Apex was one of the first fund administrators to launch in the Middle East eight years ago, its CEO and Founder talks about how Apex’s offices in Bahrain, Dubai and Abu Dhabi are supporting the increasing fund industry in the region and the growth of the private equity sector in Saudi Arabia.
Peter Hughes, the Chief Executive and founder of Apex Fund Services Ltd was interviewed by “Euro Arab Banking & Finance Guide”
Q. In Abu Dhabi, how have the recently introduced ESCA requirements affected the fund administration landscape?
The requirements provide more clarity with regards to the onshore funds sector, including the governance of marketing and distribution of all funds as opposed to just onshore funds, the requirements for service providers and protection mechanisms available should funds become distressed.
Q. Will the new regulations be successful in giving investors greater security and confidence?
The new regulations set clear direction for regular dealings with ESCA, clients, and internally within the regulated entity (with regards to matters such as internal audit, code of conduct, and possessing the requisite technical and administrative capabilities). Additionally there are capital requirements and guarantees required to ensure continued compliance.
The new regulations simplify and rationalise the existing anti-money laundering framework and set responsibility for compliance in terms of counter terrorist financing. Transparency ensures compliance and penalties will be enforced for non-compliance.
Q. Why did Apex decide to pursue an Abu Dhabi licence and what does it mean for your business going forward?
Apex took a strategic decision to apply for an ESCA licence; we were already servicing a number of onshore funds for large institutional investors, and to continue servicing those funds obliged Apex to pursue licensing.
Additionally we recognised that having this certification would affirm to our clients and the funds industry that our Apex protocols are rigorous and world class, and coupled with the independence aspect unique to Apex, this had to provide Apex with a significant marketing opportunity for existing and new onshore funds in the market. Fund managers now have the comfort that they have an independent administrator servicing their funds to stringent regulator requirements.
Q. Do you expect to see more funds launch this year which are domiciled onshore in the UAE? If so, what type of asset manager/fund might be attracted to do this?
We are seeing a major shift in investor momentum in this region, investors have the option of forming traditional offshore (Cayman or Luxembourg) structures, or, they can choose to set up an onshore fund vehicle with the knowledge that they have ESCA as the regulatory body. Clearly local banks and fund managers would be interested in setting up local structures if they know that they have a regulator on their own doorstep to support them.
Q. What can Apex offer clients that will make its services stand out from regional competitors?
Apex offers independence and global reach, world class standards and delivery, with a local presence in the same time zones with the same language capability.
Through Apex’s GCC coverage in Dubai, Bahrain and Abu Dhabi offices, we have the biggest fund servicing capability in the region, with 45 fund accountants. When we combine this with our specialist Dubai based private equity team and specifically our eFront private equity accounting platform, Apex offers an unrivalled service level and coverage to all fund managers in the region.
Q. Do you sense a greater international interest in the region as a result of the upgrade of the UAE to an emerging market?
2013 saw the DFM and ADX end the year as numbers one and three respectively as the best performing country stock markets. The announcement that the UAE will be upgraded to emerging market status of course played a part in this however we didn’t really witness much inflow of new money into the region last year. I believe that 2014 will build on the stock market performance of 2013 and the early signs are that international investors are starting to allocate money to the region.
Q. What trends are you seeing amongst Shariah compliant funds in the region – and how do you assess the development of this aspect of the industry?
Shariah compliant funds play an important role in the product offering of our region and yet they have not been widely developed by the local and regional based conventional asset managers. We have however seen more and more PE fund structures adopting a Shariah compliant form and this trend is set to strengthen in the short to medium term as we continue to witness an increase in regional investment projects.
Q. What level of demand are you seeing for your PE accounting platform? Are you seeing a drive among private equity funds in the region to meet higher professional standards?
Traditionally Apex Dubai had built its reputation on servicing hedge fund and mutual fund clients, however we have seen a definite increase in demand towards our PE services over the last 12 months. This increase in demand has been accompanied by a drive to meet higher professional standards and Apex has invested in eFront, which is a leading software in the alternative investment space as well as growing our specialist PE team so that we may continue to stay ahead of the curve and provide a high quality service for our clients.
Q. How do your offerings in Dubai, Abu Dhabi and Bahrain complement each other – and might you plan to establish a presence in any other Mena countries?
Our offerings complement each other as there are clients that look for UAE structures as well as Bahrain structures in the Middle East. We can help them by covering all their local domiciles as well as the global options they need to raise assets such as the US, Cayman, Ireland, Luxembourg, Malta, Jersey and Guernsey.
Also in the region clients in Abu Dhabi would prefer to be serviced locally than in Dubai and clients in Saudi and Kuwait often prefer to be serviced in Bahrain rather than Dubai.
Where we locate is driven by client needs and we would consider operations in other Middle Eastern countries if there is client demand.
Q. What type of investment funds are you seeing managers look to launch in Saudi Arabia?Are the conditions favourable for new launches?
We are starting to see a major growth in the private equity space, specifically in real estate, healthcare and education. Many of the family offices and local asset managers have seen increased appetite for private equity funds, specifically real estate funds.
Real Estate investments are on the rise whether they are investing locally in Saudi or globally. Also the market is increasingly seeing new Saudi domiciled funds.
We are seeing a major increase in the fund space as clients and investors are becoming more sophisticated in terms of their investments. They are broadening their scope, diversifying their investments and implementing international best practiced regulations in efforts to make Saudi an investment area which people are attracted to.
Q. What trends are you seeing amongst family offices in the region? How are their needs changing and what are the implications for your business?
In the past family offices were mainly concentrating on small direct portfolio investments. These days what we are noticing is that family offices are becoming more sophisticated and acting more as an investment company rather than a family office. We are seeing increased interests in equities, derivatives, money markets, real estate, private equity, education and healthcare.
Family offices in Saudi mainly want to concentrate on an investment and the returns of that and prefer not to worry about the operational means of getting such things done. From our perspective, Apex has a very diverse offering for family office services and middle offices in which we act as an extension to those family offices. We are their outsourced operations and we give them time to concentrate more on the investments that they are mandated with.
Q. Are real estate funds – as opposed to direct investment in real estate – gaining popularity and understanding amongst Saudi investors?
Yes definitely. While those fund managers and family offices may invest directly they will also create investment funds to attract more investors across the region and specifically in the Kingdom.
Since not all the Saudi investors have family offices, they are seeking new ways to gain further entry into the real estate market and would like the opportunity to diversify their investments. Apex being one of the strongest local admin players in the region – with offices in Dubai, Abu Dhabi and Bahrain – is able to service them in a sophisticated manner through enhanced reporting, a local presence and by having Arabic speakers.
Q. Has Saudi benefited from the international interest in the region which has followed the MSCI upgrades of UAE and Qatar? Or are further reforms needed before this can happen?
The regional markets have rallied behind the upgrade of UAE and Qatar and it is now becoming more attractive for investments in equities.. There is a noticeable increase in market participation and with the upgrade of UAE and Qatar, a lot of the regional markets – including North Africa – have begun to follow suit in terms of regulation implementation and attractiveness for foreign investment.
While the region is rich in its own resources of funds and local sources, they are beginning to see the benefit of having international investors come in to the market, through more transparency and more sophistication in terms of trading, reporting and investment. Of course, further reform maybe required but the prospect is looking promising and Saudi is definitely opening up.
Q. Would Apex consider opening an office in Saudi Arabia?
We’ve always had our eye on opening up in Saudi and the market there. About four years ago we began a process of opening an office and had approval from the Saudi Arabian General Investment Authority (Sagia) – the regulator of foreign entities in Saudi – to set up an entity but we are just weighing up the benefits of actually having people on the ground in Saudi or whether in actual fact people in the region prefer to have their work done elsewhere.
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