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The asset management industry in Saudi Arabia reported favorable results over the past twelve months amid a continued bullish trend on the 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, had a profound impact on both global and local investor sentiments. As a result, there was an increased inflow of capital, enhancing the liquidity market and in turn driving the overall stock market performance and investor returns. While the global markets have been disrupted in 2020 due to the pandemic, the asset management sector in Saudi Arabia has weathered the COVID-19 storm well, owing largely to the strong affluent client base which could absorb price volatilities and not be impacted by liquidity constraints. As we now emerge from the strict lockdowns that were imposed by the government to successfully curtail the COVID-19 outbreak to date; it is evident that the asset management industry is prepared to play a pivotal role in terms of providing the necessary impetus to the overall economic recovery.

We anticipate an uptake 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. We also expect fund managers, in line with the global trend, 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. With the launch of the novel exchange traded derivative by Tadawul in 2020 and the noticeable growth being witnessed in commodity exchange traded funds coupled with increasing demand for environment, social and governance-oriented (ESG) investing for example, we believe there are ample opportunities for the asset management industry to continue to flourish in the coming years.

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The asset management industry will be aware that, whilst Saudi Arabia has managed to control the COVID-19 outbreak well due to the unprecedented yet effective measures taken by the government, the pandemic still persists and is likely to continue to disrupt global markets.

With the onset of second waves in many global jurisdictions and the emergence of new variants of the coronavirus that is deemed to be far more infectious, fund managers in Saudi Arabia will need to remain vigilant around portfolio risk management and ensure business continuity plans are robust to withstand any potential shocks. The asset management industry in Saudi Arabia has reason to be cautiously optimistic about the growth prospects ahead, especially in light of the recent development and deployment of preventive vaccines, despite the macroeconomic challenges that arose in 2020.

A continued focus on digitalization and offering tailored solutions to investors will prove to be decisive. Asset managers that excel in these areas are expected to do well in a market that is experiencing increased competition. Furthermore, the continued capital market reforms and astute regulatory initiatives being taken by the Capital Markets Authority (CMA) will continue to enhance the transparency, robustness and resilience of the asset management industry in Saudi Arabia.

Read more about the trends shaping the industry in our first edition of the Asset management review 2021.