By Neil Halligan
In just four years, Daniel McGowan has amassed $500m worth of assets under management via his start-up Centaur Group Holdings. The CEO outlines how the company will use investment in innovative products to reach more than $3bn next year
For someone who left school at 15, opting out of a university education, Daniel McGowan has come a long way in the 20-odd years since. His investment company Centaur Group Holdings has $500m worth of assets under management – accrued in less than four years.
One division alone – mining – is expected to see revenues soar to $1.4bn within five to seven years, accounting for an estimated 70-80 percent of the company’s total business. No wonder the Dubai-based firm is one of the fastest growing investment companies worldwide.
It has been an interesting journey for the Liverpudlian, who says that while he was an early school-leaver, he did get a business qualification (Business National Vocational Qualification) which helped him set up his own mobile phone shop in Liverpool. The first foray into business, aged 18, “didn’t go well”, he admits. But it did set him up with a lucrative logistics business in the wholesale side of the telecoms sector, supplying UK giants including Carphone Warehouse and 20-20.
In 2006, McGowan opened his first regulated asset management company in London but soon lost almost everything he put into it when the “property market crashed”.
“I built a lot of infrastructure and created some financial products around fund distribution and fixed income distribution,” McGowan explains. “I retreated when the property crash hit and luckily didn't have any investors at that point, so it was all my own money I managed to lose, with the creation of the business and capital expenditure.”
During the two years it took to build the fund and obtain a regulatory licence, he says he had property projects – a mix of commercial and residential - in Abu Dhabi, Latvia and Grenada in the Caribbean.
“Basically, I’d used my own money to secure those projects with the idea being that we would refinance into different investment products, some wrapped as a fund and some as a fixed income type product,” he says. “I had to pull back in late 2008 because it was almost impossible to raise money in the market at that point. I wound the company down and made sure FCA [the UK’s Financial Conduct Authority] were happy and everything was okay with the licence.”
Arriving in Dubai in late 2009, McGowan says he did some consultancy work for local firms, before he established Centaur Asset Management in August 2012, with an initial focus on litigation funding and legal financing.
“We created three litigation funds, one open-ended fund, and two close-ended funds. The most well-known one is the open-ended which has been going about 38, 39 months now. We’ve won quite a few awards for the fund. It’s up 36 percent over the history,” he says.
The concept is to fund claims where the law has already decided the case, such as payments protection insurance (PPI) cases in the UK, where banks have already set aside $40bn to cover mis-sold products.
“A client submits a PPI claim through a claims management company and at the point it’s acknowledged there is a claim, we would fund the processing of that claim,” McGowan says.
Centaur also funds EU passenger claims against airlines for issues with flights. A market worth an estimated $24bn per annum, EU law stipulates that if a flight is delayed by at least 3 hours, cancelled or overbooked, a passenger could be entitled to a compensation payment of between $280 and $680.
“Companies carry out the processing of the claim on behalf of individuals who upload their boarding pass to a website and [the funders] charge a fee of between 20-25 percent,” McGowan says.
The idea at the time was to build a strategy to $100m-plus, which he says is the kind of level needed for a fund to be able to cover the overheads of management fees.
“We didn’t get anywhere near those levels; at its peak it was around $18m,” McGowan says. “The first roadblock we hit was the Emirates Securities and Commodities Authority had just implemented rules on the promotion and distribution of investment funds in the UAE. Previously, there weren't any rules and you were free to promote a fund here however you wanted. We had to get the fund approved in Abu Dhabi, through a central bank-regulated local promoter. The one we work with is Al Mal Capital, who have been pretty supportive of us from the start. It took about six months to get the approval.”
The fund was promoted to local asset managers including Shuaa Capital, Abraaj Capital, and some of the local banks, but he says they found it difficult to get people “up to speed” with the concept and to convince them to invest in to the strategy.
“We spent three or four months doing a roadshow promoting the fund. We realised quite quickly that the fund wasn't scalable in this region to the size we needed it to be at ($100m-plus), because the strategy wasn’t really understood, so we have kept the fund since as a kind of ‘boutique’ part of the business for people who want something a little bit different, an alternative asset class,” he says.
In late 2013, the company diversified into private equity investments. With a wide mandate, McGowan says they “looked at everything and anything we came across”, including retail, food and beverage, mining and natural resources, sports and property.
“I think F&B here went through a period [of hyped activity] with the Marka IPO, and there was some other asset managers who were structuring retail and food and beverage type funds. We looked at that for a while and realised it was quite a crowded market and stayed away,” he says.
Of “50 or 60” possibilities, Centaur chose three core investments: a coal mine in South Africa, a wealth management company in the UAE and a football-type concept, Sport Events International, which is a holding company of a series of sports based event companies including Global Legends Series and the world’s largest five-a-side football tournament.
Centaur exited the sports venture (which was a mix of debt and equity) in August last year, selling to Thai Prime Investments, which is headed up by Thai businessman Bee Taechaubol, who has agreed to buy a 48 percent which stake in Italian football giants AC Milan.
The wealth management venture, also a mix of debt and equity investment, is a medium-sized company in the UAE with licence applications currently being processed for South Africa and a planned office for Abu Dhabi.
McGowan says he is also planning to expand the wealth management concept into the UK market with acquisition of some regulated wealth management companies.
“The first one is due to be completed in early April with funds under management of roughly £60 million ($85m). The total target acquisition base has funds under management of roughly £2.2 billion ($3.1bn),” he says.
The mining investment, while not an obvious choice, has grown to become the largest section of the business.
“I saw an opportunity because the sector [in South Africa] was so depressed. It’s a sector that has been pretty hammered in the last 12-18 months with most of the listed companies suffering depressed share price and debt price. That has created opportunity in the market for anyone with cash available for ransactions,” he explains.
Despite having plentiful coal resources, McGowan says there is a shortage in supply in South Africa up until at least 2022, which has added value to Centaur’s investment.
“It’s very political there and it’s about getting coal to the right places, and into the power stations,” he says.
Centaur’s first mining deal was a short-term finance of $1.3m that was required to get a mine into production. It led to a finance deal for another section of the same property and soon transformed into the acquisition of a mine.
“We got a reputation in the South African market that we had cash and that we had a willingness to finance in the market and that we were willing to come up with slightly different financing strategies than the norm, securing against coal stockpiles, structuring finance so that it was on a set amount per tonne of coal rather than an interest rate, so if the volumes went up or down the mine could benefit from that,” he explains.
They were offered another 20-odd deals, but decided instead to purchase in a mine called De Roodepoort, which had an initial estimated in situ 54 million tonnes of coal, but after an exploration and drilling programme, the mine now has 88 million proven tonnes of coal, and is planned to be in production by early 2017.
Investment for the mining project is packaged in the form of bonds, using Centaur’s own fund platform in Bermuda.
“We started marketing those bonds through offshore wealth managers, private bankers and direct to high net worth individuals in January 2015, in what was a difficult market to raise any cash for the mining natural resources sector,” McGowan says.
“We were paying 12 percent coupon initially for a fixed term of three years and we’ve now reduced that coupon down to 8 percent for three years, 10 percent for five years. We’ve built a distribution network that will bring us clients for those bonds. The bonds also meet criteria for life insurance companies and UK pensions.”
Based on the success of the mining bonds, he says the group will launch a new bond product away from mining and natural resources, which will include its existing products.
“We’re looking at repackaging part of the litigation strategy from a fund product to a fixed income product. Called the Centaur Claims Bond, it will be similar - fixed period, fixed coupon - but the use of proceeds will be for small legal claims and disputes in the UK. We’re now taking all of that and refinancing it as a fixed income product so that investors get paid out monthly,” he says.
The new bond will also be used in other areas, such as property, F&B and retail. “Anything whereby we can use that fixed amount of capital and cover the cost of capital can obviously make a return on top of that,” McGowan says.
“We've looked at some commodity-based stuff here [in the UAE] in the aggregate sector, from quarries, limestone and that sort of stuff, trade finance sort of transactions.”
F&B, property and tech companies in the UAE, he says, are of particular interest to Centaur, with “quite a few investments in tech that being structured or packaged in the UAE at the moment”.
“We’ve got projects in each of those sectors at the moment. There’s some really interesting opportunities at the moment in this market. It’s such a small market that you can make a splash fairly easily. I don't know if they’ll pass due diligence or if they'll come off but tech, F&B and later down the line, possibly, property. Every time we get close to a property deal, we sort of get cold feet and park it till a later date,” he says.
While he admits there is a slight F&B slowdown in the UAE, with marketing budget cut by an average 30 percent according to people he has spoken to, McGowan says there are a few start-ups with very different concepts. A venture that Centaur is most interested in recently won a contract with UK supermarket chains Waitrose and Spinneys.
“It’s for a new type of product and they’ve already got a kitchen and infrastructure set-up but they need money to supply the contract into Spinneys and Waitrose. It’s a really clever idea, really unique and it’s one of the investments we’re quite keen on at the moment. It’s all this raw, vegan food, where it's not cooked and there’s no processing. Spinneys and Waitrose have absolutely loved the idea,” he says.
But while the UAE is often perceived as a credible and safe jurisdiction within the region, it does not always hold the same weight when compared to the UK, Europe, Hong Kong and Singapore, McGowan says.
“I think the UAE is still not comparable to other jurisdictions if you’re looking from the outside in.
"One of the things we've had to do is add on as many [internationally reputable] third party service providers to products as we can,” he says. “You've got the usual auditors KPMG, we outsource all compliance and KYC [know your customer] verification to a firm in DIFC, Apex Fund Services. We also use a listing agent in Bermuda. Investors need to see that there are third parties there making sure that we do what we’re meant to, which I think is more important for investors based outside of the region.”
While Centaur is still relatively young, McGowan has discussed an IPO on numerous occasions. However, that is unlikely while he continues to get the mining assets into production. but he says he’s keen to stay in the mining business for the foreseeable future.
“We've had conversations with Nasdaq Dubai previously about their equity market and their debt market and generally talking about listings on Nasdaq Dubai,” he says. “I think the strategy will develop over time.
“We’ve built a really good management team, got great mining guys and I think it would be wrong at the moment to say the plans is an exit plan. This for me is a business that I'd like to see grow over the next 15-20 years, maybe longer. Hence the assets we're buying have got those sort of timeframe in them.”
He expects by next year the assets under management in Centaur’s wealth management business will surpass $3bn, while the group also expects its mining and natural resources under management to balloon to $2bn by 2018. Interesting times all round at Centaur in the coming years.finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.