Gulf funds expect boost from sustainability and Islamic finance


Fund managers in the six countries of the Gulf Cooperation Council expect strong growth over the next year, supported by a growing demand for Islamic products and investments that take into account environmental, social and corporate governance sustainability factors, credit rating agency Moody’s said on Monday.

A Moody’s study included eight senior investment officials at the region’s largest finance companies, half of whom expected a growth rate of more than 10 percent in net inflows, while a third expected a modest increase. Moody’s did not name those funds.

“Improved investment results and higher fees, which are already relatively high in the GCC, will boost revenue growth,” the agency said.

Eighty percent of those surveyed expected a modest increase in investments, while 20 percent expected a slight decrease.

About 38 CEOs predicted a massive increase in demand for investments aligned with the three sustainability factors (Environmental, Social and Corporate Governance) but half of them expected modest growth. ESG issues were a strategic focus for about 25 CEOs, with half saying they were of medium or limited importance, albeit an increasing one.

“About 25 percent of CEOs said they have not yet incorporated ESG standards into their management investment decisions,” Moody’s said.

She added that most of the CEOs said that their companies are scrutinizing investments that are highly sensitive to environmental, social and corporate governance risks.

More than 60 percent of CEOs said that Islamic finance instruments that are compliant with Islamic principles will see increased demand over the next year. Moody’s highlighted that Sharia principles include the prohibition of investing in tobacco, gambling and the alcoholic beverage industry.

“The natural intersection between sustainable investment and Shariah-compliant social principles creates opportunities for the Islamic finance industry,” she said.

About half of the GCC-based funds surveyed by Moody’s said they are ready for mergers or acquisitions within the next two years, which the agency described as evidence of the growing sophistication of the sector and intense competition.

She added, “The optimism of those included in the study calms concerns about geopolitical tensions, the economic impact of the pandemic, and fluctuations in oil prices.”

GCC governments’ plans to diversify their economies away from oil are seen as supportive of investment activity, but performance in the region is still largely dependent on crude prices.

Moody’s said that the decline in oil prices may constrain government spending and reduce economic growth, with negative consequences for asset managers and stock market returns, which in turn affects the assets of funds under management.



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