Saudi Arabia management growth: AUM set for rapid expansion driven by regulatory reforms and strong demand for Islamic finance products

Saudi Arabia’s asset management industry is poised to surpass $300 billion in assets under management (AUM) within the next two years, according to a report by Fitch Ratings. This projection is anchored in the Kingdom’s robust financial reforms, Vision 2030’s Financial Sector Development Program, and the continued expansion of its equity and debt markets.

As of mid-2024, AUM in Saudi Arabia had already grown by 13.5% year-on-year, reaching over $250 billion. The asset management industry in the Kingdom is the largest in the Gulf Cooperation Council (GCC) region and ranks fifth globally among the Organisation of Islamic Cooperation (OIC) member states. Furthermore, Saudi Arabia stands as the world’s second-largest market for public Islamic funds, with shariah-compliant products making up approximately 95% of mutual funds.

Bashar Al-Natoor, global head of Islamic finance at Fitch Ratings, highlighted the continued appeal of Islamic finance in the region. He commented, “We expect Saudi Arabian AUM to cross $300 billion within a couple of years, driven by strong demand for shariah-compliant products and Vision 2030’s reforms aimed at enhancing the financial sector’s growth.”

Private funds in Saudi Arabia have also seen remarkable progress, with their AUM doubling since 2020. As of mid-2024, private funds accounted for three times the size of public funds, with 43% of these funds allocated to equities and 40.5% to the real estate sector. Public funds, meanwhile, have allocated 28% to money markets, followed by equities at 25.6%, Real Estate Investment Trusts (REITs) at 18.7%, and debt instruments at 16%.

Fitch’s report also highlighted the competitive landscape of Saudi Arabia’s asset management industry. While local, bank-affiliated managers currently control around 63% of industry revenues, international managers are increasingly entering the market as the government continues to attract foreign investment.

In addition to the growth of private funds, the performance of Saudi Arabia’s capital markets has also contributed to the broader expansion of the industry. The net income of capital market institutions rose by 29% year-on-year to reach $1.1 billion in the first half of 2024. IPOs and the improved performance of the Tadawul All Share Index have further enhanced equity funds’ attractiveness to both local and international investors.

The Kingdom’s focus on developing its financial sector is also evident in the growing revenues from asset management activities. In April 2024, Abdullah bin Ghannam, deputy for listed companies and investment products at Saudi Arabia’s Capital Market Authority, revealed that capital market institutions saw a 58.6% rise in asset management activity revenues over the last four years, reaching $1.12 billion in 2023.

Saudi Arabia’s strategic reforms and expanding capital markets have positioned its asset management industry as a significant player in the region, set for continued growth. The combination of Islamic finance’s dominance, a burgeoning real estate market, and a solid regulatory framework continues to attract both domestic and international capital. With its sights set on surpassing $300 billion in assets under management, the Kingdom is steadily establishing itself as a leading financial hub in the Middle East.