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ADFG has AuM of $3.2bn and IRR across all investments at 26%, which is not easy to achieve due to the risk and limited liquidity. How did you manage to earn 26% IRR?
ADFG has experienced consistent growth over the past four years due to our flexible strategy of investing opportunistically across asset classes and geographies, depending on the macroeconomic picture and where value can be sourced. During 2011 and 2012, ADFG’s focus was primarily on the UAE and distressed investments from liquidity constrained parties, when it was possible to garner significant discounts at acquisition. During this time, ADFG rolled out the first secondary focused private equity fund in the region, ADCM Secondary Private Equity Fund, sourcing excellent investments through its network.
More recently, ADFG also sourced mega projects in Central London, such as 1 Palace Street and the New Scotland Yard development, as well as Eastern Europe. These are both regions where we have a strong understanding of the local market and local offices. Almost all of the investments have generated strong returns to ADFG’s investors.
Where do you see the opportunities now for structuring and debt financing solutions such as mezzanine debt, corporate debt and acquisition finance? Is the demand for high yield debt more than other solutions?
Banks continue to be restrained in the extent of leverage they are willing to fund, resulting in a significant gap for certain financing requirements. This holds especially true for asset-backed and sometimes illiquid or non-income generating assets, such as real estate developments or corporates seeking flexible growth capital.
Where banks don’t fund, our alternative financing platform, Integrated Alternative Finance, can bridge the gap. Our key markets are the London real estate sector, where such structures are common place, and the MENA region where we see an increasing requirement for alternative lending solutions for real estate and corporates alike. We see growing appetite from our investors seeking balanced risk-adjusted returns, and who appreciate the downside protection provided by our debt solutions. Because of this, we expect Integrated Alternative Finance to be very active in this space throughout 2016, whether it is last mile financing, a junior loan, a stretch loan, or a mezzanine loan.
Back in 2011, ADFG had launched the first Middle East based secondary fund ADCM Secondary Private Equity Fund. How is the fund doing now? Which type of investors would benefit from investing in this fund?
When it launched in 2011, the ADCM Secondary Private Equity Fund was a regional first with several private offices and institutional investors committing capital to the fund. The fund is currently in its ‘harvesting’ phase and is invested in 11 regional and global private equity funds. The fund has generated strong returns for the investors with an interim internal rate of return (IRR) of 22%. It has returned approximately 63% of the invested capital to its LPs.
How do you assess the GCC private equity outlook given that fundraising has become anemic post the 2008-global financial crisis?
On the contrary, the GCC private equity space is witnessing unprecedented growth paving the way for a less oil dependent economy driven by a dynamic and innovative private sector environment. Private equity fundraising in the MENA region reached roughly $1.1 billion in 2014, according to the EMPEA Special Report on Private Equity in the Middle East and Africa. New opportunities continue to emerge across the region and, positively, it is evident that the slump in oil prices has not discouraged seasoned investors from putting in capital to new funds. We are confident that fundraising in 2016 will gain momentum as the year progresses.
Which sectors do you believe open up avenues for PE investment in the UAE and the region?
The Real Estate and Financial Services sectors command the largest share of the economy, as well as companies listed on the financial markets. However, recently, there has been a push for greater diversification by regional governments and sectors such as manufacturing, professional services and technology are capturing the attention of investors.
ADFG’s real estate portfolio consists of residential and hospitality assets across the UK, Eastern Europe and the UAE. How do you identify potential investments?
ADFG sources its investments through an extensive network of trusted contacts and relationships in the business leadership community. Our strongest expertise and network exists in the UAE, UK and Eastern Europe. We have our offices across these locations, with on-the-ground teams that further assist in screening and evaluating different investment opportunities. Of course ADFG will always be opportunistic, by which I mean, we will consider any transaction in any market if we believe it represents real value to the company.
How do you measure risk in your real estate portfolios given the slowdown in major economies? Are you planning to tweak your investment strategy?
ADFG’s real estate portfolio is diversified across regions, as well as segments, mitigating traditional risks associated to macroeconomic trends. For example, our portfolio in the UK is London-based, consisting of ultra high-end prime residential offerings, such as 1 Palace Street, a 350,000sq. ft. building opposite Buckingham Palace with 72 luxury apartments and facilities including a cinema room, spa, pool, gym, and restaurant. The London property market demonstrated its resilience to the last global financial crisis, as investors from around the world trusted the prime Central London real estate market as a safe haven.
Meanwhile, our real estate portfolio in Eastern Europe consists of a landmark 1 million sq ft. mega-project in Podgorica, Montenegro, The Capital Plaza, which had its grand opening in September 2015, given us exposure to an exciting growth market. The fact that it is mixed-use, incorporating hospitality and food & beverage investments, further diversifies any perceived risk. Going forward, we will continue to expand in both of these markets in line with our investment strategy.
What are your investment plans in the near and mid-term?
Our future investment plans are to continue to focus on our key competencies which lie primarily in the real estate and financial services sectors. We will continue to build around this core, while maintaining our opportunistic approach to investing.
Last year in November, ADFG’s broking arm, Integrated Securities, was unveiled. But do you believe at a time when equity markets in the region have turned bearish, clients will be much willing to seek value in the equity markets?
The recent slump in the region’s stock markets has been primarily driven by the fall in the price of oil, and a lack of clarity as to whether this has reached the bottom of the market. It is natural for equity markets to experience such cycles, however our focus has always been on the mid- to long-term. We would therefore expect to benefit on the increase in trading volumes as the regional economic outlook picks-up and investors come to Integrated Securities to seek the expertise of our team and use our digital trading platforms.
While alternatives are becoming popular asset classes, investors generally tend to have a small allocation in the overall portfolio.
What could be the reasonable cause behind this? Do investors get scared away by the apparent complexity of these products?
Investors are mostly interested in the alternative investment asset class to boost and enhance the overall returns of their portfolio when it is tough to find value elsewhere. Seasoned investors understand the risk-return profile of this asset class and appreciate the investment strategies and insight our team presents to them. However, as a portion of their overall portfolio, the allocation to this asset class is relatively small.
And lastly, do you have any roadshows/marketing trips planned for 2016?
We have discussions with the investment community, both in the GCC and internationally, on a daily basis. In March 2016, we will host our annual Investor Conference in Abu Dhabi to present our recent achievements, outlook and plans for the year ahead to investors. Of course, roadshows do play a role within our marketing strategy and we schedule such trips when and where appropriate.
Jassim Alseddiqi is the Chief Executive Officer of Abu Dhabi Financial Group. Jassim is also the Chairman of Integrated Capital PJSC and Integrated Securities LLC, and a Board Member at Tourism and Development Investment Company, Qannas Investments Limited, Abu Dhabi Capital Group and Gulf Navigation Holding PJSC. Previously, he was the CEO of Abu Dhabi Capital Group. Preceding his tenure in the investment world, he was a noted lecturer at the Abu Dhabi-based Petroleum Institute. Jassim holds a Bachelor of Science in Electrical Engineering from the University of Wisconsin- Madison, and earned his Master’s of Science degree in Electrical Engineering from Cornell University in the United States. He also has several publications in international engineering journals.