Jamal Al-Naif, managing director of Credit Suisse Asset Management's Dubai branch, talks about rebuilding trust after the financial crisis, investing in Middle East private equity, and the advantages of being nimble.
What are the priorities of investors in this region?
From the end of 2008 until today, we have seen both international markets and investors gradually returning to some degree of normality. However, along the way, investor appetite varied greatly. The larger, more sophisticated organisations took advantage of weaknesses in some sectors and were successful in executing large, one-off-type transactions and generally made very high returns while others totally backed off and considered capital preservation as their top priority. If you’re looking for a more consistent theme, I would say the due diligence process is substantially more rigorous, fees are under pressure and commingled structures with the larger investors have fallen out of favour.
After the crisis, was there a period of re-establishing trust with the end investor?
If you were a large asset manager across various asset classes and strategies, chances are you had, at the very least, a few of them taking a heavy hit. It really didn’t matter how good you were as the wheels came off pretty much everything. Of course, the irony was the bigger you were or the more money you were managing for clients, the more likely it was that you lost money for those clients and alternative investments were by far the worst hit.
If someone gave you 100 and you returned zero – zero as in zero capital, not zero return – you’re going to have to do a lot more confidence buildingWe’re fortunate in the sense that, at the outset of the crisis we weren’t managing that much money from this region and where we were, it was generally in long-only structures such as equities and fixed income. While equity markets did take a big hit, the losses were manageable so we had no real fires to put out.
Has the risk appetite changed in the last 18 months?
Of course, it has to, because the returns are simply not there unless you start thinking about going illiquid again. The more liquid opportunities that presented themselves at the height of the crisis, most of which were in the credit vertical, have all but disappeared. A few of our clients in this region managed to capitalise, but most of them missed it. At the time, these were seen as high risk trades and therefore the majority of investors steered clear, although I have to also say most of them knew they were passing on a massive opportunity.
Most investors hate violent market movements so as markets continue to settle, we find more and more of them willing to consider taking more risk even though return expectations continue to drift lower, from their post-crisis highs, on most asset classes.
Is private equity a popular investment vehicle?
The short answer is yes. It is a popular asset class but the market has witnessed major changes over the last three years. The largest and most sophisticated investors in this region felt they had to do more direct deals in order to capitalise on market weakness as most funds were pressured by limited partnerships to slow or even suspend calling undrawn commitments. At the same time, new managers emerged, raised money and capitalised on the lower valuations but this saw limited participation from Mena investors. Today, we are seeing most of the large and well-known buy-out managers coming back to raise money for their next instalment. Demand is somewhat sporadic but we see that picking up as markets and valuations settle down.
Regional private equity is a different story. It’s a sector that was growing with money being allocated from both regional and international investors, prior to the credit crunch. Valuations are attractive in a region that has such a huge need for infrastructure over the coming years, therefore the story was a good one.
However, like their international counterparts, regional funds struggled to raise capital post crisis. The larger investors were being offered deals directly, mostly in the form of co-investments, and they took them. This is not to say the regional private equity fund market closed down – far from it. It just did not grow in the last three years but I strongly believe it will resume that growth as confidence starts to creep back. In order to achieve sustained growth in the private equity sector, you need the public equity markets to perform well too and that just has not happened in the last few years. But valuations in both private and public markets remain very attractive versus their international counterparts.
Are there challenges running Credit Suisse’s business in Dubai?
There are, of course, some challenges. The main one being we are very far away from the investment centres that manage our clients’ money. Some of those are based in Europe but most are in North America where we have a big time difference. We have to be here for our clients who start early and for our investment centres, some of which start working as our day should be ending, so our days are sometimes very long.
Are there advantages to working in the region?
Yes, there are, and the advantages easily outweigh the disadvantages. If I need to, and I often do, I can be in Abu Dhabi in under 90 minutes and with clients in Doha, Riyadh, Kuwait, Manama, Muscat, Amman, Beirut, Cairo and so on, on half a day’s notice at the most. In good times and in bad, face-to-face interaction with investors is key.
Also, in a small region you find interaction between businesses works much better than larger regions. My team works closely with their counterparts in investment banking and private banking and that has resulted in joint deals, some of them very substantial.
What next for Credit Suisse?
We have done extremely well in getting in front of our clients and pitching our product capabilities and I can honestly say, we have access, at the appropriate level, to every institutional client we want to have access to in this region. That does not mean we have solutions for every client, of course. I always look for the growth areas so we will maintain our strong focus on the sovereign wealth fund sector as we continue to see surplus funds channelled in their direction.
That said, in a young region like ours where we have strong population growth, the pension fund sector - which is currently strongly backed by regional governments - will also experience strong growth and will have increased needs for asset management solutions. So we will do our best to provide the firm’s substantial resources and expertise to support this sector across the entire region.
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