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On its 35th year anniversary, “Markaz's” unique business model proves its resilience
Mr. Diraar Y. Alghanim, Chairman and Managing Director of Kuwait Financial Centre S.A.K. "Markaz", one of the Middle East’s leading investment banking and asset management companies, said "Markaz reported its financial results for the first nine months of fiscal 2009 registering a net profit of KD 4.16 million or 9 fils per share, compared to a net loss of KD 1 million, or a 2 fils drop in earnings per share for the same period in 2008. The profit for the period was mainly attributed to management fees of KD 6.03 million which acted as a cushion against turbulent markets. The stated net profit is after the deduction of impairment provisions taken as additional precautionary measures to meet the various risks. The company has a portfolio of high quality liquid assets coupled with low debt-to-equity ratio and almost zero short-term debt and is in a prime position to exploit arising business opportunities and will continue to follow its conservative investment strategy and accounting policies."
Mr. Manaf Alhajeri – General Manager of "Markaz" said "We believe that the current challenging financing situation will lead to strong financial services companies with similar track record to "Markaz", to act as a gateway to providing alternative sources of funding such as mutual funds and portfolios, real estate, and the structuring of bonds and convertible bonds and sukuks."
Asset Management
GCC Investments
"Markaz" equity investment products delivered good returns and were among the top performing funds in their respective categories for the period. "Mumtaz Fund", "Markaz’s" flagship Kuwait focused fund, achieved a YTD gain of 18.2% outperforming the benchmark with considerable 11.51% margin while "Markaz Gulf Fund" recorded gains of 25.1% for the same period. The KIC index registered gains of 6.7% for the first nine months of the year. Other GCC markets in the region also posted noteworthy returns for the period with MSCI GCC posting 32.9% returns. Both "Mumtaz" and "Gulf" funds acquired in Q3 2009 an "A" rating from Standard & Poor's. Additionally "Markaz" has a leading and significant market share of the Kuwaiti mutual funds space.
International Investments
Most "Markaz" international products outperformed their benchmarks as of the end of September 2009, owing to opportunistic investing and dynamic asset allocation. The "ETFs Program" which aims to outperform broad market and sector indices by allocating its assets into various Exchange Traded Funds was up 30.33%, outperforming MSCI world by 7.86% for the same period. The "Emerging Markets Thematic Fund", which invests in a portfolio of globally diversified equities with a focus on select themes, returned 19.75%. “Atlas Diversified Class”, which seeks to obtain consistent returns with low volatility by investing in a portfolio of global securities and financial products returned 8.53%. "Markaz" portfolio of private equity investments was down 4.74% YTD.
Investment Banking
Corporate Finance
In Q1 2009, "Markaz" seeded and launched its "Fixed Income Program" which selectively invests in GCC primary and secondary markets for bonds and sukuk. The Program gained 20% as of close of September 2009 beating the 12% targeted return for the same period and with lower risk than equity investments at a time where most asset classes declined. Fixed income notes issued by sovereign and corporate entities were trading at steep discounts at the beginning of 2009 due to the global credit crunch that affected major investors. "Markaz" identified this short-termed opportunity and benefitted from the attractive valuations.
Structured Finance
The Kuwait Stock Exchange is expected to approve by the end of the year various enhancements to options such as the launching of put options which can be used as a hedging strategy; also, an Islamic alternative to call options "Arboun Contracts" when launched will make the KSE the first market in the world to offer such a tool; in addition to allowing trading of options during regular trading hours. "Markaz" is also steering other parties in becoming market makers and is sharing its accumulated expertise in this field. "Markaz" now has 56 companies listed on the options market.
"Markaz", using "Forsa Financial Fund" as the GCC region's first and sole market maker of options since 2005, has been actively engaging with the Kuwait Stock Exchange to develop the options market further. As forward trading is being phased out by the KSE, options are being hailed as a worthy successor. "Markaz" is working with the KSE on placing previously submitted proposals on the fast pedal.
MENA Real Estate
The Levant region seemed more resilient to the global financial crisis as residential real estate in Lebanon remains strong whereas "Markaz" almost completed the selling of luxurious apartment units in Clemenceau overseeing Ras Beirut seafront. As for the "Markaz Real Estate Opportunities Fund" which invests in the MENA region and “Aradi Portfolio” in KSA, development is underway and underlying investments are all on track to achieve their respective targeted IRRs.
"Markaz Real Estate Fund", a local income generating real estate fund, worked on preserving its NAV valuation which was down 6.2% until the end of September 2009, however monthly cash distributions totally 7% p.a and redemptions remain unaffected and provided much needed liquidity at a time where corporate dividends and deposit interest rates substantially decreased. The CAGR since inception in 2002 to end of September 2009 is 10.4% inclusive of the aforementioned distributions.
Oil and Gas
"Markaz Energy Fund" was up 9.74% as of the end of September 2009. The sustained performance of Kuwait First Transportation Company and the restructuring of the Fund's investments have been major drivers in the recovery of the NAV. The proceeds were reinvested in a variety of asset classes including oil and gas related fixed income securities and international and local equities.
Kuwait Financial Centre S.A.K. "Markaz", with total assets under management of over KD 960 million (USD 3.3 billion) as of September 30, 2009, 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 Markaz and Mr. Manaf Alhajeri – General Manager of Markaz