The Middle East may be the next hot spot for hedge funds.
In Deutsche Bank’s annual Alternative Investment survey, which polled more than 1,000 investors with a whopping $1trn in total hedge fund industry assets, close to 50% of fund managers surveyed were bullish on the Middle East markets, and no firm surveyed said that it was planning to reduce its exposure to the region.
Indeed, 32% are planning to increase their exposure to the reason, while 12% surveyed indicated they plan to maintain current exposure levels.
“The results are a clear indication that global hedge fund investors are extremely bullish on the region,” said Penry Jackson, managing director-global markets at Deutsche Bank. “The Middle East is viewed differently from other emerging markets by investors, largely because it is nascent, holds tremendous potential, with very attractive company valuations. While some emerging markets might have peaked, the Middle East is seen as not having realized its full potential yet. We would expect to see many of the traditional barriers to entry in these markets being lowered in the medium term to enable further growth.”
The Middle East/North Africa is a new listing on the survey for 2008.
There seems to be just one tiny fact that these bullish investors aren’t taking into account. The Middle East is not exactly the most stable region of the world. It is a hot spot for potential wars and terrorist activities.
The study said nothing about hedge funds perhaps putting some kind of risk premium on their investments in that region. Indeed, how can one accurately measure the real risk of investing in that part of the world?
One hedge fund manager recently told me that his fund would not invest in the Middle East because his wife wouldn’t let him travel to that part of the world.
I wonder what the costs of insurance will be for executives traveling to the Middle East to visit potential investments.
Hedge fund managers are known for their propensity for risk. Seeking to invest in the Middle East sure backs that up.