The Worldfolio speaks with Manaf Alhajeri about how Markaz is contributing to Kuwait’s development as the nation’s leading investment bank, and its partnerships with foreign investors such as General Electric.
Please reflect on Kuwait’s unique assets and competitive advantages that portray the nation as a commercial and financial hub in the GCC.
Speaking about modern Kuwait, the country is famous for being one of the largest exporters of oil worldwide. Kuwait’s evolution first started in the 1930s when oil was discovered and in the 1940s and ‘50s when the city of Kuwait was planned in a modern way. During early 1960s we had our independence and the constitution was written, culminating as the Kuwaiti parliament. That has evolved into yet another strategic priceless asset – democracy.
Kuwait is based upon free speech, expression of ideas and accountability, transparency and ease of rapport between people. It is also essential for us to guard these attributes. It has manifested itself in all facets of our lives whether it is the parliament of Kuwait, sports or corporate boards. It is a country that is highly outspoken. Everywhere you go people are forthright, and we like to express ourselves and help others communicate their ideas. These distinct cultural characteristics not only have made Kuwait standout as a civil society, but also have worked as a cornerstone for a stable state governed by segregated institutions.
Please elaborate on how the current price (and future value) of the oil price will impact Kuwait’s finance for 2018/19?
Current international issues like the U.S pulling out of the Iran Nuclear deal and imposing sanctions, oil output falling from Venezuela (OPEC’s largest producer in Latin America) and US sanctions on Russia (another big producer) are helping the price increase by decreased supply. The fear of political imbalance has had a crucial impact on the nature and the base of all public life, the economy, politics and sentiments of people.
Oil price is now hovering around $75 per barrel on the back of a robust OPEC compliance and stable demand from all over the world, which supports the GCC countries. The substantial increase in the oil price is not letting the guard down regarding bond issuances. The two key variables that dictate how decisions are made and how policies are drafted are geopolitical tensions, which tend to go up and down over the years, and of course oil prices as mentioned.
We have two strategic variables that we use at Kuwait Financial Centre, “Markaz”, in the beginning of every year to help us understand where we are at. Looking at the matrix of geopolitical stability/instability and the oil prices (high/low), you end up with four scenarios. These four scenarios dictate the state of mind that policymakers and business people adopt when starting the year.
The Middle East is a very volatile region, not just because of oil prices, but also due to the volatility of the geopolitical risks. For instance, in a regime where you have high prices and stability, we sometimes tend to be complacent, meaning we enjoy our high surpluses and fail to engage aggressively in things that can help improve our economy and diversify away from oil. Therefore, you find little or less energy in that segment. However, if you go to an environment that is a little more interesting, as in a combination of geopolitical stability and low oil prices, it is a quadrant where you have much energy, much willingness to reform and to change.
We experienced this in the 1990s when privatization was very much in the headlines and companies like ours benefited from this. Today we are unfortunately living in an environment of volatile oil prices and geopolitical instability, which tends to explain why our policies sometimes are incoherent. At times, we tend to be more focused on the legal and strategic aspects at the expense of execution. We can make a public announcement on VAT which we later figure out how to execute. This has a lot to do with the fact that we are experiencing this combination of geopolitics and oil prices.
These things set the stage on how policies are made and how the environment operates for a company like Markaz, which specialize in the investment banking and asset management field. We want to navigate out of the different complexities where we see them. A depiction like the one previously mentioned also helps international operators and investors who want to invest in this country or create partnerships, to make decisions based on where we are currently at, regarding what can be done in Kuwait and why sometimes decisions can take unnecessarily longer than expected.
Can you please reflect on MARKAZ efforts to consistently outperform the relevant benchmarks on its equity funds and managed portfolios.
Markaz has an interesting structure as a financial institution in the business of investment banking and asset management, which our peer group also do. However, Markaz’s model is unique because of its prolificacy. Our structure encompasses a diverse set of many profit centers and asset classes, and most of them enjoy a proven and strong track record. We are very well known for real estate, both within the GCC and outside, such as Europe and Turkey, not to mention the US where we have adequate presence since the 1980s. In 2017, Markaz continued to manage part of the National Real Estate portfolio, owned by the Kuwait Investment Authority (KIA), with a maximum value of KD 250 million.
We are also very well known within the GCC for international equities. The fact that Markaz is the only company in Kuwait that is entrusted by a sovereign wealth fund to manage its real estate as well as other equity investments in Kuwait and the MENA region reaffirms the vital role of Markaz as a market maker.
Our approach internationally is more of asset allocation. We do not do the trading directly but select managers to do it on our behalf. The best of them in each asset class invest for our clients as we believe the best way to derive value is to be diversified in key markets in a way that we can build a portfolio that minimizes risk and optimizes return.
What is unique about Markaz is that we have a diverse set of profit centers. I can think of seven or eight of them emerging from our knowledge of the GCC, international equity and real estate respectively. This multiplicity of asset classes has helped us navigate in the volatile times that we are living in whether it is because of the volatility of oil prices or the geopolitical challenges.
What also differentiates Markaz is our team’s passion for knowledge and innovation. Markaz is a company that is based on our heritage of translating knowledge to practical reality. We like to be innovative, and we love to advocate. We are very much in the advocacy business, which is noticed at the high policy level by institutions and sometimes we also advocate for new investment instruments.
Markaz has pioneered many investment channels since its establishment in 1974. I can name a few investment channels that have been first introduced by Markaz, such as the first call option in the Middle East (Forsa Financial Fund), as well as the first REIT (Real Estate Investment Trust), which was introduced by Markaz both internationally and locally.
We were the front-runner of this concept in GCC when we established “Markaz Real Estate Fund" in 2003. The fund invests in real estate and distribute revenues on a monthly basis. Our clients have been delighted with the fund even in the aftermath of the crisis. Markaz Real Estate Fund increased threefold in size from KD 35 million to more than KD 110 or 115 million just after the crisis when everyone else was leaving the market.
Markaz also established in Kuwait the first domestic mutual fund (Mumtaz) and the first money market fund in 1999 (Idikhar). We were also the first in Kuwait to issue Sukuk and to introduce ETF products.
Innovation is crucial in our field to elevate our markets from the frontier market status. However, regulation has to be supportive. Sometimes it gets more challenging as regulation is not always the best friend of innovation. Therefore, regulators need to be aware of how their policies are affecting the sector’s ability to innovate by being in a constant constructive dialogue with the sector’s players.
Every year we are in a position to find the best opportunities possible for our clients and our proprietary book. I do not think this is a luxury that is widely available in the industry, at least not in this part of the world. This is the reason for the uniqueness of Markaz.
Please elaborate on how Markaz achieved the Global Finance Best Investment Bank Award.
Investment banking is a versatile area within our company. What we do is twofold. We are very active in capital markets, and we help companies to get listed, procure expansion capital or issuance of bonds, and also being mergers and acquisitions advisors. We are very much active in dealing with companies that are finding challenges in their shareholder structure or merely help facilitate acquisition. Based on that and in the aftermath of the crisis, we have seen ourselves in a unique position to help many companies either re-work themselves, get acquired by other players or restructure themselves to derive the best value for their shareholders or creditors.
Experts usually favor Markaz as the best investment bank, based on a series of criteria including market share, number and size of deals, service and advice, structuring capabilities, efforts to address market conditions, innovation, pricing, after-market performance of underwritings and market reputation. These awards are the recognition by our industry of the core strengths we bring to our clients in any mandate: high quality of service, prompt delivery, intense energy, integrity, and a high level of creativity and innovation.
We have many awards including Most Innovative Investment Bank in the Middle East and Best Asset Managers, but the best prize is the trust of our clients and partners. Our clients are mainly institutions but also family offices. We have strategic partnerships with banks that can offer some of our products to private banking clients and sometimes to the higher end of the retail segment, but we are mostly present with institutional investors and family offices.
When we talk about recognition by the industry, the best credit is the client’s trust. For instance, Markaz is the only company that manages the simultaneous portfolios of KIA in both equity and real estate. We have companies that run KIA's portfolios for real estate and others for equity, but we are the only ones who manage both asset classes. This example is a high vote of confidence along with other similar client cases.
Though when the industry awards us, it is, of course, something that we are very proud of. I think it emanates from the fact that Markaz is very much a research-driven company. We believe in doing proper research, in due diligence, taking time to study the opportunity and building the team that is going to address it. We like to be fast and opportunistic, but we never take a chance if we are not ready for it from a human capital point of view.
How do you believe that the entrepreneurial mindset change that is arising in Kuwait will enhance the prospects of the private sector?
The key word is knowledge. We are very much known to be research driven, and this has always been part of the DNA of Markaz.
Over the years, we have realized that there is such an appetite in the region - in the country at least, for useful information and we are fortunate that we are in a country that enjoys a high degree of freedom of speech. We can talk about companies, and we can constructively comment on and propose alternatives for the State’s policies because we have a common objective and we love to work hand in hand with our partners like the Supreme Council for Planning and Development, or other institutions.
We created a company called Marmore. It is a research and data company based in Chennai, India that belongs wholly to Markaz. When we started, we began by examining the stock markets and capital markets but then realized that the needs were more complicated than that. We got questions from our clients asking for our opinion on different matters, so we decided to build our capacity to cater for the endless questions we were asked, primarily due to the crises the region has gone through and how to overcome them other than by understanding the matter we are tackling. That is the main reason why we created Marmore. It has become our vehicle for addressing issues ranging from capital markets to infrastructure and policy research.
We have forged exciting alliances both in Kuwait and overseas. We work with many high caliber scholars and institutions in economic policy to help come up with or propose better ways of achieving our national objectives, which face challenges pertaining to executing and adopting sound policies that work.
What is your take on the bilateral relationship between the U.S. and Kuwait?
As we manage several asset classes, we tend to be global in our outlook, so it is natural that we are very much present in the United States, be it in real estate equity or project equity. We will continue to be present in capital markets, and I believe the future does not necessarily matter in this case. The upcoming phase will be more reliant on partnerships that are based on the alignment of interests between US companies and Kuwaiti companies.
We have to transcend the logic of import-export, sending and receiving money, to create partnerships that work. One amongst other very interesting stories I can tell about Markaz and partnerships, is what we have achieved with General Electric under the new KDIPA law. In the first year of formation of KDIPA, we partnered with General Electric to create the first simulation center for power turbines that would sell not only to the Ministry of Electricity of Kuwait but also the neighboring countries all the way to Pakistan. GE Kuwait Technology Center (GEKTC) is a regional facility in its location and has become a center of excellence that attracts trainees from the region’s power sectors. Through this project, we contributed to enhancing the economic competitiveness of Kuwait by building capacity in its power sector through training and enabling the production of tooling equipment for power turbines.
The future should see more partnerships of that nature under KDIPA, which is playing an exciting role in facilitating the integration of international firms in Kuwait, and it also gathers a large number of stakeholders. During the Kuwait Investment Forum 2018, most of the key players attended, generating interesting opportunities for US companies to have a presence here that are based on a strategic alignment of interests between the US and Kuwait, which makes a viable relationship substantially more achievable.
There is a lot we can do on the advisory side for international firms because you need to have a local partner. The ease of doing business is not perfect, and even if it were, you would still need a domestic partner. I think Markaz can speak both languages to help accelerate things.
What challenges do you think Kuwaiti Banks are facing to not have that much participation on behalf of American banking institutions in the country?
The challenge is the deal flow of infrastructure projects. There are two challenges. Firstly, it has to do with the size of projects that are coming out on the market. Secondly, they tend to be slow, and their work has become even slower due to volatile oil prices, but I do believe it will pick up again.
That said, Kuwait is growing, representing a new phenomenon. We enjoy surpluses, and we are ambitious and want to execute projects. All this invites us to believe that we will see more projects where American companies and American banks can play a role, however, the challenge on the Kuwaiti side is size.
Most of our banks are well managed and highly solvent but small, and it is something that is closely tied to the fact that our stock market is not conducive for helping companies efficiently raise capital and grow. This has been a significant challenge. If we address this challenge, we will see Kuwaiti banks growing in size with time and being able to fulfill more meaningful partnerships with American companies.
In the short term, as long as we see infrastructure projects in oil and gas or transportation and so on, we will see more American banks and American companies taking part.
About Manaf Alhajeri:
Manaf Alhajeri is the Chief Executive Officer for Kuwait Financial Center, Markaz , since 2004. Markaz is a leading GCC asset management and investment banking institution with a strategic focus to achieve regional leadership in the Industry.
Alhajeri was the Deputy Director in the Investment department at Kuwait Fund for Arab and Economic Development (KFAED). He serves as director or trustee in a number of private, governmental, educational, and non-profit boards and committees.
He is currently a Board Member of Kuwait Direct Investment Promotion Authority (KDIPA) and the Board member of the National Bureau for Academic Accreditation and Education Quality Assurance, Kuwait.
He is a Certified Financial Manager (CFM) from The Institute of Management Accountants (USA). He also holds a Master and Bachelor of Science(with distinction) degrees in Civil Engineering from Kuwait University.
On December 5th 2013, upon a decree of the President of the French Republic, Manaf Alhajeri has been named “Knight of the National Order of Merit”. Alhajeri speaks English, French, Spanish, Turkish in addition to Arabic.