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Markaz announced its financial results for the Third Quarter ended 30 September 2010. The Company reported an YTD net profit of KD 6.9 million, or 15 fils per share as of 30 September 2010, compared to an YTD net profit of KD 4.15 million, or 9 fils per share for the same period in 2009.
Diraar Y. Alghanim, Chairman and Managing Director of Markaz said:”Our earnings have improved on the account of better investment returns and a gain in Assets under Management. Investors’ confidence is returning, driven by improvement in market fundamentals. Firstly, government projects are expected to be awarded at an increasing pace; secondly, the regulatory landscape is shaping up with the recent appointment of the Capital Market Authority Board, reflecting the process of bringing more order to the market; and thirdly, prospects of major acquisitions had favorable impact on the market. We are optimistic that the demand for M&A advisory services will be on the increase, as mid-size and smaller companies benefit from increased liquidity.”
Manaf A. Alhajeri, Chief Executive Officer of Markaz said: “With its liquid balance sheet, Markaz was well positioned to benefit from favorable market conditions which enabled it to seize attractive investment opportunities. Our investment approach was mainly driven by risk-adjusted performance and compliance, which are the main priorities for investors. Consequently, there was positive inflow of funds from our clients, resulting in an increase in our assets under management (AUM) by over 12% YTD. In addition, the comeback of M&A activities will continue to contribute to the stability of our fee income. As previously announced, we are in full compliance with the Central Bank of Kuwait’s financial ratios, a factor that further enhances Markaz reputation as a leading institution in asset management and investment banking.”
Alhajeri highlighted the Company’s activities in Q3 2010, as follows.
Markaz Activities - Asset Management
MENA Equities
While most markets in the region posted strong gains for the quarter, Kuwait was a notable performer with strong gains in blue-chip stocks led by banking shares and positive news on major deals flow. The KIC Index posted a return of 16.4%, year-to-date. S&P Pan Arabian Composite Index posted a return of 9.9% YTD.
Markaz Equity funds continue to deliver superior returns outperforming their benchmarks. Markaz flagship fund ‘Mumtaz’ posted 21.4% year-to-date returns. ‘Forsa Fund’, the only derivatives fund in the region returned 15.9% while ‘MIDAF’ registered a return of 19.8% for the same period.
Markaz continues to reap awards and ratings. Markaz won the “Best Asset Manager in Kuwait” award by Global Investor magazine, a Euromoney publication. The judges granted the award taking into account the company’s healthy balance sheet, performance and diversity of its product offerings, innovation, investment approach to navigate market cycles, high level of corporate governance, and sustainable growth in market share, assets under management and client base.
‘Markaz Gulf Fund’ (Gulf) which performed 8.3% YTD, has been ranked as the top performing MENA Equities Fund by Zawya, the leading Middle East business information company. ‘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 or marketing agent through its Priority Banking network.
International Investments
Fears of double-dip seem to be exaggerated as demonstrated by the swift rally during the last quarter. However, Markaz is being cautious since, the recovery is weak. Accordingly, Markaz tweaked its asset allocation at the beginning of this quarter by betting into balance funds, while simultaneously increasing its exposure to emerging markets like Africa, Russia and other frontier markets.
Accordingly, the tactical asset allocations carried out by Markaz resulted in a swift turnaround in its proprietary portfolio’s performance. As of the quarter end, the flagship international fund, ‘Atlas Diversified Class’ returned 0.58% YTD. The themes based fund, ‘Atlas EMT Class’ was down 1.09% YTD. The ‘ETF program’, where a slew of ETFs are traded, was up 4.6% YTD. And the ‘Creative Investment Program’, which is modeled on a hedge fund style of investing, has returned -1.8% YTD.
Markaz Private Equity net assets under management return was up 9.41% as deal flow and fund raising activities are strengthening.
Markaz Activities - Investment Banking
Corporate Finance
The public market has witnessed pick-up in merger and acquisition activities with the announcement of the Zain transaction. Whereas Markaz is working on several sale and recapitalization mandates and transactions in the medium to small size space, the bid-ask spread on transactions remain high, and it is taking longer to close transactions, which is usual in this stage of the recovery.
‘Markaz Fixed Income Portfolio” has shifted strategy from investing opportunistically in the past, achieving double digit returns, to investing in low-risk sovereign and quasi-sovereign issues. The Portfolio has achieved 9.08% in Q3, and Markaz is in the final stages of launching a fixed income fund.
Structured Finance
Markaz remains the sole options market maker in the Middle East since 2005. A total of 6,543 contracts were traded in YTD 2010 with an underlying value of KD 6.849 million, a decline of 40.72% and 46.01%, respectively, compared with the same period in 2009. Trading has increased relatively by the end of Q3 due to news on positive corporate earnings in Q3 2010, and the execution of major deals in the Kuwaiti Market.
Real Estate Investments
Markaz MENA Real Estate team manages investments across the region developing residential and commercial buildings as well as managing income generating real estate assets.
In Q3 of 2010, Kuwait real estate market showed modest recovery signs for the investment sector while the commercial sector remained stable and the office sector is still lurking on the weak side. ‘Markaz Real Estate Fund’, with a low allocation to the adversely affected commercial real estate, achieved a 4.2% return YTD and continues to distribute a monthly cash dividend amounting to 7% annually. Markaz entered into an agreement with Gulf Bank to market MREF to their clients. The efforts were very successful with an overwhelming interest from the bank’s clients.
On the development side, Markaz continues to manage its investments in Lebanon, KSA, Jordan, Syria, Abu Dhabi and Qatar. During Q3 2010, progress has been made towards completing one of our residential developments in Lebanon while work continues for the remaining investments as planned. Efforts are in place for exiting residential developments in Jordan and land development in KSA. Additionally, Markaz has acquired plots of land in the city of Al-Khoubar to develop and sell residential units investing his proprietary money and on behalf of clients.
As for our US real estate investment, commercial property values in the US are showing signs of stabilizing, as lending returns. However, over $ 1.2 trillion of commercial real estate mortgages mature in the next four years, and leveraged borrowers and lenders will continue to face challenges as they attempt to refinance their loans.
Consistent with this outlook, Markaz has launched the ‘Markaz U.S. Distressed Debt Program’, with the objective of investing in non-performing and sub-performing commercial mortgages in the U.S. To date, the Program has acquired four loans collateralized by commercial properties in California and Nevada at significant discounts to underlying collateral values. Within five months since inception, the Markaz is already selling its first investment over 40% premium to acquisition costs.
Oil and Gas
‘Markaz Energy Fund’ (MEF) invested in energy services stocks, listed on the local and international markets, which has reflected positively on the Fund’s performance in Q3 2010. The Fund also invests in Kuwait First Transportation Company (KFTC), which offers equipment leasing services to the contractors in the oil sector. KFTC has recently hired an international advisor to restructure the Company’s strategy in order to achieve its expansion plans.
On the back of appreciating oil barrel prices, production, exploration, development, and services companies operating in the sector will be the main beneficiaries. Capitalizing on that, MEF is mainly investing in such companies and working on acquiring a stake in a regional company in the exploration and production field.
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About Kuwait Financial Centre “Markaz”
Kuwait Financial Centre S.A.K. 'Markaz', with total assets under management of over KD1,03 billion (USD 3,64 billion) as of September 30, 2010, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997.
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Photo Caption: Mr. Diraar Y. Alghanim - Chairman and Managing Director of Kuwait Financial Centre S.A.K. "Markaz"