Bahrain has long led the way as a banking and financial services centre in the Gulf. The growth of the asset management sector since it was established in the 1980s has been a key part of this development.
As well as hosting international asset managers such as AllianceBernstein, BNP Asset Management, BSI and Lazard Asset Management, Bahrain has a burgeoning mutual funds sector to cater to institutional and retail investors. The first overseas mutual funds began being marketed in the country during the 1980s, and the first Bahrain-domiciled scheme was launched in 1984.
This 30-year heritage as a specialist hub in the region means Bahrain’s regulatory authorities, support services and trained workforce can provide a useful platform for asset managers.
The Central Bank of Bahrain (CBB) is noted for its forward-looking legislation, which is said to be a key factor when companies choose to base their operations here.
Anticipating investor demand, the CBB has consistently updated its rules for collective investment undertakings, broadening the range of products asset managers could offer and the style of funds that could be managed, including alternative investment funds.
The first rules for collective investment schemes were issued by the CBB in 1992 and subsequently revamped in June 2007, when the collective investment undertakings (CIU) module in CBB Rulebook Volume 6 was issued. The rules were later revamped again and issued in Volume 7. The new volume provides comprehensive rules and regulations for the authorisation, registration and supervision of mutual funds domiciled and/or offered for marketing in Bahrain.
As of March 2013, the number of funds registered with the CBB had risen to 2,811, compared with 2,374 funds when the CIU regime was introduced. This reflects growth of about 15% a year in recent years. There are 108 Bahrain-domiciled funds – 57 conventional and 51 Islamic – and the current net asset value of funds in Bahrain is $8.3 billion compared with $3.7 billion in June 2007.
The existing CIU regime divides mutual funds into three categories ranging from low-risk funds for retail investors to sophisticated products aimed at professional fund managers and high-net-worth individuals.
1. Retail CIUs, which may be marketed to anyone, are subject to various requirements aimed at investor protection. These include restrictions on types of assets that may be held and various limits on concentration risks.
2. Expert CIUs, which are subject to a minimum $10,000 investment, may only be sold to expert investors with financial assets of $100,000 or more to invest. They are regulated, but may invest in a wide range of assets including real estate and commodities and are subject to fewer risk concentration requirements than retail CIUs.
3. Exempt CIUs, which are subject to a minimum investment of $100,000, are restricted to investors with at least $1 million in financial assets. This class is suitable for hedge funds and other high risk alternative investment vehicles.
Bahrain-domiciled real estate investment trusts will now form a special subset of CIUs with their own asset class restrictions, while private investment undertakings (PIUs) will be subject to a limited number of high-level regulatory controls and a minimum investment threshold of $3 million.
Bahrain is also a leading centre for fund administration and, with the support of organisations such as the Bahrain Institute for Banking and Finance, the Chartered Institute of Securities and Investment, and CFA Bahrain offering internationally recognised professional qualifications, the kingdom has a pipeline of skilled financiers helping to develop the sector.
Leading international firms such as Pinebridge Investments, which has over $67 billion of assets under management, have chosen Bahrain as the location for their regional headquarters. Others may follow as the CBB and the Economic Development Board continue to promote Bahrain as a financial centre.
James Grant-Morris is the editor of The Bahrain Banker, the official publication of the Bahrain Association of Banks
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