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While the Middle Eastern asset management industry is widely expected to bloom, it is still embryonic. For this reason, Middle Eastern countries, much as they have done with construction workers, ambulance drivers and pilots, have had to import their fund managers from abroad. But the vast majority of these managers do not come from Australia, the UK or the US, as one might expect, given those countries’ long wealth-management histories. They in fact come from the subcontinent.

“Very few of the people based in the Middle East who come from Europe or the UK are actually fund managers,” says Roberto Demartini, associate director of fund research at S&P Fund Services. “Those guys are mostly on the business development side. Most managers come from India and Pakistan.”

Why India and Pakistan? For one thing, Mr Demartini says, the regions have a number of obvious cultural similarities. They are also quite close geographically, he adds, while Indians and Pakistanis tend to have a strong command of English, the international language of business. But most important perhaps, is the fact fund managers from India and Pakistan are not only good at what they do, they are also good value for money.

“From a financial point of view, India and Pakistan are quite developed,” he says. “In terms of business culture, they are similar to the West. They have stocks exchanges – particularly in India – with a large number of companies. And they have a lot of people who are already trained and highly skilled who can do accounting and manage funds. In a way, it was only natural for the Middle East, with its lack of home-grown talent, to look to India and Pakistan.”

Essentially, the whole of the Middle East runs on subcontinental labour. Why should it be any different when it comes to asset management?

“If you go to Dubai it basically feels like a part of India, so it’s no surprise fund managers from the subcontinent are dominating the market,” says Saurabh Mukherjea, an analyst at Clear Capital. “Basically, if you’re going to run a Middle Eastern fund, would you rather pay giga-bucks to hire some guy from New York, or would you rather pay far less to hire a bright Indian accountant or a bright Indian MBA with capital markets experience in the Indian stock market?”

It should perhaps come as little surprise that Pakistani and Indian fund managers are in such high demand in regions like the Middle East – not to mention Mauritius, a very large offshore money-management centre, and to an increasing extent, Singapore and Hong Kong – when one considers the meteoric rise of the subcontinent’s mutual-fund industries.

Take Pakistan, for example. The mutual fund industry, which suffers from poor distribution, a heavy reliance on institutional money and a general lack of product innovation, is still relatively small and underdeveloped when compared with those in Australia, the UK and the US. Yet, a number of recent changes to fiscal policy have boosted investors’ confidence, and as a consequence, the industry is growing very quickly.

Only six years ago, there were only two companies running money – the National Investment Trust, which represents the public sector, and Abamco, which offered only one fund at the time. Today, there are roughly 35 asset management companies that together manage more than 80 funds – 67 open-ended funds with 334bn Pakistan rupees (£2.5bn) of assets under management and 18 closed-end funds with 53bn rupees of assets under management.

In 2007, the overall mutual funds industry grew from 159.2bn rupees to more than 299bn rupees, and in February of this year and AUM surged by 8.5 per cent month-on-month to more than 387bn rupees. Experts are now predicting the industry will break the 400bn-rupee mark by the end of this year.

But Pakistan, for all its potential, is largely a secondary story here. The situation in India – where private companies were first allowed to enter the asset management industry only in 1993 – is even more impressive. Since the government launched a wide-ranging campaign in 2003 to get the relatively conservative middle class to consider higher-risk investments, the industry has boomed.

According to the Association of Mutual Funds in India, the mutual fund industry’s total AUM has grown by more than 772 per cent over the period from 2004-07. In 2008, it grew by 67 per cent year-on-year to 5.4trn India rupees (£63.9bn) and more than 40m accounts. And in February, the combined AUM of the 33 fund houses currently running money in India increased from 5.48trn rupees to 5.65trn rupees.

According to a recent report by consulting firm McKinsey & Co, total AUM for India’s asset management industry is set to grow by 33 per cent a year to 18.7bn rupees by 2012, outstripping growth in the UK and the US by far. The report also found operating profits for asset management firms in India, as a percentage of average AUM, came to 32bps in 2006-07. By comparison, profits in the UK came to 12bps and, in the US, 18bps over the same period.

The report goes on to predict robust economic growth, rising incomes and increasing demand for wealth management services will generate considerable interest from the international investment community. McKinsey & Co says it expects a sharp increase in owned-presence and distribution tie-ups with players in Hong Kong, Japan, Singapore, the UK and the US.

Another report, produced by US-based research house Cerulli Associates, is no less sanguine. Cerulli predicts due to the maturity of India’s financial markets and distribution systems, the asset-management industry will more than double over the next five years, which would make it one of the fastest growing in the world. The report estimates 18 per cent compound annual growth over the period, and Cerulli anticipates the number of players in the industry will soon rise from 33 to 50.

As far as Mr Mukherjea is concerned, all the ingredients are in place for a long-term boom.

“India’s economic growth has been at 8 per cent year after year for more than five or six years now, and savings rates have gone up to more than 40 per cent of income,” he says. “Alongside that, you have a stock market that has been growing at an astonishing rate for more than five years. As a result, investable assets under management have been growing by roughly 50 per cent over the last four or five years.”

In light of numbers like these, it is no surprise that pretty much every domestic conglomerate of any size and every global fund manager of any significance has either set up shop in India or is planning to do so in the near future. Asset management is in India’s blood.

“The stock market here,” Mr Mukherjea says, “is almost 200 years old. No other market in the world has more listed companies. There are a half dozen TV channels dedicated exclusively to the stock market. It’s an integral part of Indian culture to think about stocks, to talk about stocks, to discuss stocks at the dinner table the way people in London discuss house prices. It’s a part of people’s lives.”

Jim Robinson is deputy features editor at Investment Adviser