A successful fund that experiences a change of leadership often faces the challenge of convincing investors that there will be continuity, and that the new boss shares the strategy and insight of his predecessor.
This does not appear to be a problem for Nicholas Wilson, the new chairman of the Qatar Investment Fund (QIF). Appointed chairman in November 2012 following the untimely death of David von Simson, Wilson has the advantage of having been on the board of QIF since its inception in 2007. He also knows he has the support of investors, with over 98 per cent of shareholders at the recent AGM voting for the continuation of the fund.
In Wilson’s view, von Simson leaves behind a strong legacy. “David was an excellent chairman. He focused very much on maintaining dialogue with investors which I will continue, particularly with active investors. We have shareholder support… and we would like to grow the company. We can grow it by increasing the NAV per share or having another offering; in this market it’s hard to raise additional funds.”
QIF, which launched in July 2007, is a closed-end investment company which invests primarily in Qatari equities. It was incorporated in June 2007 in the Isle of Man, and was initially listed on the AIM market of the London Stock Exchange (LSE), graduating to the main market in May 2011.
Wilson remembers the launch well.
“In retrospect it was not a great time to launch an investment company, but it raised $170m which for a frontier market fund was very nice indeed,” he said. In December 2007 there was a secondary fund raising of $76m; but then the financial crisis hit.
“When 2008 came the world changed somewhat,” says Wilson. “But we’re still up around 6% in net asset value (NAV) terms since launch. We’ve done our best to manage volatility by running a fairly active buyback programme to keep things steady. Each time we buy shares at a discount we’re increasing the value of the NAV.” At the recent AGM investors voted on a tender offer to buy 20% of holdings. “It gave some of the shareholders a chance to reduce their holdings if liquidity is not in the market, and got them out at 10% above market price.” Wilson says there are plans for a further tender offer in November 2013, for 10% of outstanding shares, subject to shares trading above a 10% discount to NAV.
Wilson has had a long career in the investment management industry, and first became involved with listed companies in 1997 when he joined the board of Alternative Investment Strategies Limited, a position he still retains. Based in the Isle of Man, Wilson has experience of running branch offices which he says has given him valuable exposure to all aspects of investment. “I’ve had broad coverage of vanilla equities, and derivatives, both exchange traded and over the counter (OTC). I even ran a hedge fund in the eighties which did pretty well. Now, though, my focus is entirely on PLCs.”
Wilson says that although QIF can invest in other Gulf Co-operation Council (GCC) countries, its raison d’etre is to provide exposure to the Qatar market. The investment case for putting money into Qatar remains strong, he believes.
“The primary focus is always on Qatar, with a maximum 15% in other regions. It’s really a huge investment proposition, with strong growth, low valuations and high earnings visibility. The government makes it clear what its spending will be, for example it has $150 billion budgeted for infrastructure spend. This will make its way into the banking sector, and we can gain exposure via that. On the valuation point, the price to equity (P/E) ratio is probably about the best measure and for the current year is estimated at 10.9, and 9.8 for next year. Shares are currently very attractively valued in Qatar.”
Another attraction is the country’s population statistics, says Wilson. “Qatar has a population of 1.84 million including nationals, expats and mobile workers. When the government came to the end of its hydrocarbon development the forecast was for a decline [in population] but we’ve seen 8.4% year-on-year growth. The demographics seem to be moving up the socioeconomic scale. That has really good implications for companies in Qatar at the consumer end of the market, and property and banking.”
Mark Hughes, analyst at Panmure Gordon, which is a holder of QIF, sees Qatar as an attractive area. “It has strong GDP growth and its resources offer it a fantastic platform. Profits are being invested into infrastructure, which is a good story for Qatar. I think the management team of this particular fund is good. There is a large banks position within the fund, and banking is an important sector within the Qatari market.”
From a valuation point of view, Hughes points out that Qatar looks attractive relative to many other Mena countries. “The Qatar exchange is trading on a discount, and this particular fund is trading on a discount to its own NAV. If you put all that together; the macro, the management team, the double discount, [QIF] is a good way to access the Qatar investment opportunity.”
Hughes says Panmure did revisit the fund following Wilson’s appointment as chairman. “But with the fund the really important guys are the managers. With the board, the important thing is they set the right criteria from a due diligence point of view, looking after shareholders. We’re happy with the new chairman, and looking at his CV we think it’s an excellent appointment.”
Going forward, there are plans for the fund to add exposure specifically to Saudi Arabia. Sandeep Nanda, senior vice president of investments and treasury at Qatar Insurance Company (QIC) and investment adviser to the fund, says while the fund has always had an allocation to the GCC of 15% it has never previously been able to access Saudi due to foreign ownership restrictions. “It didn’t have the structures. Over the last year or so the system whereby foreigners get into the market has become more transparent. It’s still not direct, but you can get economic rights into companies which are properly managed.”
The investment thesis for investing in Saudi, says Nanda, is that it is the largest market in the GCC. “It has volumes of $2 billion a day, so it’s a very active and deep market. You get cross-industry access to companies and direct access into the retail story. You’ve got large companies and reasonably attractive investment themes. There are also some good local banks which trade at good valuations, and good chemical stocks. The expertise is already within the team; QIC is a GCC company, so it’s not a new thing for us.”
But, says Nanda, exposure to Saudi will be restricted. “It’s still a Qatar fund. We’ll stick within allowed limits. There’s just a broader universe of some of the plays in the United Arab Emirates (UAE) in places like Kuwait and Saudi. It provides diversification.”
Nanda says he feels comfortable with QIF’s large overweight to the banking sector. “I suppose it’s similar to any emerging market. Financial plays always become an effective investment option. You create a leveraged play into the economy fastest. The financial sector in Qatar has significant capacity to drive infrastructure spend. We don’t see any systemic problems with the financial sector; it’s a good proxy to the economy of the country.”
Nanda also picks up on Wilson’s point on demographics. “The change in demographics will impact the financial sector first. It becomes a lead indicator of what’s happening in the economy. You can see trend lines on the growth in the economy and link it to the GDP of the country. In the fund we’re very focused on picking up the top three or four names; filtering banks which have greater access to the market. We do look at banks which have significant access to infrastructure spend and provide a front step for expats. We look at which banks are retail focused; this will lead us to choose one over another.”
One notable event coming up in Qatar is the 2022 FIFA World Cup, which should both raise the country’s profile internationally and dramatically increase spending on infrastructure projects. Nanda believes the country’s sporting infrastructure will start really ramping up in maybe two years’ time. “There’s also broader infrastructure spend. You’ve got the Qatar rail story, with an investment of close to $10 billion. We would be focused on where infrastructure spending is happening for sure, to get as much access to infrastructure spend.” He highlights the Qatar National Development Strategy’s 2030 National Vision document, which takes a holistic view of the country’s proposed spending, breaking it into five year pieces. “This gives us as investors a very reasonable view of which companies will benefit.”
