Beyond the Sunshine: What Really Keeps GCC Fund Managers Awake at Night?
- Rachel Zlatar
- Aug 31
- 11 min read
The GCC continues to shine brightly on the global investment map. Its robust growth economy, favourable tax regimes, and dynamic landscape are undeniable magnets for fund managers and investors seeking opportunity. Indeed, walk into almost any industry gathering, and you'll hear the familiar narrative of unparalleled potential.
However, as the team here at the Middle East Investor Network have embarked on interviewing fund managers to produce our Future Funds programme, we decided to ask everyone we spoke with ‘what keeps you awake at night?’. In doing this, we have spoken with 40 GCC-based fund managers, all based in either Abu Dhabi, Dubai or Riyadh. Those we spoke with range from fund Founders and Partners, through to CEOs, CIOs, and Investment Directors.
Our primary aim in these discussions was to shape the agenda for our upcoming Future Funds event in Abu Dhabi. Yet, the candid feedback we received was so compelling, we felt compelled to share it more broadly. When asked, "What keeps you awake at night?" a clear picture emerged, revealing the genuine hurdles and strategic considerations occupying the minds of the region's financial leaders.
What we discovered in these conversations, is that the reality on the ground presents its own set of unique complexities. I am sure many of you have scrolled through LinkedIn and seen the posts relating to the wonderful sunshine, luxury lifestyle and favourable tax regimes, but we wanted to get to the bottom of what the core challenges are here for fund managers based here, with the purpose of supporting them and the growth of the ecosystem here. What we discovered in these conversations, is that the reality on the ground presents its own set of unique complexities.
In Summary - What 40 Fund Managers Told Us:
The region is increasingly becoming a destination for sophisticated investment strategies and innovative financial products, playing a growing role on the global hedge fund and fund manager stage.
The popular narrative of effortless prosperity in the GCC often masks deeper, structural complexities that demand a more nuanced understanding. The multitude of challenges detailed by industry professionals across capital access, operational rigour, regulatory navigation, and talent management reveals a landscape far more intricate than superficial attractiveness suggests. For a region aspiring to global financial leadership, acknowledging and proactively addressing these underlying complexities is paramount. This approach is essential for attracting and retaining the sophisticated, long-term capital and world-class talent necessary for sustained growth, moving beyond a simple appeal to tax benefits or pleasant weather. We have summarised these core challenges into 5 core problem statements:
Challenge 1: Navigating the Capital Maze to Source and Secure Investment
Challenge 2: Achieving Operational Excellence in an Emerging Environment
Challenge 3: Meeting the Regulatory and Governance Imperative
Challenge 4: Addressing the Unsung Talent Shortage
Challenge 5: Aligning with Strategic Investment Priorities in a Transforming Region
Structural Challenges Highlighted:
Investment Challenges Highlighted:
Challenge 1: Navigating the Capital Maze to Source and Secure Investment
GCC fund managers face significant challenges in sourcing and securing appropriate investment, as a structurally imbalanced capital ecosystem, dominated by large players and traditional assets, crowds out smaller funds and necessitates extensive investor education due to the regional LP base's relative immaturity in alternative allocations.
Despite the region's abundant wealth, fund managers struggle to access institutional investors and find "right-fit" capital. The banking sector's bias towards 'key accounts' often overlooks smaller, independent fund managers, limiting access to available liquidity and hindering growth. A recurring issue for independent investors is being "crowded out" by governments and Sovereign Wealth Funds, contributing to a perceived lack of private capital, especially for venture capital. Much existing private wealth, often from family businesses, remains over-indexed in traditional sectors like real estate and energy. This necessitates significant LP education on regional opportunities and newer asset classes, particularly for first-time closed-end structures. The GCC's capital ecosystem exhibits a structural imbalance, favouring large players and traditional assets, creating a "missing middle" for emerging funds. This systemic dynamic, where sovereign funds absorb many opportunities, leaves less room for smaller private funds, potentially limiting economic diversification. To truly mature, the GCC must foster mechanisms to de-risk or incentivise private capital participation in underserved areas through initiatives like co-investment platforms or targeted LP education.
Fund managers also face fundraising bandwidth issues, seeking to compress LP decision timelines and better qualify prospects. The limited universe of willing LPs in the region demands extensive education and compelling cases. This highlights a need for more efficient capital-raising infrastructure and direct LP access. The "allocator lag," coupled with ongoing LP education needs, points to a maturity gap in regional capital deployment. Opportunities can pass before due diligence completes, suggesting the deployment mechanism isn't always agile enough. Moreover, the regional LP base, though wealthy, may not be as sophisticated or diversified in alternative asset allocation as global counterparts. Consequently, GCC fund managers must act as educators and strategic partners, tailoring communication to address specific regional LP concerns like Shari'a compliance, risk appetite, and liquidity, while also necessitating more robust, standardised due diligence processes.
Challenge 2: Achieving Operational Excellence in an Emerging Environment
GCC fund managers face a critical operational maturity gap, marked by outdated systems and cybersecurity vulnerabilities, undermining institutional trust and hindering the region's ambition to be a leading financial hub, particularly given the variable quality
Many GCC fund managers, especially newer entities, operate like start-ups, requiring constant system updates and a broad operational approach to avoid silos. The critical need for digitalisation extends beyond basic AI, demanding a move from outdated, customised systems. A significant concern is cybersecurity; the stark assertion that entities "have been compromised, or don't know they've been compromised" highlights a major education gap and urgent need for robust IT practices. This operational maturity gap, marked by reliance on outdated systems (like the surprising number heavily using Excel) and vulnerability to cyber threats, poses a systemic risk to wealth preservation and institutional credibility. It's a fundamental threat that erodes trust, and makes it increasingly difficult to attract local allocation and investment. For the funds in the GCC to become trusted partners from allocators who are becoming more spphisticated, proactive investment in digital transformation and cybersecurity education across the ecosystem is paramount.
The shift from manual processes is vital. The sheer array of wealth management software complicates selection, creating a demand for clear criteria and integrated solutions covering accounting and automation. Firms actively seek platforms providing comprehensive operational and accounting capabilities.
The quality of service provision in the UAE is a concern, where some solutions, despite potentially lower fees than in Europe and North America, may not always meet expectations. This raises questions about value for money and firms' operational capabilities. While there's a reluctance to switch providers, institutional principles in selection are clearly needed to protect the market's reputation. The GCC's nascent service provider landscape, characterised by a "race to the bottom" on fees and variable quality, presents a critical challenge. Low fees often correlate with lower quality, creating a dilemma for fund managers needing cost-effectiveness alongside institutional-grade support. The region's financial ecosystem maturation hinges on developing a robust, high-quality service provider industry that values expertise and reliability over purely price-driven models.
Challenge 3: Meeting the Regulatory and Governance Imperative
GCC fund managers face the complex challenge of navigating an evolving regulatory landscape that demands "industrial scale" compliance and governance for institutional trust, while also contending with the high costs and varied interpretations of Shari'a compliance for a significant capital pool.
The UAE's regulatory environment is evolving, with rules becoming leaner yet requiring entities to set up with an "industrial scale" and scalable compliance. Navigating the complexities of licensing, particularly the time involved with regulators like the DIFC, and understanding how to benefit from free zone structures for corporate tax and and VAT exemptions, are critical for new entrants. This evolving regulatory landscape demands a proactive, "industrial scale" approach to compliance and governance, moving beyond mere adherence to becoming a strategic differentiator for attracting sophisticated capital. This implies that basic compliance is no longer sufficient; as the market matures, allocators expect a higher level of institutional rigour and transparency. Compliance and governance are transforming from cost centres into competitive advantages. Funds that proactively build robust, scalable frameworks demonstrate foresight and commitment, which directly translates into allocator confidence and a smoother fundraising process.
As Assets Under Management (AUM) grow and assets mature, there is a clear need for businesses to mature their operational and governance practices. This includes clarifying the role of a fund board, ensuring proper board structures (including independent non-executive directors), and having well-prepared data rooms with established policies and procedures. The emphasis is on "getting fit to raise money," demonstrating a commitment to institutional principles that build trust and confidence with allocators. The ability to build trust and confidence with allocators is paramount, as "suitcase selling" is not effective; a physical presence and demonstrable commitment are required.
While a large pool of capital is Shari'a compliant, achieving full compliance can be expensive, with a lack of robust infrastructure providers. The interpretation of Shari'a can vary, leading to complexities in structuring, particularly for issues like charging default interest or changing amortisation structures. This highlights a need for specialised Shari'a advisors and education on converting conventional structures. While Shari'a-compliant capital represents a significant and growing pool, the complexities, costs, and varying interpretations of Shari'a compliance pose a nuanced challenge that requires specialised expertise and targeted education for both fund managers and allocators. There is a clear demand-supply mismatch: significant Shari'a capital exists, but the operational and interpretive hurdles for fund managers to become compliant are substantial. This is not a simple "yes/no" compliance issue; it is a complex area requiring specialised legal and financial structuring. The varying interpretations add a layer of uncertainty, potentially deterring fund managers from pursuing this capital despite its volume. Unlocking this large capital pool requires more than just awareness; it demands practical solutions, expert guidance, and potentially innovative product development that can bridge the gap between conventional and Shari'a-compliant structures.
Challenge 4: Addressing the Unsung Talent Shortage
The burgeoning GCC financial ecosystem faces a critical and often overlooked talent management bottleneck due to limited pools of specialised skills and intense competition, which threatens to hinder sustainable growth, institutionalisation, and the region's ambition to become a global financial hub.
As the GCC's financial ecosystem expands, the competition for world-class talent intensifies. Fund managers report significant attrition and acknowledge the limited pools of specialised skills in the region. The compensation structures in private equity, for instance, differ significantly from venture capital, adding another layer of complexity to attracting and retaining professionals. The burgeoning GCC financial ecosystem faces a critical and often overlooked challenge in talent management, where limited local pools and intense competition risk hindering sustainable growth and institutionalisation. Rapid growth in any sector strains human capital, and if the supply of skilled professionals is limited and competition is high, it directly impacts the ability of funds to scale, execute complex strategies, and maintain operational excellence. This is not just an HR issue; it is a strategic bottleneck. Without a robust and continuously replenished talent pipeline, the region's ambition to become a global financial hub will be constrained.
Beyond attracting senior expertise, there is a growing need to consider the career path for junior professionals in the investment space. This includes developing talent pipelines and supporting the growth of tech builders, particularly as automation and AI become central to operational efficiency. Addressing this requires a multi-pronged approach: investing in local education and training, attracting international talent, fostering competitive compensation and career development paths, and leveraging technology (like AI for automation) to optimise existing human resources. This is a long-term play that underpins all other growth initiatives.
Challenge 5: Aligning with Strategic Investment Priorities in a Transforming Region
While the GCC is transitioning into a sophisticated investment destination with diverse opportunities, fund managers face the challenge of navigating evolving strategic priorities, competitive landscapes (especially in nascent areas like private credit), and the increasing influence of global macroeconomic and geopolitical factors that demand diversified and nuanced allocation strategies.
While a historical bias towards venture capital exists for some, there is a discernible shift towards middle-market buyout strategies, indicating a more diversified portfolio approach. A significant "flavour of the month" is private credit, identified as a crucial financing gap filler (a $500 billion gap) as banks cannot support the entire growth story. This asset class, particularly when structured as Shari'a-compliant, presents a compelling opportunity, though concerns exist about international fund managers mispricing risk due to competition.
The GCC is transitioning from a capital source to a sophisticated investment destination, with a growing appetite for diverse asset classes and innovative structures, particularly in areas aligned with national strategic visions. This is evident in the shift towards more complex financial products and strategies, mirroring global trends. The region is not just accumulating wealth but is actively deploying it into a broader spectrum of opportunities, often with a strategic overlay tied to national diversification goals, such as Vision 2030. This positions the region as a sophisticated player in global capital markets, capable of generating alpha through specialised strategies. This shift creates significant opportunities for international fund managers to partner with regional entities, bringing specialised expertise and accessing new capital pools, implying a growing demand for advanced financial services and advisory capabilities within the region.
The region is a fertile ground for investments in green energy, particularly hydrogen initiatives, and infrastructure mega-projects, including solar farms, battery storage, nuclear facilities, and high-speed rail networks. Beyond these, disruptive technologies across AI, cybersecurity, retail, automotive, supply chain, and food processing are attracting keen interest. Healthcare and education also remain primary investment sectors, alongside a growing focus on sports and entertainment.
The UAE real estate market remains a significant focus, with interest in understanding its growth dynamics, systematic investment approaches, and data-driven insights to assess market health and potential corrections. Tokenisation and fractionalisation of real estate are emerging trends, indicating a move towards digital asset ownership.
Global macroeconomic factors and "tech nationalism" are increasingly shaping investment decisions. Concerns exist about deploying funds in certain industrial spaces and geographies due to government policies, highlighting the need for diversified investment strategies across asset classes, geographies, and industry verticals. The distinction between the UAE (acting as enablers) and Saudi Arabia (where state entities can be unavoidable partners) in terms of state influence is also a key nuance. The rise of "tech nationalism" and geopolitical considerations are fundamentally reshaping investment strategies, forcing fund managers to adopt more diversified and nuanced approaches to geographic and sectoral allocation. Geopolitics is no longer a peripheral concern; it is a direct driver of investment decisions, creating new risks and opportunities. This means fund managers can no longer rely solely on market fundamentals or traditional risk-reward analyses. They must integrate geopolitical intelligence into their due diligence, leading to more complex, diversified portfolios that account for potential policy shifts or international tensions. For the GCC, this could mean both challenges (e.g., if certain tech investments become restricted) and opportunities (e.g., positioning the region as a neutral or alternative hub for tech development and investment).
Charting the Future of GCC Funds
The insights from leading fund managers paint a picture of a GCC financial ecosystem that is rapidly maturing, moving beyond its foundational phase into a period of sophisticated growth. While challenges persist in capital access, operational rigour, regulatory navigation, and talent acquisition, these are recognised and actively being addressed. The region's strategic focus on diversification, mega-projects, and innovative asset classes like private credit and Shari'a-compliant finance underscores its ambition to become a truly global financial powerhouse. The journey from a capital source to a sophisticated investment destination is well underway, marked by a growing appetite for diverse asset classes and innovative structures that align with national strategic visions.
The challenges facing fund managers in the GCC are distinct, yet surmountable. It is precisely to foster this collective progress that the Middle East Investor Network is launching Future Funds. On Wednesday, 10th December, we will convene 100 fund managers for a private gathering, designed for candid discussion and the forging of meaningful solutions, as a community. This is where strategic collaboration meets the region's unique opportunities.
Discover more at www.me-in.com/futurefunds.
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