Originally published in Arabian Business, January 2023
Financial services sector outlook for 2023: Increasing demand for hedge funds, Middle East IPO boom, strengthening family businesses, emergence of Dubai as a global FinTech capital, and accelerating climate finance in the UAE.
The UAE has been cushioned from some of the global economic shocks underpinned by its diversified economy. A recent report by the World Economic Forum predicts that the MEASA region will grow by 3.6 percent in 2023. So, what does 2023 hold for the region’s financial services sector?
Hedge funds: A growing demand for financial services in Dubai
The new year will see an increasing supply and demand for hedge funds in the UAE, particularly in Dubai. In 2022, the hedge fund influx was driven by the UK and US which will continue its dominance in 2023. Hedge funds view Dubai International Financial Centre’s legal and regulatory platforms as world class and comparable with top financial centres. Two reasons for DIFC’s appeal are that it provides a forward thinking legal and regulatory framework, as well as quick, flexible set-up options.
These have attracted portfolio managers who are excited to live here, grow teams around them and take advantage of the Centre’s incredible growth ecosystem. Earlier, hedge funds would establish a small presence to manage fundraising relationships, whereas now, portfolio managers want to build and manage their business from DIFC. In 2023, we will see the increase in domestic and regional investments from new and existing hedge funds, further increasing their economic value.
The Middle East IPO boom
Globally, the last year has seen Initial Public Offerings (IPOs) slump sharply due to economic woes, including falling stock prices and high inflation. The Middle East is bucking the trend with the region’s boom to continue throughout 2023.
According to recent figures from Bloomberg, Gulf IPOs have attracted a total capital of over USD18 billion this year, representing 47 percent of the wider Middle East’s USD38.2 billion. Half the listing proceeds in Europe, the Middle East and Africa came from the GCC states, as the region benefits from high oil prices and increased investor demand. DIFC’s rich ecosystem will continue to support the development of the IPO market, from grassroots level.
Family businesses will gain strength
In the Middle East, family-owned businesses are a crucial part of the economy, contributing an impressive 60 percent of the GDP and employing 80 percent of the workforce. Family businesses are uniquely complex and require different services and handling than other types of businesses. Some family businesses may only have been operating for one to two generations and may not have the established processes in place to adequately manage their wealth and wealth transfer processes.
Additionally, family businesses will be facing the Great Wealth Transfer, which will be the biggest generational wealth transfer in modern history. It is estimated that USD5.5 trillion in wealth will be transferred across generations just within the UK over the next 30 years, with 90 percent to be transferred via inheritance bequests.
In response to their economic importance locally and this complex set of needs, DIFC has created a completely unique global offering in the new DIFC Family Wealth Centre. DIFC has nearly 20 years’ experience in supporting family businesses and has now consolidated that experience in a formal offering. DIFC also has the right tools to help clients grow, such as prescribed company structures and ability to provide concierge services as well as advice through companies in the ecosystem.
Dubai as a global FinTech capital
DIFC’s comprehensive FinTech and innovation proposition has created unparalleled opportunities for success for startups, global players and unicorns. The continually growing platform includes access to education, entrepreneurship and accelerator programmes, mentoring and networking, operating and regulatory licences, and funding and expertise through venture studios – all under one cost-effective roof – presents the ultimate platform to innovate and scale.
During the first nine months of 2022, the number of FinTech and innovation firms that joined DIFC exceeded the total during the whole of 2021. The DIFC FinTech Hive is the first and largest FinTech accelerator programme in the region which has attracted over 3,000 applications from all over the world. Over the last few years, the applications have been whittled down to 200 companies who have been accelerated, based on their ideas and ability to generate revenue.
DIFC is currently seeing elevated levels of interest from FinTechs in Singapore, South East Asian and Asia-Pacific markets. As FinTech and innovation firms mature in these locations, they are seeking new opportunities to scale beyond their regional borders and into new economies with demand for their products and services.
Dubai has become their bridge to expand reach and capture opportunities in our emerging geographies, providing a familiarity that aligns with their sophisticated multi-national environments. Hosting the Dubai FinTech Summit in May 2023 will help garner further interest and position Dubai as a global FinTech capital.
Accelerating climate finance
The world’s eyes will be on the UAE when it hosts the 28th Conference of the Parties (COP28) in November and December 2023. The need to address sustainability and climate change issues are becoming ever more urgent. In DIFC we’ve innovated and co-created the Dubai Sustainable Finance Working Group. It was the first group of its kind with an objective of making Dubai the region’s best city for sustainable finance.
Announced in 2019, well before COP28, it shows our long-term commitment to promoting climate action. Our Path to COP28, which includes a partnership with the Global Ethical Finance Initiative, has a stream focused on achieving the nation’s Net Zero ambition, and we have established a 12-month programme designed to inform, education and embed change. An important associated initiative from the DIFC Academy is providing training for the finance industry on climate finance and expectations for COP28.