The Middle East is hotter than ever in the hedge fund world

• This year, hedge funds based in the Middle East have performed well.
• Big-name funds are establishing outposts in various regions in search of a competitive advantage.
• “There’s a perception that the United States is overcrowded,” said a recruiter.

One of the hottest hedge fund markets is also one of the hottest places on the planet in terms of temperature.

The Middle East, particularly Dubai, has recently become a magnet for hedge funds, with firms such as Millennium and ExodusPoint establishing outposts and Bridgewater founder Ray Dalio purchasing a penthouse there.

There are numerous reasons why investment talent is flocking to the region. Portfolio managers previously based in Europe or Singapore will find that locations such as Dubai provide both a personal tax haven and a fertile investment environment. For founders, proximity to some of the world’s largest institutional investors is a major selling point. And those on the ground in the Middle East — as well as those investing in the region — have performed admirably.

According to HSBC’s Hedge Weekly report, Dubai-based Waha Capital’s $865 million MENA Equity fund, which invests in equities in the region and northern Africa, is up 14.8% through the end of October.

This year, Aventicum, a joint venture between Credit Suisse and Qatar’s sovereign wealth fund based in Doha, has achieved a 13.9% return on its MENA strategy. Both funds did not respond to requests for comment.

Dubai-based Carl Tohme manages Cheyne Capital’s EMEA Long Short Equity fund, which has returned 11% through November 10, according to the report.

Tohme credited the region’s growth to business reforms such as shifting the traditional weekend in Dubai from Friday to Saturday to Saturday and Sunday.

“Historically, MENA markets have followed oil prices. However, we believe that things have begun to change in the last five years as the region, particularly the UAE and Saudi Arabia, has embarked on ambitious reform agendas ranging from infrastructure investments to unprecedented societal changes,” Tohme said in an email. “We believe these reforms are the foundation of what we see as a structural investment opportunity.”

Recruiters in the region and elsewhere describe a hectic scene when it comes to attracting top talent in the region. According to Chris Schwuchow of Selby Jennings, “there’s a stigma that the US is crowded.”

Because of their volatile economies and politics, emerging markets are in and out of favor with cautious institutions, but a strong year for various commodities, including oil prices, as well as a slowdown in larger developed countries, has funds looking to new markets. Cubist, Point72’s quant unit, BlueCrest, and London-based Brevan Howard have all added talent in the Gulf.

It’s not just the Middle East. Schwuchow mentioned South Africa, Brazil, and Southeast Asia as potential expansion markets.

Sagil Capital, a London-based Latin American specialist, has reaped the benefits of its knowledge: its Latin American Opportunities fund is up 10.8% this year. Enko Capital’s Africa Debt fund, which has offices in London, Johannesburg, Mauritius, and Côte d’Ivoire, has returned 12.7%.

According to PivotalPath, the two firms have outperformed the average hedge fund, which has returned 3.6% this year through October. The S&P 500 was up slightly less than 10% during the same period, but a strong November has pushed its yearly performance to nearly 20% as of Monday.