Funds Global talks to Emad Mansour of QFIB about the bank's plans to bring some much needed variety to the sharia funds market through its partnership with Gulfmena.
Qatar First Investment Bank (QFIB) is the first independent, sharia-compliant investment bank to be based in Qatar. It was awarded a licence by the Qatar Financial Centre Authority (QFCA) in August 2008 and has 1,200 shareholders and assets of more than $430m (€297m).
It is a pure-play investment bank with three main areas of interest – corporate finance; direct investments; and asset management. “Asset management is an integral part of the investment banking model,” says Emad Mansour, chief executive at QFIB. “This is why we have established a sharia-compliant asset management firm that will operate within the QFCA.”
But given that QFIB is a new bank and does not have an established track record in asset management, it has partnered with another firm (Dubai-based Gulfmena Alternative Investment) to set up Tebyan. “What we bring is sharia structuring know-how, while our partners bring a track record in asset management. It was a synergy we had to have.”
The first fund to be launched by Tebyan will be a sharia-compliant equities fund aimed at China, India and the Middle East. “We are targeting this area because we see it as being full of potential growth and we also believe this will be the first sharia-compliant fund to be launched based on equities in these markets.”
The fund will primarily target high net worth individuals as well as institutional investors and with a minimum investment requirement of $100,000. “We see no reason to limit the number of investors by raising the entry level,” says Mansour.
Tebyan intends to come up with a series of products to satisfy a variety of demands within the sharia asset management market, a market that Mansour believes has been poorly served thus far. “For example, private equity as an asset class is not for everyone, not least because of the high entry level (around $1m). And you won’t get any decent returns from real estate unless you invest directly. That just leaves the equities asset class for those investors who don’t have very deep pockets.”
There is also a lack of access to international markets when it comes to sharia funds, says Mansour. “The weakness of the sharia funds market is the lack of variety. Investors have to travel far to get exposure to different markets. So for a Qatari-based investor, for instance, looking to find a sharia-compliant fund focused on blue chip equities in the EU, for example, will be wasting his time as the product simply does not exist. The sharia-compliant asset management market has not yet penetrated beyond Mena [Middle East and North Africa] equities, which presents a market opportunity for us.”
This decade will be known as the decade of emerging markets because there is still a lot of growth to be captured in those markets. In Europe, growth is stifled because it is mainly driven by exports and technology, both of which are losing steam. But the emerging markets are driven mainly by demographic factors and there is still massive demand for services and products as more of their populations become consumers.
Tebyan will only provide sharia-compliant asset management products and services, and Mansour says that these plans will not be affected by the recent change in regulation from the Qatari Central Bank. “I am not sure how the market will change as a result of these changes. Essentially it means that banks cannot dabble in both markets (the sharia-compliant and the conventional). Banking assets with those banks that are now banned from sharia banking will not disappear, says Mansour but “will just move somewhere else”.
As the Tebyan venture grows, Mansour hopes that the fund managers involved will be Qataris based in the country but currently it is not so easy to find Qatari fund managers who are experienced in covering the Mena region. But he hopes that as this industry develops and the various education initiatives continue, there will be a growing appreciation of the industry and a greater understanding of the importance and the rewarding nature of the fund manager’s role by young Qatari’s.
The MSCI status upgrade for Qatar from “frontier” to “emerging” will encourage more interest although it is not certain whether this interest will turn into solid investment. “This decade will be known as the emerging market decade and with Tebyan we want to capture the trends of the next few years through sharia compliance. As the market grows, we can cover the Mena region from Doha. The Chime fund is already subcontracted to a Hong Kong manager for the China part of the fund. We also have an in-house fund manager that will focus on India and then the Mena part will be managed by our Mena specialists.”
But Mansour is aware that “emerging markets” is a very broad term that can relate to a whole host of different markets. And investors may be somewhat wary of having anything to do with the Middle East right now. The civil unrest that has emerged in varying degrees across the region in Egypt, Bahrain, Syria and Libya will have created some short-term wariness among investors but Mansour is confident that the developments will prove to be positive for the Mena region in the medium to long term.
“From an economic perspective, what is happening is good news. So much economic potential has been blocked by politics and now it can be set free. It will take time for those countries to stabilise, and we are optimistic that they will. I expect Western institutional investors such as endowments and pension funds in the EU or the US to seriously look at deploying investment capital in the Mena region in the medium term.”
Developments in Qatar’s financial services industry are helping to attract the interest of international investors and managers, says Mansour. “There are professional checks and balances within the regulatory framework that should give confidence to investors on the way in which their funds are being handled and invested. The QFC is very forward thinking and proactive. They walk you through the setting-up process. We have worked with several jurisdictions in the GCC and the QFC was a breath of fresh air. This approach was especially helpful to us because we were starting from a blank sheet and did not have a parent bank to rely on yet we still had funds invested from more than 1,200 shareholders to look after.”
While the QFC Authority has been successful in setting up a streamlined registration process and supportive infrastructure, developing an active and liquid securities market has proved more elusive, as it has for all the domiciles in the Mena market. For example, the Qatar exchange has a highly advanced technology platform and the backing of NYSE Euronext but is still struggling to attract meaningful liquidity. “This part of the world will always be a net exporter of capital and the Mena economies (collectively) are not large enough, yet, to absorb all the wealth that is being generated here,” says Mansour.
“There is room to improve the depth of the markets but unfortunately that is not a decision the exchange can take, it can only put efficient listing and trading structures in place to attract and encourage listings, but it is private companies and family owned businesses that need to make the choice of to list or not to list.”
The potential catalyst for a thriving capital markets in the GCC region is a single currency, says Mansour. “Once there is a single currency, consolidation in the capital markets will be inevitable and the formation of a single exchange that will be deep and liquid will not only attract international institutional investors but such a market will, more importantly, allow them the opportunity to liquidate and exit investment or trading position at will.”
Mansour is aware that there is some scepticism as to how much willingness there is in a convergent Mena or GCC market but he likens the situation to what we have seen on the streets of Tunisia, Egypt and Libya. “You cannot deny reality, it will happen through the forces of nature and the biggest force will be the single currency. Saudi Arabia will be the biggest driver and there could be issues around the loss of sovereignty when it comes to regulating an overall encompassing capital market but, in the long run, convergence of capital markets will become inevitable. Once there is a single currency, the regional asset management industry will have a place on the world stage, regulation will be of international standard and the markets will become more attractive as they become deeper and more liquid.
But should the Middle East become one converged market, how will Qatar be able to differentiate itself from its neighbours, particularly Saudi Arabia which is by far the biggest market and Dubai which has been promoting itself internationally for much longer? It is important to note, says Mansour, that international fund managers looking to establish a presence in the region actually have a choice, but how do you get them to pick Doha?
“You can have incentive packages structured around tax holidays, for example, and you can also promote a comfortable lifestyle for those professionals that will be relocated here by their employers. But the big challenge is how to kick-start the whole thing. The challenge for the QFCA is that a lot of fund managers have already set up their base in Dubai because five years ago there was only one destination of choice. Now that these fund managers have established their livelihoods in Dubai, bought property, put their children through school there, it will be a challenge to get to them to relocate.”
But there are actions that Qatar can take to overcome the first mover advantage of places like Dubai, such as the offer of seed capital or free office space for a year or two for instance or some other incentive package that would attract fund managers. “If you are last to market, you have to create your own competitive advantage. The offer of seed capital could at least put Qatar on a list of possible choices for fund management firms and perhaps those that are already set up in other domiciles, Bahrain or Dubai in particular, might be induced to make a move.”
The offer of seed capital and similar initiatives can be seen as simply throwing money at the problem – an accusation that is often levelled at the Middle East – but Mansour says that the QFC Authority should not be ashamed of such a strategy. “Tax holidays, development loans and subsidies of various natures are all incentives that have been used elsewhere in the world to ignite the economy and generate critical mass in certain industries.
“Such incentives can be structured so that you will only qualify if you bring a certain level of resources and know-how to the area, such as the fund management expertise or even the whole operations and not just a satellite sales office. In time, as the fund management infrastructure develops, and as the asset management industry develops, firms will want to be here in Doha to take advantage of world-class services and facilities that are offered by the city.”
©2011 funds global