Same fund, new brand

By Kathryn Gaw

1 Aug 2011

Mena has no shortage of single-fund managers, but few single funds can claim to have been under the management of two separate institutions within a year. The Union Bancaire Privée UBP Mena Equity Fund, formerly known as the Majid Al Futtaim (MAF) Elite Mena Equity Fund, has been through more than most, maintaining its fund managers and key investors while undergoing a rebrand.

Under the supervision of Habib Oueijan, senior executive officer and head of Mena asset management at UBP Middle East, the fund has produced a strong track record to date, showing a cumulative return since inception(in 2002) of 348% against an index performance of 198%. Originally seeded with $150mby the MAF family office, it has come out of a global financial crisis and regional political chaos with a competitive $44m AUM, and Oueijan hopes to see this figure grow in the year ahead.

However, the fund’s resilience has been put to the test in recent months as it migrated from MAF ’s now defunct asset management unit, to become UBP’s debut Mena fund.

Fund migration

In September 2010, Oueijan and his team were working together at MAF when they were approached by UBP to launch its asset management business in the Mena region. “This is a very unusual practice,” says Oueijan. “Prior to this, UBP did not have an in-house asset management presence in Mena, but it was felt that there was value in bringing together a team that has been working together for some time rather than collecting people from here and there and trying to work together.”

By this time, MAF ’s family office had decided to wind down its asset management business after only a year in operation, in order to focus on its core retail business. The company approved the transfer of the fund to UBP and continues to be a key investor today.

For Oueijan, the transition from Mena based family office to global banking business has been “challenging but exciting”. Despite the obvious benefits of bringing his fund onto a bigger platform, the process of rebranding is lengthy and administrative. The fund was originally set up under a Luxembourg SICA VSIF structure, but the team are now transferring over to Ucits III, in line with UBP’s other fund offerings. It is also hoped that the Ucits III structure will make the product more attractive to the European investors the team is now targeting.

“The idea is to target the very professional, well-informed institutional investors and foreign investors, private bank platforms, endowments and pension funds,” he says. “We want to attract foreign investors who are looking to invest in the Mena region.”

Global reach

UBP has had its eye on Mena since 1998, when it established a rep office in Dubai. In September 2010, it won a licence from the DFSA and the team intends to complete its move to the DIFC by the end of the summer.

One of the oldest private banking institutions in the world, UBP is 95% owned by the DePicciotto family and has its headquarters in Geneva. Established in 1969, it is now a global player with approximately $69bn AUM at the end of 2010. The next step is to expand its asset management and private banking presence in global emerging markets, with a focus on the four key regions of Eastern Europe, Mena, Asia and Latam.

“We feel that emerging markets are going to play a bigger role in the global economies and this is already starting to happen,” says Oueijan. “The bank’s view is that 25-30% of any portfolio should be allocated to emerging markets.”

UBP as an international entity is certainly bullish on the GEMs sector. Along with the Mena equity fund, the company is aggressively marketing its UBAM Turkish Equity Fund and UBAM Emerging Markets Bonds Fund. Famous for its fund of hedge fund business, it is now championing a ‘long only’ strategy across its asset management business.

UBP’s global reach is an added benefit here. With offices across the world and an established investor base, Oueijan’s team is hoping to take advantage of a ready-made clientele. Further, UBP’s private banking platform opens the door to more HNWI investments further down the line. “Because it’s an open platform, UBP’s private bankers are also clients of the asset management arm,” says Oueijan. “But we still have to pitch to UBP’s private bankers; if they’re convinced of the product then they’ll pitch it on to their clients. This is part of being part of an open platform environment.

“It’s a great opportunity,” he adds. “As a Mena team selling a Mena fund, we are able to reach various parts of the investment world with one platform.”

Investment strategy

According to Oueijan, the transition has been “working perfectly” so far and UBP Middle East is now eyeing up expansion plans. It intends to increase its team from 13 to 22 by the end of the year, and Oueijan hints at new fund launches in the near future.

The Mena equity fund continues to invest across a variety of sectors, including telecoms; petrochemicals, construction and the banking sector, which he says has “improving liquidity”. It invests across the entire Mena region, focusing on the 11 prime markets that have stock exchanges. “Of course our country allocation changes from one to another depending onour outlook and view on these markets and sectors,” says Oueijan. “We are really a fundamental investor so the final allocation of the fund is really a result of our bottom-up approach rather than the top-down view.”

As a result of this, the fund was deeply impacted by the recent political crises, particularly through its exposures in Tunisia and Egypt. “Everyone was affected,” says Oueijan.“But with all the political and social unrest which the region has witnessed this year, a market drop of 3-5% (depending on what index you look at) is not too bad.”

At one point our fund had reached -18%on a year-to-date basis and we were around-5.3% at the end of May, so we did recuperate a lot of these losses.”

Despite the current risk, Oueijan points out that Mena continues to outperform the majority of the Brics, proving that there is still a lot of value in the region, and he is optimistic on the region’s long-term prospects.

“The oil and gas drivers coupled with the region’s large and young population are expected to play a positive catalyst in the future growth,” he says. “I think that the announcements of the various infrastructure spending programmes, especially in Saudi and Qatar, will be the main growth drivers. The eventual development of the region’s capital markets is also an exciting prospect if we factor in future IPOs, privatisations and the possible upgrade of some of these markets to the emergingmarket indices.”

The company’s core objective is to focus on performance while preserving client capital, so a long-term investment vision is central to its strategy. “Moving to the DIFC, expanding the team and catering to the growth of the business shows our commitment in this region”, says Oueijan. “We are investing in Mena for the long term, not for the short term.”

New horizons

Oueijan acknowledges that running a lone fund comes with some risk. “As a single-fund manager, the challenges are there in terms of appetite,” he says. “After what went on in Mena earlier this year there wasn’t a lot of appetite in Mena. If investors are switched off to a certain region or sector, then it will be very hard to sell your fund within that particular time until the appetite comes back.”

However, it is unlikely that UBP Middle East will be managing just one fund for much longer. Oueijan reveals that the company is currently looking at product development with a view to launching more funds in the future. “Our funds will always have a Mena-centric flavour to them,” he says. “Today we’re managing a long-only Mena fund but in the future we may look at some sort of alternative investments for the Mena region.”

He adds that there has been a lot of interest in frontier projects, investing in countries such as Palestine, Syria or Iraq. ”Because of liquidity issues, a lot of the funds out there do not invest in these markets,” he says. “That may be one area where we can develop in the future.”

For the time being, Oueijan and his team are happy to focus on repositioning their Mena fund as part of a global outfit. “We still consider this to be a new fund because we’ve just finished rebranding it,” says Oueijan. Once the team has settled into its latest endeavour, UBP Middle East looks set to be an interesting addition to the Mena fund space.