Dubai International Capital and Istithmar: Dubai flexes its buying muscle
Dubai World's Istithmar: The new kid on the block
Dubai Holding contains a number of financial and investment groups that seem to overlap. Capita Investment Group, Dubai Investment Group (DIG) and Dubai International Capital (DIC) all seem to focus at least partly on alternatives, financial assets, industrial stakes, private equity, asset management and Islamic financing (which the group also targets through its Noor Investment Group). How do these companies fit together – in particular DIG and DIC?
SA DIC was created just over two years ago [in October 2004] with a view to using some of the excess cashflow of Dubai Holding, to help them diversify and to create a long-term return on their investments by investing in different asset classes, primarily private equity and, to some extent, large cap listed equities.
DIG – or one of the two investment offices for Dubai Holding – was founded a year-and-a-half earlier and at the time focused more on funds, funds of funds, hedge funds and trading equities, regionally and internationally. It also did some US real estate and it also tends to work on projects with Jumeirah [the hotels and construction arm of Dubai Holdings], where the asset is held by DIG and managed by Jumeirah via a management contract. We don’t do pure real estate.
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"We are here to create above-average risk-adjusted returns. The team always understands that there is a minimum expected internal rate of return of 15% across the board, private and public" Sameer Al Ansari |
Another difference is that DIG has built a portfolio in financial services. It has a majority stake in a Greek bank, Marfin. It has bought Bank Islam and it is developing its own Islamic bank. By contrast, we don’t have any financial services investments in our portfolio.
DIG has started looking at some things that are closer to what we do. So, for example, in real estate we may end up looking at the same transaction. Take Raffles – a hotel business with a lot of real estate. We looked at it as a private equity asset; they looked at it as a real estate asset. If that happens, we simply pick up the phone and decide which one of us will continue. On Raffles, we decided that we would continue and they pulled out, and three months into it we pulled out because valuations became too high.
So the two companies have separate, differentiated mandates?
SA I would say 80% to 90% of what we do and what DIG does is different. But we certainly don’t sit around this table and try to figure out how to differentiate ourselves from DIG. We are all competing with the money that is coming to this region in search of investment opportunities.
So in private equity, our competition is the Carlyles and the Blackstones and the mid-cap private equity houses, because our focus is usually mid-cap – the $1 billion to $2 billion deals. Yes, we do compete with regional players like Abraaj, but we’re trying to differentiate ourselves through a pipeline of deals and proprietary and relationships that we think nobody else has.
In listed equity, I don’t see anybody competing with us, because these are huge markets with huge liquidity. In the large stocks I can be there with thousands of other shareholders.
And DIC is purely His Highness Sheikh Mohammed’s vehicle? It is not a vehicle of the government of Dubai?
SA That’s correct.
With assets under management of how much?
SA Approximately $6 billion.
And how many people do you have here now?
SA We’re over 40 and growing. In the short term we really need another 15 to 20 investment professionals across the board. Hiring is one of the big challenges. You’ve got huge growth in private equity globally, and getting people to move when they’ve got good carry where they are is hard. And in this region in particular.
There have been a number of private equity funds set up, all the investment banks are moving to the Dubai International Financial Centre and they need to hire. So hiring people and retaining staff is a challenge.
What’s the ultimate aim of DIC? Is it wealth preservation for the shareholder? Or is the very long-term aim more of a Temasek or GIC – to create a fund for Dubai Inc, if you like?
SA It’s more the former. But certainly if you put DIG and Istithmar [another investment agency, but part of Dubai World] and us together, then you could say that we are a mini-Temasek equivalent in Dubai, but actually with other skills too.
Who sets the overall framework and the strategy and the target returns?
SA The board and our shareholder sets it, and the board and the shareholder are very closely allied.
And what are the strategic objectives and the return objectives?
SA We are here to manage some of the excess cash of Dubai Holding and to create above-average risk-adjusted returns. The team, when we look at deals, always understands that there is a minimum expected internal rate of return of 15%, and that’s across the board, private and public. However, clearly for deals we regard as carrying higher risks that IRR must be higher.
You have four ‘asset classes’ or asset class teams. Can you outline their responsibilities and explain how they work together?
SA The buy-out team does the private equity deals. That is the team that did the Tussauds [£800-million acquisition of the UK entertainment group], Doncaster Group [£700-million acquisition of the UK engineering firm] and Travelodge [£675-million acquisition of the UK budget hotel group] deals.
Then you’ve got the listed equities team, which did the Daimler transaction [2% stake in DaimlerChrysler bought for $1 billion], that has now evolved into our Global Strategic Equities Fund (GSEF) and will do the public equity deals.