Algebra Capital may double its assets under management to $2 billion (Dh7.34bn) in 2008, with the company poised to launch two fixed income funds within the next two months.
The Dubai-based asset management firm will launch a Middle East and North Africa (Mena) sukuk and a regional conventional credit fund within two months, according to chief executive Ziad Makkawi. These will largely invest in corporate bonds. He expects Mena investors to provide the bulk of the investment.
“They will have a higher ratio of regional investors, probably more than 50 per cent, particularly for the Shariah-compliant fund,” said Makkawi. “The region’s growth cannot continue without the development of a substantial bond market. It’s not as sexy as equities, but can add tremendous value to portfolios.
“More than 80 per cent of Mena growth is financed through debt, not equity. This is mostly bank debt, but over time this will be replaced by bonds and fixed income instruments.”
Algebra will also launch a private equity fund in 2008. In addition, it is working on two to three equity funds with California-based Franklin Templeton, which has a 25 per cent stake in Algebra. These will be under the Franklin brand, with Algebra acting as sub-advisors. They will invest in the Mena region, but will be distributed globally and will be unveiled later this year.
“We are working together to create a broader investor base,” said Makkawi.
“The Mena economy has expanded to $1.2 trillion and earnings per share growth is more than 20 per cent. This is higher than Russia and Brazil and our region offers better value.”
Algebra currently has more than $1bn under management, although around 40 per cent of this comes through its role as sub-advisor on the Schroders International Selection Fund Middle East. Algebra’s own Alpha Mena Fund has around $500 million in the kitty, with 65 per cent of this money sourced from Europe, 30 per cent from the United States and the remainder from the Mena region.
Its Special Situations Fund is temporarily closed after raising $55m. Both funds invest in regional equities.
“We expect to have a further $500m to $1bn under management in 2008,” said Makkawi. The 46-year-old said the ongoing US sub-prime crisis could aid the Gulf, with investors seeing it as a safe haven, despite a greater correlation between the two markets.
“We will continue to benefit from the liquidity generated by high oil prices, which can almost be like a safety net for investors,” said Makkawi.
He was also bullish about the Gulf’s chances of escaping a wider global economic slowdown, saying the rival emerging markets of China and India would fare much worse because of their dependency on exports to the United States.
In the longer term, Algebra has not revised its target of having $4bn under management by 2012.
Algebra Capital uses its links with Franklin Templeton and Schroders to tap into this pair’s global distribution capabilities.
Algebra plans two fixed-income funds in the coming months