|Does the Gulf need more new shiny buildings to house another financial centre?|
There are signs of progress in Abu Dhabi’s attempt to build the latest of many financial centres for the Gulf: the Abu Dhabi Global Market. ADGM has hired Richard Teng to be chief executive of its regulator.
This is the second big hire by the emirate for its new market after Jan Bladen left his role as chief operating officer of the Dubai International Financial Centre’s regulatory authority to become executive adviser and programme lead for ADGM, whatever that means, in February. Both are appointees of Ahmed al-Sayegh, the exceptionally well-connected Emirati who is chairman of the overall financial centre.
Representatives for ADGM (it has also got as far as appointing a PR firm, Brunswick) told Euromoney that Teng will not start until early next year, that the only spokesperson at this stage is al-Sayegh, and that he is not giving interviews. Nevertheless, it is possible to infer a few things from these new appointments and the speeches that al-Sayegh has given this year.
The first question is always: why does the Gulf need another financial centre? Why, in particular, does the UAE? First we had Bahrain, which remains the hub for local incorporation of mutual funds, despite having lost its safe-haven status on the back of Arab Spring unrest.
Then Dubai set up the DIFC – already 10 years old – to attract international financial services enterprises to do business in a set of buildings where special (non-Shariah, familiarly English) laws and regulations applied.
Next, the Qatar Financial Centre; then, Saudi Arabia’s King Abdullah Financial District.
There’s no doubting Abu Dhabi’s financial muscle to build the physical infrastructure; it has devoted a whole island, Al Marya, to becoming the financial hub, and people (including foreign banks and law firms) are already opening offices in the island’s grand Sowwah Square property development. But why bother?
The answer appears to be that Abu Dhabi has noticed it is missing a trick. Day after day, bankers and fund managers fly in from London, Zurich, Geneva and elsewhere to pitch the emirate’s vast institutional investment arms like the Abu Dhabi Investment Authority (Adia), Abu Dhabi Investment Council (The Council), International Petroleum Investment Company (IPIC) and Mubadala, which between them are believed to have over $1 trillion in investible assets; or its ultra-rich individuals and family offices.
|Few banks or fund managers are going to want to commit physical and personnel assets to two separate centres barely an hour away from one another in the same country|
But all they really do is take money out of the country, or at the very least down the E11 highway to Dubai to be booked out of branch offices in the DIFC.
It seems that Abu Dhabi wants foreign institutions to commit properly to doing business in Abu Dhabi, and in the process create a vibrant local industry to help with the emirate’s intended diversification away from hydrocarbon wealth.
Al-Sayegh has referred to early priorities as including private banking and commodity trading, both of which look like natural places to start.
But Abu Dhabi knows, as Dubai did 10 years ago, that westerners will only be comfortable coming and doing business on the ground if they are familiar with, and trust, the legal environment. That means a separate regulator to the rest of the UAE, and a whole new system of law and judicial redress.
That’s where the two key hires to date are interesting. Taking Bladen from DIFC was cheeky but not unpredictable; who would know better than Bladen, who joined DIFC from PwC in 2005 and has seen first hand exactly what is involved in setting up a bit of London in a couple of acres of Dubai land? But the fact that the second big hire is also a regulator is striking.
It’s also interesting that he’s from Singapore, and has worked with both the Monetary Authority of Singapore, where he was director of the corporate finance division, and Singapore Exchange, where he was most recently chief regulatory officer.
MAS in itself is probably a role model, combining central bank and financial service regulatory functions into a single institution. One might expect a home-grown financial centre to have a cosy relationship between exchange, regulator and administration – that’s certainly the DIFC model – and Singapore’s business-friendly approach and open attitude to the origins of private wealth might well prove to be a model for Abu Dhabi.
The next question: how will DIFC and ADGM differ? Al-Sayegh has said that they will complement one another and not be in competition. But realistically, few banks or fund managers are going to want to commit physical and personnel assets to two separate centres barely an hour away from one another in the same country. And if, for example, ADIA does insist upon fund managers being represented in ADGM in order to be considered for mandates, it’s not hard to imagine them upping sticks and deserting DIFC.
Fund managers themselves are not yet overexcited.
“We’re aware of it insofar as they’re talking about it, as they’ve been talking about it for 10 years,” says one frequent visitor to Gulf sovereign funds. “It’s: ‘come and set up and we will give you a load of money to manage’. I’ll believe it when it happens.” He agrees, though, that if that does turn out to be the deal, it would probably be enough to uproot offices from the DIFC.
Time will tell.