Bahrain's off-shore banking sector have been trying to recapitalise themselves. Mallis expects the industry to focus on institutional clients such as mutual and pension funds given the declining importance of retail investors in the region.

Mallis also urged governments to improve the financial regulatory framework, for example by clarifying legal and beneficial ownership status of funds' assets.

"The freer the capital markets are in the region, the more viable it becomes," he said.