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Healthy balance sheet and full compliance with new CBK regulations
Markaz’s market share in asset management and corporate finance enhanced
“Markaz”, announced its financial results for the First Half ended 30 June 2010. The Company reported a net profit of KD 1.44 million, or 3 fils per share, compared to a net profit of KD2.18, or 5 fils per share for the same period in 2009.Diraar Y. Alghanim, Chairman and Managing Director of Markaz said: "Markaz is in full compliance with new regulations set forth by the Central Bank of Kuwait on limits pertaining to financial leverage ratio, quick ratio and foreign liabilities exposure for investment companies. We anticipate more regulations in the near future targeting balance sheet quality and investment management practices. As always, we are proactive in applying strict guidelines ahead of the regulatory requirements and believe that this voluntary governance, liquid balance sheet, quality of asset management staff, and our consistent performance throughout the years, will help sustain our leadership in fund management in Kuwait and the GCC.”
Manaf A. Alhajeri, Chief Executive Officer of "Markaz" said: "Markaz continues to attract sophisticated institutional clients and those from regulated jurisdictions; that, and the its strong client base continue to make Markaz the leading fund manager in Kuwait, and fourth largest among GCC fund managers in terms of size of assets managed. Additionally, Markaz Funds continue to reap awards and ratings due to consistent performance, low volatility and excellent governance."
Alhajeri highlighted the Company’s activities in H1 2010, as follows.
Markaz Activities - Asset Management
Local and GCC Investments
Regional Equity markets got a good start for the year on the back of strength seen in global equity markets and crude oil prices. However, in the second quarter of the year, volatility crept into the markets as worries over the sovereign debt crisis of the Euro zone escalated. MSCI-Arabia Index closed H1 with 0.9% growth.
The Kuwait equity market weakened in the second quarter after the early rally for a combination of reasons. The fate of financially troubled companies remains uncertain; the delay in implementing the fiscal stimulus plan; ambiguity over the implementation of new rules by the upcoming Capital Market Authority; and finally, credit markets continue to be tight with the cost of financing relative to deposit rates reaching an all-time peak. KIC index closed June 2010 by -0.7% (YTD) due to the sharp decline in corporate earnings.
To minimize the impact of volatile markets on MENA equity funds, Markaz increased its allocation to cash in all its funds and portfolios, leading to positive performance. Markaz flagship funds ‘Mumtaz’ and ‘MIDAF’ managed to close the first half with a positive return of 1.6% and 1.7%. However, Markaz Islamic fund lagged behind its benchmark MADAR index gain of 2.9% achieving -0.25% returns and Markaz Gulf Fund had underperformed its benchmark by about 2.4%.
“Mumtaz” fund was awarded “Best Equity Fund - Kuwait” for the year 2009 by the leading regional publication ‘MENA Fund Manager’. Additionally, three funds collectively won four Lipper Awards for best risk-adjusted performance during the year. Markaz "Mumtaz" Fund won two awards for best Kuwaiti Equities Fund for the periods of three and five years. “Markaz Gulf Fund" won best MENA Equities Fund and "Markaz Islamic Fund" won best Islamic Kuwaiti Equities Fund, both for the period of three years. Additionally, Standard and Poor’s renewed its “A” rating for both “Mumtaz” and “Gulf” funds.
To reach a wider base of retail clients, Markaz signed a distribution agreement with Gulf Bank whereby the Bank acts as Selling Agent of Markaz investment funds through its Priority Banking network.
International Investments
The second quarter of the year 2010 has been very volatile and difficult for capital markets. MSCI World declined by 10.88%, and the debt markets experienced high volatility due to the European sovereign debt crisis.. Concerns over signs of slowdown in China and data casting doubts in economic recovery also contributed to this decline.
As of June 30, 2010, The flagship international products "Atlas Diversified Class", which reflects our asset allocation ideas, returned -12.14% for H1-10. Markaz themes based fund, "Atlas Emerging Markets Thematic Fund", which captures the global macro opportunitiesfrom ?ve of the most promising investment themes, namely, Infrastructure, Commodities, Consumer, Telecom and Agribusiness. , was down 12.57%. And the "Atlas ETFs Program", which manages a slew of ETFs, declined by 9.74% during the same period.
Markaz Private Equity Net Assets Under Management return was up 7.75% as deal flow and fund raising activities are strengthening.
Markaz Activities - Investment Banking
Corporate Finance
Deleveraging through sale of assets and consolidation of debt is expected to accelerate towards year end. Markaz is increasingly being selected by leading companies to offer advisory services focusing on strategy. In H1, three mandates were executed, two restructuring and one M&A.
GCC Fixed income market issuance reached USD 24.2 billion in H1 2010, mainly by sovereign and quasi sovereign issuers; a decline of 32% from the same period last year. "Markaz Fixed Income Program" has shifted strategy from investing opportunistically in the past, achieving double digit returns, to investing in low risk issues. The program has achieved 2% in H1. Markaz is planning to launch a fixed income fund.
Structured Finance
Markaz remains the sole options market maker in the Middle East since 2005. A total of 4,750 contracts were traded in H1 2010 with an underlying value of KD 5.03 million, a decline of 34.66% and 33.50%, respectively, compared with the same period in 2009. The decline is due to the weak market sentiment and low trading volumes in the equity market.
Markaz Real Estate Investments
In the first half of 2010, Kuwait real estate market continued to show signs of stability, which started in mid 2009. Markaz Real Estate Fund, with a low allocation to adversely affected commercial real estate, achieved a positive 3.24% return and continues to distribute a monthly cash dividend amounting to 7% annually. Government action to rent office space is expected to stabilize commercial real estate in the near future.
The development of residential projects in Lebanon is on target; with one project completely presold and 90% of the second project sold and delivered. As for the KSA land development program “Aradi”, the development of the land infrastructure is being finalized. “Markaz” has successfully sold 25% of the portfolio at a gross return of 26%, and is marketing the remaining plots of land. “Markaz” is in the process of launching an investment program targeting residential real estate development in the Eastern Province to take advantage of the acute shortage in supply of mid-income housing in KSA. In addition, the Company acquired for one of its funds a new property at Al Reem Island in Abu Dhabi at an advantageous price benefitting from distressed sellers with the aim of developing mid-level residential apartments. Additionally, the feasibility of a number of projects in Egypt is being studied.
As for US real estate, commercial property values are expected to decline further in the next 12-18 months due to financial distress caused by upcoming maturities of commercial mortgages. However, long – term forecasts remain optimistic that property values will recover. Given the current environment, Markaz’s strategy consist of preserving capital on our existing portfolio of commercial real estate, working closely to stabilize occupancy and to extend the maturity of loans.
In parallel, Markaz has launched an investment program to benefit from the short term decline in commercial property prices, towards that, Markaz US Distressed Debt Program has been established under the management of wholly owned subsidiary MarGulf Management, Inc, and two non-performing commercial mortgages were acquired, and funded by Markaz.
Oil and Gas
Energy stocks worldwide have been in decline from the fall-out from BP’s oil spill in the Gulf of Mexico, combined with signs of weaker economic recovery. "Markaz Energy Fund" substantially reduced its exposure to such public stocks, and is actively managing its private equity portfolio to maximize value. The Fund was up 0.8% as of the end of June 2010.
Our team is managing sector focused mandates, related to the capitalization and spin off of energy related companies; their knowledge in the sector is now being invested in assisting companies in restructuring, acquiring and financing operations.
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About Kuwait Financial Centre “Markaz”
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Photo Caption: Mr. Diraar Y. Alghanim - Chairman and Managing Director of Kuwait Financial Centre S.A.K. "Markaz"