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Secure Markets? Has the UAE’s caution paid off?
Troubles in the eurozone, limbo in America’s economy, and the Arab Spring in the Middle East have contributed to investors’ decreased appetite for risk. Chairman and CEO of Permal Group, Isaac R Souede, speaks of about the current investment strategies of global and MENA investors.
January 3, 2012 3:03 by Eva Fernandes
How do Permal managers perceive the UAE?
Managers generally see the UAE as secure markets, with few of the difficulties faced by European sovereigns and financial firms. This is a very different situation from three years ago. In general, caution has paid off and central banks are seen as prudent. The UAE has improving fundamentals and attractive valuations as geopolitical concerns fade into the background. Foreign interest is certainly returning. Liquidity is sitting on the side-lines just waiting for an entry-trigger point. Should the MSCI upgrade frontier markets and emerging markets in the next six months, UAE equities will benefit. Abu Dhabi banks currently look undervalued, but before Europe comes up with a solution for the debt crisis, there will continue to be pressures on financial companies globally. Our managers’ favourite sectors are regional banks, materials, telecom and capital goods.
What about the rise of alternative managers?
Although there have been few new managers this year, there has been an increase in the number of talented hedge fund managers with operations in the MENA region. The UAE has attracted a number of leading fund houses, particularly Dubai. Other markets are opening, but remain a long way from catching Dubai.
Where are local investors looking for global regional/asset diversification?
Local investors’ portfolios are still dominated by regional equities and bonds, but they are now looking to spread risk across asset classes, seeking longer-term returns and greater downside protection.
Why is the world looking to macro strategies?
Global markets are more interconnected than ever. As an investor, the front pages have become more important than the business pages, and investor portfolios need to reflect this, with more tactical and global macro, seeking exposures to fixed income, currencies and credit, and less equities. Macro has proved resilient during periods of volatility and is the best approach for downside protection and consistency of performance.
Can you tell our readers about the Permal Group?
Permal Group is one of the oldest and largest alternative asset management firms in the world, with $23bn of alternative assets under management and almost 40 years’ experience. With almost a quarter of its assets sourced from the Middle East and one of the first asset managers to arrive in the DIFC, the business has a big long-term commitment to the region.
Describe the modus operandi of Permal managers?
We have three different styles. Macro managers invest in bonds and currencies, and they trade quite actively. The second type of managers take long and short stock positions, and the third is event driven, where investments are based on fundamentals of a company and not, necessarily, based on market situation.
How has this changed in the current economic scenario?
In this region, obviously because of political disturbances, the capital inflows have slowed, and we also have to take into account the low risk appetite of investors. If your house is on fire, you wouldn’t care what happens to you entertainment system.
How has your asset value been impacted?
A year ago, we were at $22bn and now after 12 months we have $23bn. Twenty percent of these assets are from the Middle East and the rest are global assets.
Have you witnessed any changes in your assets from this region?
I don’t think it has changed in the past five years. We are in a global business and institutions generally invest in pension money, which is in the United States. The US portion of our money has increased and the next is China, but there are certain restrictions related to currency control. However, there has been a lot of wealth creation in the GCC and its share in our assets is likely to increase, but not substantially.
How much of your Arab money would remain in the region?
We have a fund dedicated to the Mena region. Having said that, this region’s capital would continue to search for diversification globally. We are closely watching the construction boom and increased capital spending in this region led by Saudi Arabia.
*First published in TRENDS