Markaz: Performance excellence in mutual funds and investment banking in 2018 with precautionary approach to RE to face unprecedented regional volatility


Kuwait Financial Centre “Markaz” (KSE: Markaz, Reuters: MARKZ.KW, Bloomberg: MARKAZ:KK) reported steady Operating Revenues of KD 15.30 million during 2018 compared to KD 15.40 million in 2017, primarily driven by a strong performance in the Investment Banking division. Management and Investment Banking fees increased by 22% year on year to KD 8.93 million. Net Profit attributable to shareholders of Markaz was KD 2.29 million (EPS 5 fils per share) for 2018, with a margin of 15%. The Board of Directors has recommended a dividend of 4 fils per share.

Mr. Diraar Yusuf Alghanim, Chairman of Markaz, said in a statement, “With unprecedented GCC geopolitical risk in 2018, Markaz delivered a relatively excellent performance across its equities and investment banking business. The difficult environment most impacted GCC real estate excluding Kuwait which Markaz counteracted with operating efficiency initiatives across its real estate portfolio to preserve invested capital. With this backdrop, I am pleased to announce that during 2018 Markaz was named ‘Best Asset Manager in Kuwait’ by EMEA Finance Awards. This is a testament of our asset management teams’ expertise in successfully managing portfolios in recently volatile market conditions internationally and across the GCC region. In addition, Markaz was named ‘Best Investment Bank in Kuwait’ and ‘The Most Innovative Financial Institution in Middle East’ by EMEA Finance Awards. Markaz was also named ‘Best Investment Bank in Kuwait’ by Global Finance. These award recognitions affirm the quality of our investment banking services across mergers and acquisitions, capital restructurings, in addition to equity and debt issuances and listing advisory. Furthermore, our published research subsidiary, Marmore, was awarded ‘Research Provider of the Year’ by Euromoney.

During 2018, Markaz was able to achieve sustainable financial performance as a result of its diversification across both products and geographies. Asset Management fees of KD 7.21 million, increased by 9.5% and Investment Banking fees increased to KD 1.72 million up by 140% compared with 2017. Income from Principal Investments in 2018 was KD 6.43 million, a decrease of 20.2% from last year. This was primarily attributable to the less than expected gain from funds, marketable securities and equity participation. Markaz assets under management at the end of December 2018 increased by 6.4% to KD 1.09 billion.

The end of the year was marked with turmoil in the global equity markets, with a 6.2% decline in the S&P 500 and emerging markets also experienced significant declines compared to the highs of 2017. However, GCC equity markets delivered relative gains during 2018 with the MSCI GCC index up 12% for the year. This performance was primarily on the back of 20% returns for Qatar, followed by Abu Dhabi and Saudi Arabia with returns of 11.7% and 8.3% respectively. The overall regional return was offset by the performance of Dubai and Oman, which declined by 24.9% and 15.2% respectively. In the Kuwait market, the Premier Market Index increased by 9.9% whereas the Main Market Index declined by 1.9%, resulting in 5.2% overall gains for the All Share Index. In most cases, Q4 2018 eroded the higher gains which had accrued in the first nine months of 2018. Global equity markets were clearly impacted by global trade tensions with the US – China trade war, rising US interest rates and capital outflows from developing markets. With these market conditions in mind, most of our active equity funds ended the year with moderate gains. Markaz Investment & Development Fund (MIDAF) and Markaz Fund for Excellent Yields (MUMTAZ) recorded yearly returns of 9.3% and 9.0% respectively. Markaz Islamic Fund (MIF), a Sharia compliant fund, recorded a 7.8 % yearly yield.

The S&P MENA Bonds and Sukuk Index total return increased on a year to date basis, with the index up by 0.39%. The Markaz Fixed Income fund AUM remained stable despite other asset classes delivering stronger relative returns. I am delighted that the fund was the best performing fund among regional peers of the same weighted credit rating.

The prevailing sentiment in the real estate market across the GCC region continues to remain weak, reducing rental rates and sale values by 15% during 2018 in the UAE and Saudi Arabia. However, market conditions remained relatively stable in Kuwait. The headwinds in macroeconomic growth are expected to continue to negatively impact the real estate sector in the near term. Despite these market conditions, the Markaz real estate team was able to maintain high occupancy levels across its established portfolio of income generating assets, exceeding 95% in Kuwait, UAE and Saudi Arabia. Recently launched assets such as Al Maha in Kuwait and Boardwalk in UAE have reached occupancy levels during 2018 of 85% and 100% respectively. 

With this real estate market backdrop, MREF, the flagship Markaz real estate fund, delivered positive returns of 3.4% to investors in 2018. We also continue to focus on enhancing the operational model in our real estate business, particularly using technology platforms, and are well positioned to capture new opportunities in the market. The real estate team is currently assessing the possibility of launching several products which include a listed REIT and a portfolio focused on acquiring distressed assets.

The international commercial real estate sector saw muted growth this year with property prices increasing by 2% as per the Green Street commercial property price index (CPPI). During 2018, we started construction on four new industrial development projects in the U.S. and Europe. We have been very selective in focusing on projects with strong anticipated fundamentals such as attractive supply and demand dynamics, rental growth prospects and stable occupancy rates. Markaz has also realized its investments in three development projects within the U.S. consisting of two industrial facilities and one self-storage facility, achieving a weighted average Return on Investment of 27%. Our international real estate team continues to expand its investment program designed to capitalize on value-add opportunities in the U.S. and a selected European markets.

The main 2018 corporate transaction drivers were consolidation in the financial sector, strategic moves toward defensive sectors like education and healthcare and investing in technology ventures. During the course of the year, our Investment Banking division continued to successfully execute and advise on high profile transactions across corporate advisory, M&A, restructuring and equity capital markets. The debt restructuring of The Sultan Center and M&A advisory to ACICO in connection with its sale of a minority position in a subsidiary were two landmark transactions in 2018. In addition, Capital Markets team successfully raised KD20 million for United Projects for Aviation Services Company (UPAC) through a rights’ issue in addition to closing an ECM advisory services and DCM advisory services for two prominent corporate clients. As we look forward, our Investment Banking team continues to deepen its advisory dialogue with corporate clients and family offices offering a combination of sector experience and execution excellence.

Global capital markets continue to face significant pressure due to escalating geopolitical tensions and the rise of protectionist trade policies. This is further amplified by leading economists signaling a reduction in GDP growth rates across many developed and emerging markets. During this period of economic volatility, the Markaz management team continues to remain attentive to the needs of core corporate and investor clients, providing them with unbiased and insightful advice. We are focused on increasing shareholder value as we continue to streamline our business operations by refining internal procedures and lowering costs without compromising quality. Markaz is one of the leading wealth management and investment banking financial institutions in the region that gained the trust and loyalty of its clients over the last 40 years.”