June 2006

Industry Overview, Potential, Challenges & Proposed Solutions

UAE Mutual Fund Industry & Regulations

UAE Central Bank

Seminar 2006

2

Global Perspective

Source: Bloomberg, June’06

• Assets Under Management: US$ 16.0trillion

• Number of Funds: 55,000

• Global Market Capitalization: US$ 43.7trillion

• AUM / Mkt. Capitalization: 37%

20-25 % 40 % 70 % 80 %

EM Italy Europe USA

7 %

GCC

Current

20%20% 37%37%

By 2010 By 2015

3

GCC Industry Potential…Market Capitalization Approach

At Peer Level AUM in GCC (20%): US$ 160bnUS$ 160bn

Five Year CAGR by 2010: 23.0%

Industry Size by Revenue (1% fees): US$ 1.6bn p.a.

At Global Avg. AUM in GCC (37%): US$ 297bn

Five Year CAGR by 2015: 20.2%

Industry Size by Revenue (1% fees): US$ 2.9bn p.a.

2010

2010

2015

2015

4

GCC Industry Potential…Savings Approach (measured by bank deposits)

At Peer Level EM - AUM in GCC: US$ 175bnUS$ 175bn

40 % 50 % 85 % 100+ %

EM Italy Europe USA

17.6 %

GCC

Current By 2010 • GCC Bank Deposits: US$ 322bn

• GCC Deposits to grow: 10%

• GCC Deposits by 2010: US$ 438bn

5

GCC Industry Perspective & UAE Standing

• GCC Assets Under Management: US$ 56.89bnUS$ 56.89bn• Number of funds (all asset classes): 402402

By Assets Under Management

Saudi46.0%

Kuwait28.0%

UAE21.3%

Bahrain4.4%

Oman0.2% Qatar

0.1%

By Number of Funds

26.87%

12.69%

11.44%

1.24%

1.00%

46.77%

0% 10% 20% 30% 40% 50%

Saudi

Kuwait

Bahrain

UAE

Oman

Qatar

6

Country AUM

(US$bn)Market

Capitalization (US$bn)

% of Market Capitalization

(%)

Saudi Arabia

26.16 459.54 5.69

UAE 12.10 151.91 7.96

Kuwait 15.90 108.37 14.67

Qatar 0.10 58.86 0.16

Oman 0.08 10.70 0.74

Bahrain 2.50 13.77 18.15

Total 56.89 803.17 7.08

UAE Relative to GCC…Market Capitalization Approach

UAE: 3rd Place & High Industry Potential

Even On Short Term Basis

Closest to EM AveragesDue to Laws & Laws & RegulationsRegulations

7

Country AUM

(US$bn)Bank Deposits

(US$bn)% of Bank

Deposits (%)

Saudi Arabia

26.16 130.5 20.04

UAE 12.10 101.7 11.80

Kuwait 15.90 46.7 34.05

Qatar 0.10 23.5 0.40

Oman 0.08 9.8 0.80

Bahrain 2.50 10.7 13.70

Total 56.89 322.9 17.6

UAE Relative to GCC…Savings Approach (measured by bank deposits)

UAE: 4th Place

Closest to EM Averages & dueto Laws & RegulationsLaws & Regulations

8

UAE Industry Potential

40 %

EM

11.8 %

UAE

Current By 2010

Savings Approach

20-25 %

EM

7.7 %

UAE

Current

25%25%

By 2010

Mkt. Cap. Approach

• Market Capitalization Approach (25%): US$ 38.0bnUS$ 38.0bn• Savings Approach (deposits growing at 10%): US$ 59.0bnUS$ 59.0bn

• Growing at CAGR by 2010 of 32.0% 32.0% : US$ 48.5bnUS$ 48.5bn

9

So Where Is The Problem?

• “Savings Culture” Just Emerging

• Bull Market delayed “Savings Culture” by 4-Years

• Wealth Management Industry Barely Developing

• Public & Private Pension Funds Absent Role

• No Tax Benefits – (but that did not stop Bahrain and

Kuwait)

• Issue of CredibilityIssue of Credibility:

– Mutual Fund Regulations

– Enforcement

Regulations

11

The Family Tree of Laws & UAE Central Bank Board Resolutions

CommercialBanks

InvestmentBanks

FinancialInstitutions

Intermediaries

Federal Law No.10 of 1980: forming the UAE Central Bank & effectively appointing it as a regulator

RepresentationOffices

UAE Central Bank Board of Directors Resolution No. 164/8/94

Investment CompaniesBusiness Article (2)

Banking, Financial, InvestmentConsultations Business Article (5)

2 Pages

11 Pages

UAE Central Bank Board of Directors Resolution No. 89/3/2000

2 Pages

26 Year = 15 Pages of Regulations26 Year = 15 Pages of Regulations26 Year = 15 Pages of Regulations26 Year = 15 Pages of Regulations

12

Investor Concerns

• Industry is UNDER-REGULATEDUNDER-REGULATED

• Too general and commingling of various functions

under one license

• Article (1) Section (h): re Investment Trusts

– An Investment Trust is not a standalone legal

entity

– It is held in the Trustee’s own name

– Does not give certainty in case of bankruptcy of

Trustee

13

Solutions

• Short-Term: Additional regulatory guidance to Article (1) Section (h)

re Investment Trusts

• Long-Term: Expand investment related regulations ((But Not to But Not to

Over-RegulateOver-Regulate))

– Recognize the various business activities:

• Investment management

• Fiduciary Functions & Obligations

• Mutual Funds

• Fund Administration

• Intermediation

• Investment Banking, Underwriting, Market-Making & Research

• Enforcement & Compliance

• Pension fund reforms (public & private)

14

Conclusion

Industry prospects are promising

The opportunity & intention to unlock value is here

The “Key” is:

Establishing a comprehensive regulatory framework for

the investment management/banking industry

Calling for an Investment Management Reforms

Committee (a coalition between the UAE Central Bank

& industry participants)

Thank You

Haissam ArabiManaging Director

SHUAA Asset Management