Mena FM Profile feature – Swicorp
Best known for its investment banking and private equity business, Saudi Arabia’s Swicorp has a growing asset management operation and is in the process of launching its first real estate fund. Mena FM catches up with the firm’s head of asset management Kais Mbarek
By James Brockett
As a leading investment banking player in Saudi Arabia, Swicorp has advised on some of the biggest real estate transactions in the country in recent years, including government-supported mega projects such as King Abdullah Economic City and the Jabal Al-Sharashif project in Mecca. So in some ways it is logical that the firm, which is expanding the asset management capabilities it offers to third party investors, is now launching a real estate fund.
The fund, which is set to close in the coming weeks, is a private placement fund which will buy a swathe of land in the Eastern region of Saudi Arabia, and will oversee the development of 135 villa houses in partnership with a leading regional developer.
Swicorp Head of Asset Management Kais Mbarek tells Mena FM that since the CMA issued regulations for collective investment in real estate last year, investors have increasingly favoured real estate funds because they have more confidence in the process.
“These regulations and these funds have brought something new to investors,” says Mbarek. “The fact that there is a fund manager regulated by the CMA gives more reassurance to real estate projects; in a real estate development fund, for example, you have a developer that has the capability to acquire or build on land and you have a fund manager that raises equity for that project. The roles are segregated, with each focusing on what he does best, and there’s no conflict of interest. So these funds are actually an answer to a very big issue in Saudi Arabia, and increasingly this fund structure is adopted and trusted by investors, and even banks, who are more willing to invest in a fund rather than directly with a land developer.”
He says that the firm considered as many as 40 or 50 possible projects before making its choice for the fund, which has been structured to eliminate many of the risks involved with construction and to ensure that the developer’s interests are aligned with investors. While its status as a private placement fund means that many financial details cannot be disclosed, Mbarek adds that Swicorp’s willingness to co-invest into the fund should give outside investors confidence.
“We don’t launch funds and products if we are not willing to put money in ourselves. In our listed equity fund we have a substantial amount of our capital, and a percentage of the real estate fund will also be Swicorp’s money. As a rule of thumb I wouldn’t launch a fund if I don’t think it’s worth us investing in.”
Listed equity development
Mbarek – who joined Swicorp in 2010 after several years in France working for Societe Generale AM amongst others – has already achieved much when it comes to developing the firm’s listed equity capabilities. Swicorp’s main vehicle in the equity arena is another private placement fund, the Tharwa Fund, which invests across the GCC and North Africa markets. It was first offered to outside investors last year, but this came after three years in which Mbarek’s team had built up a convincing track record managing the firm’s own money, he explains.
“When we started running this strategy, we identified our investment philosophy, how to construct the portfolio, and the things we were looking for in an investment, all from the perspective of an investor: it was our money that we were managing. The Tharwa Fund was a continuation of what we had been doing before: we didn’t change anything from the way we manage our own money. The goal is to convince other clients to invest with us if they believe in our approach. It’s very transparent: we say what we do, and we do what we say, and we follow best practice in terms of operations. Our goal is to offer Tharwa to a few sophisticated investors, and we are also working on a version that would be more suitable for international investors.”
He says that Swicorp’s equity investment philosophy is based on three pillars: value, catalysts (i.e. change) and focus. That a stock is undervalued compared to its peers or the market is necessary but not sufficient: the company must have a story, or change catalyst, attached to it that the managers believe will lead to a re-rating or change in market sentiment. Finally, the portfolio must be focused, concentrated on the most compelling stories and stocks: the Tharwa Fund looks to invest in a maximum of 20 stocks at any one time.
The strategy has paid off thus far, with the team making double-digit returns even during the market difficulties that surrounded the 2011 Arab Spring, and achieving reduced volatility compared to its peers.
Another interesting element of Swicorp’s equity investment team is that rather than drawing a distinction between portfolio managers and analysts, Swicorp has a team of four who each perform both functions, and are considered portfolio managers in their own right.
Swicorp’s investor base is largely high-net worth and ultra high-net worth individuals in Saudi, although it has more institutional clients on the private equity side, where it is an established player and has raised $1.3 billion since 2004. Mbarek says that international investors are waking up to the attractions of investing in the region.
“This region offers some emerging markets-type investment opportunities, but because the GCC currencies are pegged to the dollar, you don’t have the currency risks that have really become a problem for EM investors in the last year,” he says. “So that’s why a lot of people are now looking at this region, in addition to the buzz around the UAE and Qatar moving to emerging markets.
“But we think it’s something that can be sustained. You need to be careful in the way you approach things you definitely need professional help to invest in these markets, but we strongly believe in the investment opportunities in this region, and it’s a region where you can create a lot of alpha. Having exposure through passive indexing is fine, and you can play some cycles, but I really believe the alpha you can create in this region is something more interesting than the beta performance, and this is what we’ve proved with the Tharwa fund for the last 4 years.”
- Founded in 1987, Swicorp is a corporate finance advisory, private equity and asset management firm with a specific regional focus on MENA. It is a closed joint stock company with paid up capital of SAR 500m
- It has offices in Riyadh, Jeddah, Dubai, Tunis and Geneva, and is licensed by both the Saudi CMA and the DFSA in Dubai.
- Swicorp has raised over $1.3 billion in private equity funds from investors since 2004. Its listed equity division, including the Tharwa Fund, was first offered to 3rd party investors in 2013
- Its top leadership team consists of Kamel Lazaar (Chairman and Founder) and Daniel Schenker. Kais Mbarek is Head of Asset Management and has been at the company since 2010.