The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
The Mena fund will be launched next month in collaboration with Dubai-based Algebra Capital, the investment advisor for the portfolio. The fund will be a long-only absolute return fund targeting high-net-worth individuals across Asia-Pacific. The roadshow for the fund, which starts investing on August 21, kicked off in Hong Kong last week.
Demand for Mena investments has risen because of the regionÆs rapidly growing economy and low correlation to other traditional equity markets such as the US, Europe and even Asia-Pacific. The regionÆs biggest draw are the oil-rich countries of the Gulf Cooperation Council (GCC) û comprised of Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates û where surpluses from oil receipts have been feeding economic growth and development for many years.
The fund, which is expected to start investing in August 21, has a minimum subscription of $100,000. The fund will be made available to professional investors on a private placement basis. Demand is expected to come mainly from private banks, family offices, and high-net-worth clients. The subscription fee is up to 5%, depending on the investment amount, and the annual management fee is 1%.
Unlike the Franklin Mena Fund recently launched by Franklin Templeton Investments (Asia) û which is also sub-advised by Algebra Capital û this fund is not a Sicav, Ucits III-compliant fund and isnÆt bound by the corresponding regulatory restrictions. It will also have more access to the Saudi Arabia market, which makes up nearly half the market capitalisation of the Mena region.
Daniel Smaller, Dubai-based managing director for sales and distribution at Algebra Capital, says the SHK Financial Mena fund will have a more concentrated portfolio of around 25 to 30 stocks (compared with 40 to 60 stocks for the Franklin Mena Fund).
ôThe difference with having a more concentrated fund is your bets are bigger and fewer,ö says Smaller. ôIf youÆre right, it will have a greater impact. If youÆre wrong, it will also have a greater impact.ö
The fund is expected to be heavily invested in the UAE (35%), Saudi Arabia (31%) and Qatar (12%).
The UAE is trading at a price-to-earnings ratio of about 9.5 times forecast earnings for 2009. The marketÆs earnings growth is estimated at around 25% to 30% for 2009. It has been reported that the UAE balances its budget when the price of oil is around $40 per barrel. Its GDP is expected to grow more than 7% next year. Its expatriate population is growing by 7% to 8% per year.
Saudi Arabia is the largest market in the region. It benefits from a strong government spending programme. It is trading at a discount, with a P/E ratio of around 12.5 times 2009 earnings. Earnings growth is expected to come in at 30% to 35% next year. It is looking to increase its infrastructure development spending by 50%.
Qatar, meanwhile, is experiencing strong economic growth while also trading at attractive share price valuations.
The fundÆs top three sector holdings are expected to be real estate (27%), chemicals (14%), and banks (13%), the largest sectors in the Mena region.
Like any other market, there are risks involved in investing in the Mena region. Smaller says the underlying cash flows of the companies that Algebra invests in is one such risk.
ôThe way to mitigate that is to know everything that we can about the companies we invest in, spend as much time as we can with management at their location, and try to spend time with a full circle around the firm in terms of their accountants, their auditors, their suppliers,ö Smaller says.
Some other risks include politics and inflation, ôwhich we cannot controlö, says Smaller.
ôThe way we combat inflation in our portfolio is by investing only in companies that can pass on price increases to the consumer so that margins donÆt get squeezed,ö he says. ôWe also donÆt invest in countries where we think there is a political or currency risk.ö
This fund launch is in effect the next instalment in SHK FinancialÆs Middle East strategy. In November last year, the company signed a strategic alliance with Dubai Investment Group (Dig) and it is working towards launching an operation in Dubai before the end of this year. That would make SHK Financial the first local non-bank financial institution to have a Middle East presence.
In line with SHK FinancialÆs strategy of broadening its capital base and gaining access to new global pools of capital seeking investment opportunities in Greater China, it entered into its strategic partnership with Dig through the placement of 166 million shares to its investment arm, Dubai Ventures.
That partnership, which raised HK$1.9 billion ($243.6 million) for SHK Financial, has provided the firm with new capital to expand its interests in Greater China, and has given Dig a ôlistening postö in this part of the world.
Hong Kong-listed SHK Financial has more than HK$60 billion ($7.7 million) in assets under management, custody, and advice. Its core areas of focus include wealth management and brokerage, asset management, corporate finance, consumer finance as well as principal investments.
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