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Hedge Fund Investors Based in Middle East Emerge as Large, Sophisticated Global Investors – May 2015

Middle East-based investors have become an important source of capital for the hedge fund industry in recent years, owing to the large resources available to them and their level of activity within the asset class. Here, we take a look at the different groups of Middle East-based investors active in hedge funds and their significance within the industry as a whole.

According to Preqin’s Hedge Fund Investor Profiles, large investors in the Middle East, such as banks, sovereign wealth funds and family offices, each make up the largest proportion (11% each) of investors allocating capital to hedge funds (as shown in the chart below) with many other investor types also investing in the asset class. Aside from banks, sovereign wealth funds and family offices, investment companies and wealth managers each represent 9% of Middle East-based hedge fund investors. On average, hedge fund investors in the Middle East have $77bn in assets under management, making them significant in terms of their sheer size and scale.

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Many Middle East-based investors have been allocating capital to hedge funds for a number of years and have become increasingly familiar with the asset class, building up their expertise and benefitting from hedge funds’ potential to generate absolute risk-adjusted returns. For example, United Arab Emirates-based Al Dar General Trading Company made its maiden hedge fund investment in 1999, while Gulf Investment Corporation, National Industries Group and First Gulf Bank have all been investing in hedge funds since 2000.

In terms of investors’ preferences, the majority (71%) of Middle East-based investors seek global hedge fund exposure on their investments. Twenty-five percent have demonstrated a specific preference for investing in North America-based hedge funds, while 18% have shown an appetite for Europe-based hedge fund managers. With a large proportion of experienced investors seeking opportunities in North America, investors in the Middle East could remain a reliable source of capital for managers based in the region. Furthermore, Preqin data indicates that 51% of investors based in the Middle East utilize commingled direct hedge fund structures, with a healthy proportion (31%) of investors looking to profit from multi-manager structures.

Going forward, it is likely that an appetite for hedge funds among investors in the Middle East will continue, as investors look to capitalize on the ability of hedge funds to increase portfolio diversification and to gain exposure to complex and sophisticated strategies. With vast amounts of wealth and expertise at their disposal and a multitude of investor groups with their own varying aims and objectives recognizing the value of the asset class, investors in the Middle East will continue to be a reliable source of capital for hedge fund managers worldwide.

Keywords: middle east, hedge funds, investors, investments