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"Public markets like to see annuity and fee income, rather than chunky, deal-based revenue"
Ali Al Shihabi |
ALI AL SHIHABI is used to being between civilizations. Sitting opposite Euromoney in a City of London boardroom, the 49-year-old is dressed in a classic grey suit – from Savile Row, perhaps. But back in the Middle East, he wears Arabian robes and headgear.
With the world’s financial markets reeling from the sub-prime crisis and a rocketing oil price, one region stands out as an attractive investment destination: the Gulf. Al Shihabi’s visit to London comes at an opportune time.
The firm Al Shihabi founded almost 10 years ago, of which he is still chief executive, is targeting western pension funds, endowments and other financial investors that are beginning to take a serious interest in opportunities in the Arabian oil-producing countries. He wants to attract more of this money, and take a cut. He is already setting up a London-listed exchange-traded fund that will buy into asset management funds in the Gulf.
It is appropriate that Rasmala, Al Shihabi’s baby, should be one of the first firms to do this. Al Shihabi’s father was Saudi ambassador to Switzerland and the UN. His mother is from Europe. And Rasmala’s other owners also hail from both east and west. Deutsche Bank is the largest shareholder. Princes from Saudi Arabia, Oman and the United Arab Emirates are among the next biggest.
Rasmala is planning to raise a few hundred million dollars through an IPO planned in the next 12 to 18 months. But as Euromoney went to press, the Dubai-based firm is still absorbing what has been, over the past 12 months, a rapid expansion programme.
At the end of May 2007, Rasmala added 30 new equity investors to its existing five, doubling its capital to Dh370 million ($100 million – 20% of the company is owned by management, including 10% by Al Shihabi). Having wound up its sole, seven year-old private equity fund in June, Rasmala acquired Delta, an Egyptian investment bank, in October. It bought an Omani brokerage in November, the same month it was awarded an investment banking licence for Saudi Arabia. In January 2008, it bought a UAE firm focusing on private equity in mid-size manufacturing and construction-related businesses. As Euromoney went to press, it was also poised to acquire an Egyptian mortgage finance company.
Having pioneered private equity in the region in the early 2000s, Rasmala is now concentrating on asset management. In the Gulf, asset management used to be an almost exclusively offshore industry, with managers flying in and out from Europe. Until recently.
Almost $1 billion of Rasmala’s $1.3 billion under management is held by its asset management arm. It was only in 2003 that the turn towards asset management from private equity began, when Al Shihabi hired Eric Swats, a US asset manager, from Citi. Not long afterwards, in 2004, the first fund was launched.
"Our first asset management products focused on global markets," says Al Shihabi. "In those days, we were concerned about the inflated prices in the Middle East’s markets. So we didn’t start our regional asset management business with great vigour until after the regional stock market bubble burst in early 2006." Swats adds that when he first joined Rasmala, regional stock markets also had much fewer listed stocks. Even nominally floated companies, he remembers, were often controlled by just one or two investors, and so effectively off-limits. Corporate governance also left even more to be desired than it does now.
Rasmala has eight funds in its asset management business, ranging from Islamic and conventional global equity funds, Islamic and conventional global real estate funds, to leveraged and unleveraged funds of global hedge funds. Since last summer, it has also managed outsourced funds from Commercial Bank of Dubai.
Pioneer flagship
But Rasmala’s flagship is the fund it launched in August 2006: the first, and, according to Al Shihabi, the only fund of local funds that invest in Middle Eastern and north African (Mena) public and private equity. This fund of funds has assets of about $150 million, having started with about $100 million.
The size and investment strategy of this fund of funds is being duplicated in a new fund of funds to be listed on London’s junior market, AIM, in June. "Having a listed entity in London makes western investors more comfortable about opportunities in the Middle East," says Al Shihabi.
The hope is that more mainstream money such as pension funds will want to join the increased interest the Gulf has already aroused among western financial investors over the past 12 months. "People are looking for exceptions where they can make money in an environment of slow growth," says Swats.
Indeed, if even a few sizeable western endowments, pensions funds, or trustees raise their allocation to Mena by just 2%, says Swats, this will result in a huge flow of capital into the region, compared with the almost zero allocation at the moment from such sources. And it appears that a number of funds are being planned to service the flow. One notable example is a Luxembourg-based fund of funds from Switzerland’s Union Bancaire Privée.
According to Swats, Rasmala is also considering launching Luxembourg-based Mena funds that could be marketed to European retail investors.
A family’s flight
Rasmala has some 200 employees in four countries. About 100 of these joined after the Egyptian acquisition last year. About 80 are based in the Dubai head office, with the balance in Saudi Arabia and Oman. They are roughly evenly spread across the company’s three main business units: asset management, private equity and brokerage. People also work in the proprietary unit, which has real estate in Dubai and equity in an IT and petroleum company, among other investments. In addition, there is an Islamic finance subsidiary.
The story really began after Al Shihabi’s wife and children left Saudi Arabia and moved to Dubai.