Bahrain: Wealth fund to invest in global securities

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By:
Sudip Roy
Published on:

Mumtalakat to diversify portfolio; Alba IPO raises $338 million

The head of Bahrain’s sovereign wealth fund says it plans to invest in liquid assets in international markets to lessen its reliance on local private equity and real estate investments and create a more balanced portfolio.

Talal Al Zain, chief executive of Mumtalakat, whose main holdings include Gulf Air and Aluminium Bahrain (Alba), says the $10 billion fund will invest in equities and fixed-income securities as well as certain hedge fund strategies worldwide to diversify its portfolio.

"Our medium-term plan is to have 50% of the fund invested in the Middle East and North Africa across asset classes and 50% invested globally across asset classes"

Talal Al Zain, Mumtalakat

Talal Al Zain, chief executive of Mumtalakat, Bahrain’s sovereign wealth fund

 

"Our medium-term plan is to have 50% of the fund invested in the Middle East and North Africa across asset classes and 50% invested globally across asset classes," says Al Zain, adding that this goal will take between five and 10 years to fulfil.

At present almost the entire portfolio is invested in Bahrain, with real estate assets accounting for one-third and private equity most of the rest. So while the fund is sectorally diversified – including hospitality, telecoms, financial services and natural resources – Al Zain admits it is too concentrated from a geographic and asset-class point of view. He declines to elaborate on where its focus will lie outside the Middle East and North Africa region.

He says the fund’s investment strategy will be flexible and guided by its asset allocation strategy and risk management remits. "We will continue to be a prudent investor."

Al Zain adds that third-party investors will manage the "external liquid assets". Mumtalakat is running the rule over a number of portfolio managers based on in-house research and consultants’ recommendations.

The fund was established in June 2006 with the objective of creating wealth for Bahrain by investing in sectors other than oil and gas. Mumtalakat inherited a portfolio of 29 investments; today the fund consists of minority and majority stakes in more than 35 companies. Its one landmark international asset is the McLaren Group, in which it owns a 30% stake.

$338mln Raised by Mumtalakat by selling of 10% in Aluminium Bahrain

Raised by Mumtalakat by selling of 10% in Aluminium Bahrain 

Last month, Mumtalakat made its biggest divestment by selling a 10% stake in Aluminium Bahrain (Alba). The company, in which the wealth fund retains a 69% holding, raised $338 million through an IPO, with listings on the Bahrain and London stock exchanges. Proceeds from the sale will be ploughed into new investments.

Alba posted a full-year net loss of $220.7 million in 2009 compared with a profit of $781.9 million the year before, mainly because of lower aluminium prices and company restructuring. Al Zain says, however, that Mumtalakat has enhanced Alba’s value by strengthening its management team and tightening its production and distribution processes.

Investment by buzzword

Wealth creation, corporate governance and transparency are all buzzwords that Al Zain continually refers to in explaining what Mumtalakat brings to its investments. He says the same values permeate the wealth fund itself despite its government ownership. Mumtalakat has nine board members; with the exception of the chairman and vice-chairman they are from the private sector. At management level, there are four committees that put forward decisions that are executed only once the board has ratified them. "There’s hardly any interference from the government," says Al Zain, who stresses that the fund is run according to private-sector norms. "When I first joined, the working hours were 8am to 4pm. Now, no one leaves before 7pm. I said: ‘If you want private-sector pay, you have to work like the private sector.’"

Despite Alba’s IPO, there are no immediate plans to divest any further stakes. "The priority is to enhance value before participating in any further divestments," says Al Zain. "We’re not under any pressure to sell."

The past couple of years have been tough for Mumtalakat, which posted net losses in both 2008 and 2009. In 2009 its net loss more than doubled to BD183 million ($485 million) from BD69 million in 2008. Al Zain attributes these performances to accounting quirks and restructuring, although the fund has also suffered because of the downturn experienced by Bahrain’s property market in 2009.

"Yes, we reported losses but as a holding company we apply IFRS reporting so we have to consolidate all of our subsidiaries in our figures," he says. "We had a net loss on Gulf Air [$502 million in 2009] and a book loss on Alba because of derivatives. We also did a lot of restructuring across our companies."

As for the fund’s performance in 2010, Al Zain says: "It’s going to be a better year", without elaborating further.

In June, Mumtalakat raised $750 million through a five-year international bond issue. Initially the wealth fund was seeking $500 million but increased the size of the deal thanks to a strong order book of more than $3.25 billion. The deal followed a six-day roadshow covering Asia, the Middle East and Europe and was priced at the tight end of the range despite the challenging market conditions. More than 230 investors sought to participate. The money raised will go towards strengthening Mumtalakat’s capital structure.