Company in robust health and has significant market share in GCC fund management industry
Markaz announced its 2009 financial results, reporting a net profit of KD 2.54 million, or 6 fils per share, compared to a net loss of KD18.77 in 2008, primarily due to management fees and income and gains in GCC and international equity investments. “Markaz” short-term debt totalled KD 4 million and total debt reached KD32.68 million which represents 4.87% and 39.75% of total shareholders’ equity, respectively. The Board of Directors proposed no dividend distributions for the 2009.
Diraar Y. Alghanim, Chairman and Managing Director of “Markaz” said: "In 2009, the stamina of financial institutions was tested. Besides their ability to survive, preserving shareholders' and investors' capital became a key concern. In spite of these circumstances, “Markaz” fared well during the crisis on the following accounts: The Company's healthy balance sheet in terms of quality of assets and low debt-to-equity ratio kept it afloat in these difficult waters. Additionally, “Markaz” strengthened its market positioning in the region and achieved attractive profits for its shareholders."
Manaf Alhajeri, General Manager of "Markaz" said: " “Markaz” emerged as a MENA investment partner of choice targeted by international institutions. “Markaz” has been selected by a leading European investment provider to act as the Investment Advisor based on experience in the field and performance track record. According to in-house research , “Markaz” manages a significant market share in the GCC fund management industry; the company moved up a spot to fourth place on the GCC in terms of size of assets managed, and maintained its market leadership in Kuwait. Additionally, Standard & Poor’s assigned "A" Ratings for "Mumtaz" and "Gulf" Funds which is a testimonial to the high standards followed in our investment processes and consistent track record. It also highlights our ability to adapt to changing market conditions."
Markaz Activities - Asset Management
Local and GCC Investments
Our flag-ship Kuwaiti Fund "Mumtaz" remained ahead of its peers posting a YTD 3.1% return beating its benchmark by 12.4%. Markaz Gulf Fund posted a YTD 14.3% return, underperforming its benchmark by 8.1% due to a conservative strategy employed to avoid risks of getting trapped in bear market rallies. The Portfolio managers’ bias towards large-mid cap companies with sustainable business revenues allowed the accounts to post 9.7% YTD Composite return.
MSCI World posted a growth of 26.98% while BRICs gained 86.94%. Our Atlas portfolios Atlas Diversified Class and Emerging Markets Thematic Class have improved 11.02% and 24.46%, respectively. Atlas ETF's program generated alpha of more than 11 percentage points.
The Private Equity industry is no exception to the damage that was incurred in 2009, “Markaz” private equity investments were down 3.43% for the same period.
Due to defaulting of large financial institutions, and like all other money market funds in Kuwait, our Money Market Funds managed by the Treasury Department also bore the impact of the financial crisis. Therefore, acting in the best interest of investors, “Markaz” has swiftly taken the necessary measures to ensure equitable and fair treatment to all Unit holders equally by ceasing further subscriptions/redemptions and redeeming the units on a pro rata basis to all Unitholders without exception as and when cash is available. All additional income earned from that period including any profit credited to the Fund’s account shall accrue to the unit holders.
Markaz Activities - Investment Banking
At the outset of 2009, “Markaz” acted swiftly to capitalize on an investment opportunity in the GCC fixed income market which emerged as a result of the credit crisis. Markaz Fixed Income Program was established in February to acquire high quality GCC debt securities trading at steep discounts. The program also invested in primary bond and sukuk issues that were offered throughout the year by GCC government and corporate entities. In the 10 months period, the program invested over USD100 million and achieved an aggregate return of 17%. Combined with the high returns, the Program displayed remarkable resilience in the face of market shocks throughout the year reflecting the high quality of its assets.
Over the year, the Department successfully executed three capital restructuring mandates for clients, including advising companies active in the construction and investment sectors. Sourcing of new capital for clients, however, slowed down to its lowest levels amidst tightening of credit and poor investment sentiment.
“Markaz” remains the sole options market maker in the Middle East since 2005. The number of stocks covered in the Options Market at the Kuwait Stock Exchange was decreased from 60 companies in 2008 to 56 companies in 2009, as companies were delisted due to defaults and illiquidity. The number of options contracts traded in 2009 witnessed a decline due to strong correlation with the stock market which declined 35% for the same period.
“Markaz” in 2009 submitted several proposals to the Kuwait Stock Exchange to allow investors to issue options contracts covered by their portfolio and to allow new market-makers in the options market to stimulate competition and liquidity. Work is underway on submitting a proposal to the KSE that will allow options trading during the official hours of the market.
Markaz Real Estate Investments
In 2009, the MENA real estate market suffered sharp declines in prices, with financing options and transactions almost nonexistent. “Markaz” invested in low risk countries and sectors which limited the impact of the financial crisis. In addition, all underlying investments within MENA funds and portfolios are above cost and most of these investments are on track to achieve the original targeted returns.
Although, the real estate market in Kuwait declined on average by around 20%, Markaz Real Estate Fund (MREF) finished the year with a decline of 5.2%. The Fund continued to pay dividends on a monthly basis.
"Markaz Real Estate Opportunities Fund" which invests in developmental real estate in KSA, Lebanon, Syria, Jordan and Qatar, initiated exiting from underlying investments after achieving its targets. The fund has exited completely from its investments in Clemenceau, Beirut and is in the process of exiting from "Aradi" in KSA by the end of 2010, and from Lusail, Qatar, partially in H2 2010 and completely by H1 2011.
Conditions in the U.S. commercial real estate market have continued to worsen, both with respect to real estate fundamentals and capital markets. The outlook for net operating income for commercial real estate remains weak for the next two years. Consistent with this outlook, we have reduced our U.S. real estate assets under management by 50% from the peak in 2006 through asset dispositions. For our remaining holdings, we are focusing our efforts on the preservation of capital values. Towards this objective, we have taken a number of actions, maintaining occupancy, proactively working with lenders to extend the maturity of underlying loans, attempting to maximize cash reserves and taking adequate provisions and write-downs in 2009.
Oil and Gas
Kuwait First Transportation Company, of which both Markaz Energy Fund (MEF) and “Markaz” are major shareholders, withstood pressures on the equipment leasing business and continues to perform well. MEF, which is qualified for the Kuwait Offset Program, received an enhancement in multiplier from 3.5 to 4 during 2009.
We believe that “Markaz” has a responsibility to promote transparency in the GCC and to keep the investment community up-to-date with rapid developments. The research initiative of “Markaz” was further strengthened during 2009, a year full of challenges and surprises. “Markaz” research continued to focus on strategic reports on themes relating to capital markets, in addition to equity research, infrastructure and real estate.
Corporate Social Responsibility
“Markaz” intensified its corporate social responsibility efforts, primarily focusing on two causes: the youth and the health sector.
Photo Caption: Diraar Y. Alghanim, Chairman and Managing Director of Kuwait Financial Centre “Markaz”
Kuwait Financial Centre S.A.K. 'Markaz', with total assets under management of over KD865 million (USD 3.02bn) as of December 31, 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.