Growth amidst uncertainty
Banker Middle East sat down with Ahmed Saud Ghouth, Chief Executive Officer of Alkhabeer Capital, to talk about the firm’s seven consecutive years of record growth amidst market uncertainty, including the factors that contributed to this success, and to discuss his outlook for the coming few years.
Alkhabeer Capital, the asset manager specialised in alternative investments, performed well above industry expectations in 2016, achieving outstanding financial results despite the economic uncertainty and geopolitical tensions in the region. In 2016, Alkhabeer Capital was up six per cent in net income and reported an increase of 10 per cent in assets under management.
Can you share with us more information on the company’s financial performance?
Alkhabeer’s total operating income grew by 16 per cent to SAR 207 million, while our net profit increased by six per cent to SAR 71 million. Furthermore, our return on equity (ROE) continued its upward trend with an increase of eight per cent, while total assets under management grew by 10 per cent to SAR 4.4 billion, with return on investment rising (ROI) to 12.6 per cent. These record results reflect our ability to quickly and proactively respond to new market shifts. Key highlights of our achievements during the year include the launch of two new real estate funds: we successfully structured and offered Alkhabeer Saudi Real Estate Income Fund I, and Alkhabeer Hospitality Fund I, both of which are closed private placement funds that are fully compliant with Capital Market Authority (CMA) regulations. Alkhabeer Capital also executed several complete and partial exits from our funds’ local and international real estate investments.
In private equity, we continued the execution of our strategy by investing in the education sector. In 2016, the Alkhabeer Education Private Equity Fund I, which was launched in 2015 as a closed private placement fund compliant with Capital Market Authority regulations, acquired an education company in Riyadh.
We also restructured our pioneering WAQF programme in line with our clients’ preferences for structuring and enhancing their Awqaf portfolio investments, and we continued developing our Fund Administration, Custody, and Operations Division. We also started targeting clients to provide custody services, having recognised the opportunity afforded by the new independent custodianship regulations issued by the CMA.
Though 2016 was a difficult year for many companies, Alkhabeer Capital reported record financial results for the seventh consecutive year, and was able to maintain its strong position. How did Alkhabeer achieve these results in the face of mounting challenges and difficulties dominating the sector during the year?
Alkhabeer Capital consolidated its business strategy by focusing on managing alternative investments, with a primary focus on real estate and private equity assets. Throughout the year, we strengthened our efforts towards sourcing income generating investments and devoted our energies and expertise to identifying competitive and innovative investment opportunities, while responding to market developments quickly and effectively.
In addition, we focused on becoming leaner and more focused in the face of economic challenges and uncertainties, while leveraging the talent we have nurtured at our firm as the core of our outstanding achievements. We also strengthened our corporate governance and risk management framework, upgraded our information technology platforms, and developed our systems and operational processes to control costs and improve productivity.
More broadly, we trust that the Saudi Vision 2030 and its National Transformation Plan 2020 will boost economic diversification in the Kingdom of Saudi Arabia. By taking advantage of the opportunities provided by the Saudi government’s commitment to supporting the growth of a number of non-oil sectors—including education, healthcare, and religious tourism—Alkhabeer was able to seize the moment and position itself for the future. These changes helped the company overcome challenges brought on by the changing risk characteristics of investors, due to a highly volatile global economic environment.
Alkhabeer raised record equity investments through private placement, in spite of ongoing uncertainties dominating the markets throughout 2016. How were you able to maintain the trust of your clients, and what is your strategy for developing this trust?
Undoubtedly, the main factor that contributed to Alkhabeer Capital’s success in 2016 is our clients’ sustained confidence and loyalty, as we continue to strive towards being a partner that facilitates innovative investment solutions with long-term value.
Our strategy in doing business is centred on the nature of the relationship between Alkhabeer Capital and its clients. We constantly look for ways to develop this relationship by assessing client needs, understanding their priorities and preferences, and providing products commensurate with their investment aspirations and objectives. We believe this attentiveness strengthens their confidence in the Alkhabeer Capital brand, the capabilities of our team, and the excellence of our products.
This is why in 2016 we saw a 10 per cent increase in client subscriptions in Alkhabeer Capital’s investment funds, and succeeded in raising record equity investments through private placement, amounting to SAR 588 million. In addition, Alkhabeer expanded its client base by 17 per cent, with a significant increase in institutional clients, including local and regional financial institutions and banks, as well as a 28 per cent increase in our discretionary portfolio management accounts.
Alkhabeer Capital was ranked by Great Place to Work as the top company in the financial sector on its list of Great Workplaces 2016—Kingdom of Saudi Arabia, and one of the best 25 workplaces in the Asia region. How did you achieve this, and why is it so important to you?
Alkhabeer Capital has earned a place on the Great Place to Work Institute’s list for the seventh consecutive year, and we have been ranked the top company in the financial sector, and fourth overall, on its annual list of Great Workplaces 2016 in the Kingdom of Saudi Arabia. Alkhabeer was also selected for the first time as one of the best 25 workplaces in the Asia region under the Best Small & Medium Workplaces category.
We are also proud that Alkhabeer has recently been named to the ’Best Workplaces in Asia 2017’ list for the second consecutive year, jumping 18 spots to sixth place under the Best Small & Medium Workplaces category, and the only company from Saudi Arabia on that list.
As for the reason behind our drive to nurture a positive working environment, one cannot overstate the importance of people in our achievements. To give our clients the best results and our shareholders the best returns, we need to build a team consisting of the best people, and having a workplace that motivates employees to do their best and collaborate towards shared objectives is the ultimate way to attract and retain talent, so our capabilities can truly shine.
Alkhabeer Capital is known as a leader in real estate investment, and has launched multiple real estate investment funds in local and international markets with an impressive track record in successful exits. Can you describe Alkhabeer’s real estate investment portfolio? What is Alkhabeer’s investment strategy in the real estate sector?
Alkhabeer understands the importance of the types of assets we offer our clients. We conduct extensive analytical studies to source investment opportunities based on deep understanding of real estate investment fundamentals. This is in order to provide a diverse range of products in local and international markets in all major asset classes. We also manage real estate investments by adopting strategies aimed at realising added value. This can be through sustainable returns from income-generating products, or by targeting promising sectors like religious tourism, as well as other investment strategies.
We allocate our capital effectively to several market segments in order to achieve different investment objectives. We also arrange investment opportunities based on risk returns, geographic and sectoral preferences of our clients, and subsequently use our extensive experience in the sectors we invest in, along with our prudent approach, to achieve the highest levels of performance.
This year, Alkhabeer was named ‘Best Private Equity Company’ in Saudi Arabia at the Banker Middle East awards. When did you start focusing on private equity investments, and what is the secret to your success?
Alkhabeer Capital is proud for the awards that we receive, and this recognition of Alkhabeer Capital as the Best Private Equity Company in the Kingdom is testament to our team’s hard work in sourcing promising investment opportunities, developing our private equity portfolio and creating added value for each of the portfolio companies.
Alkhabeer Capital is considered to be a major player in the region. Our first private equity fund was launched in 2012, which invests in the industrial sector. By end of 2016, our private equity portfolio consisted of five closed-ended private placement funds investing in healthcare and education, in addition to our industrial portfolio companies.
The company’s successful private equity strategy focuses on investing in defensive sectors, such as education and healthcare, and a cautious yet opportunistic approach to manufacturing businesses that have strong exporting activities, such as food and beverage, as well as retail. This strategy allows Alkhabeer Capital to achieve strong returns while minimising risk relative to the opportunities we invest in.
In view of ongoing changes in local and international markets, and the developments implemented by the government to support the Saudi economy and diversify sources of income, can you please briefly describe your outlook for the Company over the period to come, and your readiness to tackle these changes?
Looking ahead, we expect that the coming few years will continue to be highly challenging and unpredictable, with the headwinds that rocked markets last year continuing unabated. However, based on our solid achievements, the management team believes in its ability to implement Alkhabeer’s strategy, address market challenges, and proactively seize new business opportunities. Nevertheless, it should be pointed out that continued uncertainties in economic, geopolitical and regional market conditions could make it difficult to sustain the high growth momentum of recent years. As such, we remain cautiously optimistic about the future prospects for Alkhabeer Capital.
Overall, we expect that the next few years may be even tougher than 2016/2017, with the current economic volatility continuing to negatively impact most asset classes. The key challenges remain—specifically around oil prices, market volatility and geopolitical tensions. In response, we will continue to sharpen our strategic focus, consolidate our first-mover advantage, diversify our revenue streams, develop the right products to meet investors’ needs, and be creative in investing in the right businesses. We will also strengthen further our institutional capability, maximising operational cost efficiencies and improving the productivity of our people. Looking ahead, we will exercise caution and be more conservative in selecting transactions.
Meanwhile, we will analyse a number of potential opportunities to consolidate Alkhabeer’s strong position in a global environment that has a great deal of uncertainty.