July 2010

UAE: Interests overseas

beachEmirate asset managers are still on track for expansion despite the financial shock caused by Dubai World in November last year. Nick Fitzpatrick talks to five money managers, starting with ADIC Investment Management, and Emirates NBD, who are focusing on winning clients beyond the Gulf.

If the United Arab Emirates (UAE) had glided unscathed through the financial crisis it would have been a much more meaningful publicity coup than all the glamour that world-famous sports stars have brought it in recent years with their appearance in property and holiday commercials. But Dubai World, the investment company behind major real estate projects in the emirate of Dubai, inevitably created just the wrong image when it floundered last year.

While Asian markets were being lauded for their sensible use of leverage that had shielded them from the worst of the economic downturn, the Dubai World conglomerate’s request for a moratorium on the payment of €3.5bn of debt shook markets, causing equities to plunge and the US dollar and gold to rise.

For many UAE asset managers the episode depressed assets under management. Money left bank shares and funds as investors worried about the exposure of financial institutions to real estate.

Yet the financial shock has done little to stifle the expansion plans of Gulf asset managers that Funds Global spoke to. Their plans include to not only make the product offering in the Gulf more sophisticated, but also to penetrate international markets with a strong Middle East & North Africa (Mena) fund story.

For asset managers, the Middle East investment case, which includes investment in the Gulf Cooperation Council (GCC) states such as the UAE, still holds true despite the Dubai World episode.

“The idea that whole countries are bust is simply not the case,” says one chief investment officer.

Looked at sympathetically, the UAE and the rest of the Gulf’s recent financial experience was simply part of a learning curve for a robust frontier capital market that will bounce back in no time.

Weathering the storm
One of the firms looking to put the ravages of Dubai World behind it and move on with regional and foreign expansion is The National Investor (TNI), a privately held investment and advisory firm in Abu Dhabi.

Walid El Hayeck, director, asset management, at TNI, says: “We have weathered the storm and survived the crisis with no harm to our reputation and we are financially stable.

“Our balance sheet size is $260m [€211.6m], mainly financed by equity with a very limited leverage.”

TNI was established in 1994 as a regional merchant bank. In 2005 it became an integrated investment banking and investment management institution. Today, its asset management business has matured, says El Hayeck, and “we are one of the leading regional fund managers with an institutional client base”.

TNI had to recapitalise the asset management business and launch new products to boost revenue growth following the financial crisis, El Hayeck says. The business is now seeding a new Mena
equity long-only fund with $30m from its balance sheet.

This Mena fund follows a number of TNI fund launches centred on the region in recent years. TNI launched its UAE Blue Chip Fund, an equity product, in May 2005, which now has around $30m under management. The Mena Real Estate Active Fund, launched in August 2005, has around $15m under management.

“Real estate was a major driver of growth in the region and with MSCI we created a Mena real estate equities index. Both funds have outperformed their benchmarks,” says Hayeck.

The firm also launched the TNI Mena Special Situations Fund 18 months ago, fully seeded by TNI. The fund is an absolute return product, has circa $10m under management and is up 16% since inception in August 2008.

“Those AUM figures were double before the crisis,” he says, but also adds that TNI has circa $30m in discretionary mandates.

Between 70-80% of TNI’s clients are in the GCC and within that, mainly the UAE. Institutions comprise 40% of the client base.

Global ambitions
“We want to change the ratio of international to domestic clients to half and half and ultimately an 80% foreign contribution. There is a big base in Europe to be tapped,” says Hayeck.

As part of this ambition, TNI has launched a fund umbrella in Dublin under Ucits III rules, with Citi as custodian, Apex as administrator and Mayson Hayes and Curran as legal advisors. The sub-funds launched under this umbrella will also be listed on the Irish Stock Exchange.

“This represents a new generation of Mena funds. We chose Ireland as a domicile because of its global recognition as a highly regulated domicile and because it is more Anglo Saxon than Luxembourg, and because we deal with the US.”

The long-only Mena fund, which has full access to the Mena region with Saudi exposure capped at 40%, will come under this umbrella.

“We have put a gap between ourselves and our competitors in terms of domicile and structure,” adds Hayeck.

There is a similar thinking at ADIC Investment Management. ADIC, also based in Abu Dhabi, is part of Invest AD, which has been established longer than TNI – since 1977 – and has shown that Gulf managers are capable of managing money for non-Gulf clients that invest in Mena markets. It sub-advises an emerging Arabia fund for Germany’s BHF Bank and recently entered a similar partnership with Hong Kong-based Quam, which is launching a Middle East fund targeted at Asian investors.

Mohammed Salih Al Hashemi, head of asset management at the firm, says: “A differentiating factor for us is that, whereas some managers have their asset management and fund administration in the same house, we outsource [fund administration]. This avoids a conflict of interest. You cannot be the asset manager and the person who calculates the NAV.

“Because we are owned by the government of Abu Dhabi we cannot do anything that might bring them into disrepute.”

For much of the last 33 years Invest AD invested money for the government of Abu Dhabi. It acts in Middle Eastern and African listed and private equity markets, and real estate.

Diversification
Three and a half years ago Invest AD opened up to managing money for third-party clients beyond its government base and manages now for other institutions, family offices and high-net-worth individuals (HNWIs).

ADIC has a funds business, a sub-advisory business and a segregated accounts business.

Over the last few months ADIC has launched four funds for third-party clients.

Its funds include a UAE Total Return Fund, a GCC Focus Fund and a Mena Dynamic Fund. The GCC fund had $22.56m of assets at end May 2010, a decrease of over 11% from the month before, indicating that the Gulf is still a volatile world.

The firm does not disclose assets under management but said its fund management business manages and has committed funds totalling “several hundreds of millions of dollars”.

Into Africa
One fund, the Emerging Africa Fund, which ADIC launched in April 2009, had $36.22m of funds under management at 31 May 2010.

“There is a lot of investor interest in Africa,” says Al Hashemi. “We particularly detected interest in Africa from Beijing and Singapore. Investors there want exposure through agriculture and listed equities.”

The returns of Brics markets are lower than Mena this year, notes Al Hashemi. “We found that investors in Asia felt China had run its course and they want the next thing now. Africa holds a lot of promise.” ADIC is clearly actively working outside of the Middle East already, and its government calling card is invaluable. Closer to home, though, it is also having to cope with a local populace that has been hurt by the financial crisis.

Al Hashemi says: “HNWIs in the region have suffered to an extent. Some would have had a big exposure to real estate in Dubai. But we are sub-advising a local Islamic bank that is very optimistic about the future of asset flows.”

However, he adds: “There are a lot of investors dissatisfied at the management of their money. They know they need to be more discerning about who they select. A lot of them gave money to their banks out of loyalty. This will change and it is playing to our advantage.”

These houses may be small by international standards, but as local investors become more discerning in their choice of money managers, and if foreign investors come to appreciate the Gulf and wider Mena region as a growth story to complement Asia, Gulf managers could well follow Asian asset managers out of their homelands to establish themselves as international brands too.

©2010 funds global

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