A raft of fund launches focused on the Mena region and managing money to strict EU rules could attract institutional investors and improve liquidity, transparency and, ultimately, returns, said an expert.

With interest in more regulated products from sovereign wealth funds, pension funds and other institutions, the hope is this will boost the chances of some Mena markets reclassifying as emerging, leading to further foreign investment once they enter mainstream indexes, said Ghadir Abu Leil-Cooper, who manages the Mena fund of Baring, the top addet management fund.

'By being early, as these markets develop investors can take advantage of that, because the deeper and more transparent a market, the higher the valuations they can command,' Leil-Cooper was quoted as saying in our sister publication, the Gulf Daily News.

Early birds investing in frontier markets did so out of the expectation they would become more institutionalised and more open, she said.

Yazan Abdeen, manager of the ING Invest Mena fund, agreed: 'The participation of (institutional) investors will improve liquidity and reduce volatility - this will help the markets reclassify as emerging markets.'

Since March this year asset managers based in the Mena region have been launching EU-regulated Ucits III funds whilst global managers have dusted off Mena launches that have been on the backburner since the financial crisis.

Ucits III is the EU's framework for funds that can be sold across borders. It is seen as a robust structure, with funds providing daily liquidity and being managed to strict concentration limits.

Abu Dhabi's The National Investor (TNI) has just launched its first Ucits III Mena fund, while Barings has launched a fund focused primarily on Egypt, the UAE, Qatar and Turkey. Other recent launches include a Northern Africa fund from Swiss & Global and IP Concept Fund Management's Silk Arab Falcons fund, both Luxembourg-domiciled.

EFG Hermes, which has a good investment record in the Mena region, has no Ucits III funds at present, but a spokeswoman said the company was looking into it. 'We are seeing a lot of interest from investors,' she said.

Kashif Zia, head of sales and client relations at TNI, said the aim of its launch was to target institutions, primarily in Europe: 'Given current market conditions, fund-raising is difficult but certain products, like Ucits, are attractive.

Institutions are putting more emphasis on having a robust corporate governance framework and risk management.'

Ucits III sets certain restrictions on fund managers that locally-domiciled funds can ignore. But investors have been worried by the shallow, sometimes illiquid markets of the Mena region.

The market cap is estimated at $842.5 billion across 13 stock markets but foreign ownership restrictions limit access.

According to data from Thomson Reuters fund research firm Lipper, funds in the Mena equity category accounted for about $2 billion in assets as of end-July. – TradeArabia News Service