IB competition grows in MENA

Among MENA investment banks, Jadwa Investment stands out for achieving strong growth despite challenging market conditions. Launched in 2007, Jadwa has been profitable for each of the last three years, and has grown assets under management by 13 times, from less than $150m in June 2007 to more than $1.9bn in October 2010, at a time when the MSCI Arabian Markets Index dropped by 25 percent. Capitalising on its strong management team and shareholder base, the firm forged ahead during the market turmoil, executing landmark private equity transactions and entering into strategic partnerships with leading players in the asset management industry, including Russell Investments, Investec and CIT UK. Over the same period, Jadwa's flagship Saudi, GCC and MENA funds have consistently been among the leading performers.

Jadwa Investment is a full service investment bank based in Saudi Arabia's capital, Riyadh. It offers asset management, advisory, brokerage and research services to institutional, ultra high net worth and high net worth clients in the MENA region. It relies on in-house expertise for managing public and private equities in the MENA region. For international investment products it has a strategic alliance with Russell Investments and also has a tie up with Investec Asset Management for investing in Africa. On the advisory and private equity side, Jadwa executed a first-of-its-kind single asset closed-end fund structure in Saudi Arabia in 2007 when it led a consortium to acquire Exxon Mobil's 30 percent stake in Luberef, a lubricant refinery 70 percent owned by Saudi Aramco. Realising the potential of Jadwa, Khazanah Nasional, the sovereign wealth fund of Malaysia, bought a 10 percent stake in the company in 2009.

Asset management has been a significant contributor to Jadwa's success, representing 42 percent of revenues in 2009. Within asset management, Jadwa focuses on equities, both public and private, and real estate. 65 percent of assets under management are invested in public equities, 24 percent in private equity, with the balance in real estate and fixed income.

The key to Jadwa's success in growing the asset management lies in the superior performance of its products, combined with superior service. Since their launch in June 2007 to the end of October 2010, Jadwa's Saudi, GCC and Arab markets equity funds are up 41.3 percent, 24.1 percent and 23.5 percent respectively.

This compares handsomely to performance of the respective benchmarks of up 9.1 percent, down 18.5 percent and down 11.2 percent. Over 50 percent of Jadwa's assets under management are in the form of discretionary portfolios that are managed in accordance with the risk-return specifications of the client. Fadi Tabbara, Jadwa's Head of Asset Management and Chief Investment Officer, shares that Jadwa offers multiple strategies for discretionary portfolios ranging from ‘normal', ‘semi aggressive' and ‘aggressive' for public equities to lower risk multi asset strategies. In the last two years, from the start of November 2008 to the end of October 2010, returns on Jadwa's ‘normal', ‘semi aggressive' and ‘aggressive' strategies have been 52.3 percent, 69.9 percent and 94.6 percent respectively. Over the same period the MSCI GCC Index was down 0.10 percent and the MSCI Arabian Markets Index was up 2.59 percent.

Clients are initially attracted to the performance of Jadwa's asset management products, but it is the service standards that help in retaining them. According to Mr Tabbara, Jadwa's aim has been to bring the highest level of professionalism, ethics and service standards to the investment industry in the region. “Our approach was first to hire a qualified team with strong understanding of regional markets and then to foster a culture of high quality service and impeccable professional ethics,” he says. “We keep close contact with our clients; update them regularly on the performance of markets and their portfolios. In difficult times, like Q408, we make it a point to be the first to meet our clients in person and share with them our view of markets. This reassures our clients that their capital is with people who are capable, who care, and who take stewardship very seriously.”

Commenting on the performance of Jadwa's products, Mr Tabbara says that his aim is for Jadwa's investment products to rank in the top three of their respective categories. “Consistent good performance is the key to attracting and retaining clients,” he says. “Our equity funds have been within the top three of their respective categories for 2008, 2009 and YTD 2010 periods. We strive to maintain this leadership.” Cornerstone of the investment performance is Jadwa's robust investment process which derives its strength from an experienced and qualified team. Mr Tabbara takes pride in the fact that his is one of the largest Asset Management teams in the region and has experience of managing investments in the region since 1994. “We believe in investing in people. Even at the peak of the crisis, we didn't lay off anyone. Currently we are 20 professionals in asset management and looking to expand. Six of us, including all members of the buy side research team, are either CFA charterholders or are awaiting award of charter having passed all three levels of the CFA programme.” On the investment process, he says that it is a dynamic process that takes into account both top-down and bottom-up approaches of investing. “Our portfolio management team is always on the look out for new investment themes and opportunities. Special emphasis is laid on the understanding of economies, markets, sectors and companies that we invest in.”

Jadwa's investment process and performance of its products also received a nod of approval from Moody's Investor Service recently, when Jadwa was assigned Investment Management Quality Rating of MQ2. This is the second highest rating on Moody's scale which is used to evaluate asset management companies globally.

More importantly, this rating is the first of its kind by Moody's in the Middle East region. Mr Tabbara is proud of this achievement and claims that it raises the bar for him and his team. “We need to continue to perform well to be able to maintain our rating. The rating is a validation of our commitment to employ international best practices in our business.”

Jadwa's achievements in the first four years of its existence are commendable. Mr Tabbara attributes these to the quality of his team, the support of Jadwa's senior management and its shareholders, and to the enabling environment provided by the regulator. However, there is still more to come, in his opinion: “I want Jadwa's asset management to be recognised as the undisputed leader in this business in the MENA region. In order to achieve the status we need to continue to work hard in constantly improving our performance, developing new and innovative products and raising funds.” He also thinks that the region's markets need to improve: “Our markets are still in the development phase. Investment decisions are generally taken without due analysis as quality research is lacking or limited in most cases. The way forward is to have more institutional participation in the markets and retail money channeled through the institutions. At the institutional level focus should be on further improving analytical skills of employees.”

Jadwa is optimistic regarding MENA region's growth prospects in the backdrop of continued government and strong energy prices. Mr Tabbara also believes that public equities in the region are trading at attractive multiples as compared to historical levels and sees good investment opportunities. “In the medium term we expect some of the regional markets to be elevated from frontier to emerging markets status which would result in fresh flows and improved valuations,” he says. “On a country specific basis, we like Saudi Arabia, Qatar and Egypt. Companies listed on these markets are growing rapidly through aggressive yet calculated expansions. With the global economy turning a corner, we expect both regional and international investors to realise the attractiveness of these companies.” Regulators are also working hard to improve corporate governance, transparency and professional standards, he says.

In the private equity segment, he notices that a number of family owned businesses have re-organised themselves on professional lines. These family owned conglomerates have grown significantly over the last 10-15 years and are ready to move onto the next level. Such businesses offer attractive proposition for private equity investors.

The investment climate in the region appears to be improving and Jadwa looks well positioned to exploit it.  

Fadi Tabbara is Jadwa's Head of Asset Management and Chief Investment Officer

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