This past decade has seen the economic landscape in GCC countries transform almost beyond recognition, with the recent oil boom and increase in government spending contributing to the region’s newfound attractiveness to investors (see Fig. 1). However, the GCC has not always harboured the same investment opportunities, as the countries’ prospects only truly began to gain as recently as a decade ago.
Ahmed M Al Bahar, Managing Director and Agnello A S Fernandes, Vice President of Funds Administration and IT at Gulf Custody Company, spoke with World Finance about the ways in which the GCC has changed since the turn of the century, and the astuteness of domestic businesses in recognising the region’s prospective wealth.
Positive results in energy sector
“The recent oil boom generated a large volume of revenues for the six GCC countries: Bahrain, Oman, Kuwait, Qatar, the United Arab Emirates, and Saudi Arabia. Estimated at an annual average of $327bn over the period 2002 to 2006, the revenues more than doubled the average of the preceding five years,” recalls Fernandes.
“These abundant revenues were instrumental in boosting economic growth. The GCC has become a significant regional bloc and plays a vital economic and political role far beyond its shores, given its geopolitical strategic location, preponderance of global energy reserves and its emergence as a major international player through use of accumulated financial reserves.
The GCC has become a significant regional bloc and plays a vital economic and political role far beyond its shores
“During this period, with adequate liquidity in the market and a comfortable investment climate in the region, the investment sector has developed tools for both local and regional investors.”
The maturity of the GCC’s financial markets plays into the hands of the Kuwait-based fund custodian and administration service provider, as the need for these services has skyrocketed this past decade in accordance with an increasingly complex financial marketplace.
The GCC remains a relatively young – though no less potent – hotbed for investment says Fernandes, so the Gulf Custody Company has seen the demand for outsourcing fund custody, administration and registry skyrocket since its establishment in Kuwait over a decade ago. Established in 2001, Gulf Custody Company is a direct result of interpretation, where the founders recognised a place for fund custody and administration in the GCC’s not-too-distant future.
Bahar further stated that the promoters of Gulf Custody Company had the vision to acknowledge that although a servicing of investment instruments was available, a specialised ancillary services provider for core services such as Fund Admin, Custody and Transfer Agency would provide local Fund Managers access to Gulf markets and vice versa, coupled with competitive pricing that was non-existent.
The promoters then got together and established Gulf Custody Company with a mission to become a leader in fund administration, as well as Custodian and Transfer Agency services in Gulf markets. The company is indicative of an astute business climate present throughout much of the GCC, with the Gulf Custody Company being just one of many domestic companies that have recognised the potential for a sizeable return on investment from the very beginnings of its inception.
Testing market conditions
Those affected by the investment climate in the GCC have had to contend with trying economic tribulations of late, requiring companies to demonstrate a capacity to adapt if they are to survive. Gulf Custody Company has sought to adapt its strategy accordingly in keeping abreast of the wider financial services industry. “Since our beginnings we have gone from strength to strength, except for the last three years where they took a slight hit due to global market conditions. For the year ending 2012 Gulf Custody Company had $3bn under custody,” which represents a slight shortfall on previous years.
Regardless of the past half-decade’s trying economic conditions, Gulf Custody Company has weathered the financial storm of recent years and emerged relatively unscathed, standing the company in good stead to realise the financial rewards of global economic recovery.
Those affected by the investment climate in the GCC have had to contend with trying economic tribulations of late
The region is very much on track to being upgraded from frontier market to emerging market status by MSCI, announced in June and scheduled to take effect as of May 2014, prompting many in the region to implement advanced investment services in catering to a new breed of investor. The GCC has seen rising oil prices and increased government spending bolster the region’s investment prospects and instigate a rise in mutual fund results this year. The return to form for the GCC represents a shrewd business strategy on Gulf Custody Company’s part, as the company has invested a great deal in expanding its market share in the region.
It has attempted to expand upon its market position by opening offices in Bahrain and Oman. “We see a good potential for this service in the future in these regions and wanted to capture the market share before our other competitors did.”
Gulf Custody Company is an independent financial institution whose services cater to conventional Islamic and international mutual funds of various categories. Fernandes continued, “Gulf Custody Company provides a wide range of high quality and cost effective fund custodian, fund administration and share registrar services [transfer agency] to cater to the needs of both clients and fund managers in Kuwait, Gulf and Mena regions.”
The company differentiates its services from rival custody and administration service providers in the region in whatever way it can. “Fund Administration, Custody and Transfer Agency is our core business, and we are not distracted by anything else. Gulf Custody Company also do not invest or trade for its own self. As a result every piece of information relating to Fund Managers, financial markets, funds and financial instruments that is in our domain is segregated, uncompromised, safe and secure in our database and as it is of no use to us, as it is beyond a conflict of interest,” says Fernandes.
Gulf Custody Company service to represent something of a benchmark for the industry. Fernandes says that the company has spearheaded a number of changes in the business of fund custody and administration. “Every NAV and report provided is compiled independently by us, which significantly means each and every investor in our fund is afforded the assurance that our reporting is non-biased, accurate and independent.”
It does not hesitate to develop an approach that best meets its clients’ objectives. What differentiates the company from its competitors is that it is not tied down to following rigid procedures without reference to prevailing circumstances of the client – it adopts a flexible approach. Instead it will work with them to develop solutions that meet their needs. KYC and AML also form an integral part of its business procedures now.
Fernandes goes on to state the importance of IT investment to Gulf Custody Company and the business of fund custody and administration as a whole, believing technological advancement to be of an especial importance in delivering the best service possible.
“Our current IT platform, by a reputed international vendor, handles over 24 clients managing in excess of 62 funds. Our commitment to investment in IT is reflective of our need to ensure administration is delivered within a tightly controlled business that does not rely on excessive manual processing, or on the use of spreadsheets.”
One of the principal areas in which IT plays a part is in financial accounting, wherein Gulf Custody Company maintains a complete set of financial records for each fund and portfolio. It employs a fully integrated and state-of-the-art system, which is equipped to cater for the extensive range of fund types on the company’s books.
With the capabilities to accommodate multi-currency portfolios and a variety of fund structures, this IT measure is just one of the many ways in which the company ranks among the best fund custody and administration service providers in the region.
The MSM30 index saw returns of 10.02 percent in the first half of the year, with Bloomberg’s GCC200 Index registering a 10.2 percent increase in the same period, indicating a return to form for the bloc. Moreover, mutual funds have boasted returns in excess of these figures, with three of the 11 Omani funds that posted results in H1 2013 having generated over 20 percent returns, and another four posting over 15 percent.
The gains of GCC mutual funds will serve to boost Gulf Custody Company’s prospects, provided that funds throughout the region experience similar returns and seek out the services of custodians and administrators in protecting its gains.
The company’s prospects look set to improve in the coming years, though Gulf Custody Company is not simply content with its current position. “We plan to expand to other GCC markets when the current market scenario improves,” says Fernandes.
“We also have a highly sophisticated web based state-of-the-art IT solutions in the pipeline,” which highlights another area in which the company will likely advance ahead of its market competitors.