KPMG published its first edition of the Asset management review, analyzing the industry's financial performance through the lens of twelve large asset management firms regulated by the Capital Market Authority (CMA).
The report details the dynamic shift in investment strategies and business plans amid COVID-19 crisis and how varied investor behaviors have evolved in recent times.
The asset management industry in Saudi Arabia reported favorable results over the past 12 months amid continued bullish trend on the Saudi Stock Exchange (Tadawul), and a domestic focus of affluent investors. The inclusion of Saudi Arabian equities in global indices such as MSCI and FTSE in mid-2019, coupled with the mega Saudi Aramco IPO listing on Tadawul in Q4 2019, profoundly impacted global and local investor sentiments.
While the COVID-19 disrupted the global markets in 2020, the asset management sector in Saudi Arabia weathered the pandemic storm well, owing mainly to the strong affluent client base that could absorb price volatilities not be impacted by liquidity constraints. The asset management industry has reason to be cautiously optimistic about the growth prospects ahead, especially in light of the recent development and deployment of preventive vaccines.
Based on KPMG's analysis of the most recent available financial information of the evaluated asset management firms in Saudi Arabia, 2020 has been a growth year in revenue, profitability and assets under management (AUM). By the end of September 2020, these asset management firms managed in aggregate SAR 471 billion of AUMs, a growth of 14% since December 31, 2019.
“A resilient asset management industry has withstood the two-fold challenges posed by the decline in oil prices and the COVID-19 pandemic, whereby investor redemptions have been limited and asset prices have either been stable or have rebound. The industry is well prepared to play a pivotal role in providing the necessary impetus to the overall economic recovery,” Ovais Shahab, Head of Financial Services at KPMG in Saudi Arabia commented.
KPMG predicts an uptick in the deployment of necessary capital to start-ups and entrepreneurs through venture capital (VC) or private equity (PE) type investments arising from imminent privatizations and the presence of distressed assets as a result of the pandemic.
“In line with the global trend, we expect fund managers to offer a diversified investment suite to potential investors as the risk/reward appetite evolves in the market and fund managers shift their investment strategies accordingly,” Khalil Ibrahim Al Sedais, Office Managing Partner at KPMG in Saudi Arabia stated.
Given the tax landscape continues to evolve in the Kingdom, KPMG believes the asset management firms will need to have a robust tax risk management framework to assess and manage any emerging tax risks and expected changes in tax regimes.
“A continued focus on digitalization and offering tailored solutions to investors will prove to be decisive. Asset managers who excel in these areas are expected to do well in a market experiencing increased competition,” Shahab concluded.