The other piece of the pie

3i Capital Group sees positive results in the Gulf's first open-ended public fund.
The other piece of the pie
By Tamara Walid
Sun 24 Jun 2007 12:00 AM

Most investment managers in the region have been focused on the top two percentile of the investment pie. That is a very limited club of high net worth individuals but the remaining 98% are what we call the ‘ignored'," says Dr Akram Yosri. The managing partner and founder of global investment giant 3i Capital Group explains that this was one of reasons that prompted the group to create the first open-ended public fund in the Middle East.

Inmaa or the Dubai Growth Fund, launched in March 16, 2007, differs from any other fund created in the region for a number of reasons, according to Dr Yosri. One of the reasons he says: "It's a segregated fund, meaning it's a family of funds that consists of three classes of shares each of which is US$100m but can be scaled up higher because it is an open-ended fund."

Striking the balance between maximising the opportunity and mitigating the risk is a very delicate act.

Dr Yosri points out that most of the funds in the region tend to be close-ended in which an investor makes an investment and the fund manager says: ‘I'll see you after a year,' depending on the life of the fund. "During that time investors have no control or freedom to get in or out if they choose to - they are subject to the mercy of the market," he says.

The dawning realisation that today's investor is no longer easily lured into making such investments gave the group a push to create Inmaa, a fund with a minimum investment of US$1000, despite the very high risk involved.

"We wanted to make this a fund open to the masses. That's why it is truly the first public fund, meaning it has the structure of a public fund regulated as such, that we can offer to the public at large," says Dr. Yosri, adding: "This carries with it a great sense of responsibility because if we do so we need to deliver, but the opportunity is great and we have captured the right audience." Why regional private equity companies have so far shied away from such a move is certainly explainable and as Dr Yosri puts it, "very few are willing to take the same kind of risk".

"They are not interested in an exotic return on investment of 100 or 200% as marketed by competition - without mentioning names - but they are interested in a moderate growth in their net worth but at the same time minimising their risk as much as possible," he says.

3i Capital, however, was determined to take an investor rather than an "inward profitability" approach. The focus according to Dr Yosri was the investors and what they wanted as well as understanding their psyche, particularly with the tremendous growth in the region that was followed by a setback in the financial markets. This was enough evidence for 3i Capital that today's typical investor is looking to maximise their return on their investment, while at the same time mitigating their risk.

"Striking the balance between maximising the opportunity and mitigating the risk is a very delicate balancing act and requires a lot of care. That's why we put Inmaa together," he says.

Dr Yosri further explains that the group's intention was to avoid replicating what other private equity companies in the region are doing. "We are not interested in the quick-dollar profit, that's not why we are here. We are here to set the foundations, to position ourselves as a major regional fund, hopefully the first regional fund with thousands and thousands and thousands of investors," he says adding: "I'm not going to mention companies but their focus is very different. Their focus is today and tomorrow and literally tomorrow. They are not taking more of the strategic approach towards where we are going to be in the future."

He explains that "plenty of these companies" claim to be the "best in this class" whereas all one has to do is "look at where their net value assets are".

"It's dwindling, it's going down; and that's not where we want to be. We are interested in a very strong and stable foundation in the years to come," he says.

Taking a glance at the company's board, you are inclined to believe there's a great possibility in achieving that. Assembling the team was based on what Dr Yosri calls the "best of breed philosophy". This, he explains, means that 3i Capital, unlike many investors here, "does not claim to be good at everything".

"They would pretend to be the jack of all trades; you tell them can you do this? They would say yes, we do custody, administration, management, oh and we do plumbing and heating as well," he says with a hint of sarcasm, adding: "But we said we are going to bring the best companies involved with us in investment institutions."
Consequently, 3i Capital looked at different areas of expertise such as custody and administration and signed an agreement with HSBC believing it to be the best in terms of its global custody capabilities.

"That means that if we choose to take a position in a company in China today we can do it in a blink of an eye and the same goes for Venezuela. Global reach is an asset that none of the other funds in the region enjoy," he says.

We’ve decided to launch something not with focus on the next six months but with focus on the next decade.

Dr Yosri explains that the tremendous opportunities presented by the growing area of Islamic finance prompted 3i Capital to make Inmaa a Sharia-compliant fund. Hence, the company also looked at an Islamic financial entity to work with on the distribution at the retail level and collaborated with Emirates Islamic Bank, which it strongly believes is one of the best in the region.

"Management is absolutely well-equipped to make this the largest institution in the next few years," says Dr Yosri.

The National Investor (TNI), which manages over US$12bn in assets and is claimed to be bigger than Shuaa Capital, has also been employed to manage the day-to-day operations of the fund.

The fund's board of directors indeed represents the best of breed with people like HE Anwar Ibrahim, former deputy prime minister and former finance minister of Malaysia who was named by TIME magazine as the ‘Finance Minister of the Year' for two years running. Also on the board is Raja Al Gurg, one of the most prominent businesswomen in the region, named by Forbes magazine as one of the top four Arab businesswoman. Prominent UAE businessman Saeed Saif Al Ghurair is also a key board member. On the Islamic banking and Sharia side the board includes Dr Daoud Al Bakar, one of the founders of the Dow Jones Islamic Index and a world-renowned Sharia scholar.

"We've decided to launch something not with focus on the next six months but with focus on the next decade," says Dr Yosri.

This said, the Inmaa fund, although started in the UAE, is positioned as a regional venture fund with the intention to distribute in Qatar, Kuwait, Saudi Arabia, Morocco, Egypt and other parts of the Gulf. Discussions in Saudi took place over a month ago, where 3i Capital met with a number of distribution channels.

The Moroccan market, on the other hand, poses great opportunity for the private equity company especially that it was the best performer last year.

"We like the force that has taken place in Morocco. I presented at their annual economic forum this year and have been doing this for the last three years in a row. I also had discussions with the prime minister's cabinet and others, which says something about how much we like the Moroccan market," he says.

The fund, although targeting the average investor, is open to high net worth individuals as well as institutional investors who, as Dr Yosri puts it, can reap the benefits of its strong foundation.

"This is good for college education for the future; a dollar cost averaging would equal a thousand dollars this month. Next month, you skip a month and you put in another thousand. Over a period of time you will see your net worth growing," says Dr Yosri.
In this part of the world most funds are closed, however, Inmaa is open-ended and investors are free to join or pull out at any point. Dr Yosri sites a similar example of a complex fund found with the likes of Fidelity, one of the biggest financial institutions in the US. Most of Fidelity's best funds are open-ended, explains Dr Yosri, and investors can come in at any time but at the prevailing Net Asset Value. NAV in Inmaa's case changes.

"With some funds the NAV is done on quarterly basis so every three months you'll know how well the fund is doing. We are doing it on a weekly basis. People can come in today it's 100, next week it's going to be 102, 105, so if you come to think of it it's more of a stock," he says, adding that this gives people the ability to give in but get out should they choose to; thereby putting control in the hands of the investors.

We are using this as a women-empowering tool by saying that this is best suited for any woman investor.

Back in February, when Inmaa was announced with a soft launch that aimed to understand who the typical investor was, 3i Capital had many assumptions in mind.

"We thought we will have more male than female, the age group will be this, the average investment size will be that, but it's been so refreshing to know that we have been wrong in some of our assumptions," he says.

Women have shown tremendous interest in the fund, which Dr Yosri describes as a socially-responsible fund.

"We are using this as a women-empowering tool by saying that this is best suited for any woman investor," he says, adding that any woman investor is not interested in taking a lot of risk. He believes that women invest in the future in a more rational way.

This persuaded the company to collaborate with the Dubai Businesswomen Council, a division of Dubai Chamber of Commerce, and ask them to co-sponsor the fund.

In return, Inmaa offers 2.5% discount to any woman that registers with the fund through any of the branches of Emirates Islamic Bank just by mentioning that she is an affiliate of the Dubai Businesswomen Council.

This is a very important component, says Dr Yosri, especially that there is a trend worldwide towards socially responsible investments. And whereas companies talk about such investments the world over not many actually implement them, he adds.

Dr Yosri recalls a keynote speech he gave on Women's Day in the region at a women empowerment conference when he said: "One of the things that this region needs is a comprehensive women empowerment programme with an investment component to make women more independent, to give them the tools that are necessary so they can control their own destiny and not be isolated from the investment community."

Today, Dr Yosri claims that Inmaa has more investors than many of the leaders who have been present in the market for a number of years.

"Our approach is very different. That's why they are suffering today. Look at their NAV, some of them are in -30%," he says.
Dr Yosri, however, believes in the investors' judgment, that they are becoming "more savvy" in this part of the world and that they understand opportunities and risks. "They are going to realise at some point that these are just facades or names or gimmicks and there is no strong foundation behind them.

"And they are going to make a wise decision about a fund like ours and they will make the right choice," he says.

As to why the company has decided to come to the region after a period of absence, Dr Yosri explains there are many changes taking place and reforms and maturity are seen in the market.

At the regulatory level, he says, the government is in particular playing a greater role to protect the investor.

"I see a number of steps that have been taken doing in large to some of the steps that Her Excellency Minister of Economy Sheikha Lubna took in the past year and half. The Central Bank also stepped in to kind of tighten some of the loose rules and regulations that prevail prior to the downturn that the market's witnessed. We see stability," he says.

Markets in the GCC have witnessed exponential growth, which Yosri refers to as "irrational exuberance", people got excited seeing a tremendous return on investment and just followed, he says. This has changed, however, after the correction and a healthy linear growth is seen.

"This is acceptable, normal and the way things are supposed to be. Things are not supposed to be exponential or radical. People are becoming more comfortable with this and we see it and that's why we chose this time to enter the market," he says.

In another speech during a conference, Dr Yosri predicted a return of liquidity and stability in the market. He anticipated a healthy uptake in the market starting with the second quarter of 2007.

"This is what is happening now," he says, adding that the past six to nine months were good for financial companies to examine their points of strength with the investors and make a choice whether they should continue with their existing strategies that might include high net worth risks or make cautious new decisions.

"This is why we're in the region today. We believe this is the right time," Dr Yosri says.

All the macroeconomic indicators are strong in the region, according to Dr Yosri, however, there's still a bit of concerned about inflation, which he hopes will be dealt swiftly.

"But taking that component out of the equation, provided that inflation is contained and managed, then given the economic stability to a large and the reforms that we continue to see, these markets are likely to witness steady healthy growth in the next decade," Dr Yosri predicts.

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