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Middle East: Hedge funds lead growth

The number of Middle East-based hedge funds is set to increase. In January, Abu Dhabi headquartered First Gulf Bank launched the first hedge fund of significance in the region. The fund, Al Saqer (“the Falcon”), is a macro-strategy hedge fund and has a capitalization of Dh3 billion ($817 million).

Kevin Pilarski, president and CEO of Falcon Global, an alternatives investment company with experience in the Gulf states, believes that many more hedge fund managers will follow suit in Gulf Cooperation Council states.

“The GCC has agreed to a common currency by 2010, so we’ll see developments mimicking what happened when the euro was introduced,” he says. “I think we’ll see not only an emergence of Middle East-based hedge funds but a much wider understanding of derivatives in the region. We’re already seeing the beginnings of a derivatives market in the Middle East.”

Although the region has a suitable array of wealthy sophisticated investors, there are challenges for managers entering the region, Pilarski says. “Some of the major institutions in the Middle East have always been hedge fund investors. What the challenge will be is convincing Middle Eastern investors of the merits of hedge funds. The stock markets in the Middle East have produced such good returns over the last four years that the concept of diversification is often lost – the mentality is similar to that before the bubble burst in 2000. There is clearly the opportunity there for hedge funds, but it is different to doing business in the west.”

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