Author Archives: Sabah al-Binali

The Future of Asset Management in the GCC (Part 2)

March 26, 2015 By in Asset Management Tags: ,

In the second of a two part series, this column outlines a vision for the future of asset management in the GCC.

The asset management industry in the GCC has blindly followed developed market dictates. The main focus is listed equities. But the GCC markets have neither the depth or breadth to allow an active strategy to flourish. A passive strategy does not need asset managers.

The only other truly active asset class in the region is private equity (PE). PE managers have focussed predominantly on what they call late stage investing: buying shares of companies shortly before they list. This strategy has performed well on a few now famous deals. However, fund performance has been abysmal.

The problem here is where is the value creation? A firm that buys a company and quickly IPOs it is not an asset management firm but rather an investment bank that is providing underwriting and equity capital market services.

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The Future of Asset Management in the GCC (Part 1)

March 24, 2015 By in Asset Management Tags: ,

In the first of a two part series, this column will investigate the current state of affairs of the asset management industry. In part two, this column maps out the way forward.

The asset management business in the GCC has followed a puzzling evolutionary path focussed predominantly on listed equities with a smattering of funds investing in private equity (PE) and bonds whilst seeming to ignore other asset classes such as real estate (RE) which not only has exhibited good performance across the region, it also provides for strong cash flow income and appears to have the greatest demand from investors as exhibited by their direct investment demographics.

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Trust the System not the Person

March 17, 2015 By in Corporate Governance Tags:

The whispers in the global business corridors when it comes to dealing with emerging markets are “Is he trustworthy?” As proof of why such whispers are necessary one need look no further than the recent revelations about Alstom, the French power company that paid the US Department of Justice a USD 772 million penalty for charges that it bribed government officials around the world.

How should governments and businesses deal with such trust issues? They can continue to allow the US DoJ to deal with it. Why a government would want a foreign justice department intervening in its affairs is not clear. Why a business would want the burden of double regulation is also unclear. The only other way forward is for local stakeholders to manage their issues locally.

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Financial Gems found in Famous Quotes

March 12, 2015 By in Management Tags: , 1 Comment

I have noticed a trend whereby people will post or tweet a quote, with nothing else: no analysis, no interpretation, not even a link to a relevant real world situation.

But that is not what I find strange. What I find strange are the scores of ‘likes’ and dozens of responses along the lines of “Right on!”, “Exactly!”, “How insightful!”, etc. How vapid. There is, though, one redeeming quality of this social media blight. I get to use the word vapid in writing for the first time in my life. Also blight.

I am not saying that these quotes from great minds are not enlightening, just that if one wishes to post quotes, then they should use it as the foundation of a deeper meaning. Otherwise it is just spam.

Not being one to simply point out problems without providing solutions, allow me to lead the way in posting pearls of wisdom from the long dead as well as my insights on these quotes. Attempting to provide value, if you will.

The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt.
– Bertrand Russell

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Crisis Response Strategies

March 10, 2015 By in Strategy, 1feautred, Strategy Cornerstone Tags: , ,
This entry is part 3 of 3 in the series Strategy

In a world of uncertainty management is constantly evaluating potential risks as they unfold and deciding how to respond.

At one end of the response spectrum is what might be called the Anglo-Saxon Fast & Furious model: ignore all risks until they become an existential threat of such dire proportions that there is only one available response and it is blatantly clear to all involved.

At the other end of the spectrum is what might be called the Asian Ancient Wisdom model: treat everything as an existential threat at all times and avoid taking any proactive decisions whatsoever lest it lead to greater danger.

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Investing in, not Trading, the Price Cycle: an Overlay Strategy

March 4, 2015 By in Investments Tags: ,

Here’s the reason market timers lose money: They are traders instead of investors, and as discussed in a previous article traders are time sensitive as their main dependence is on price movement. Therefore they need to invest as close to the upturn in price as possible and they need to hold on and exit only when the price stops appreciating.

Investors, though, can trade the cycle to their profit as an overlay strategy. What is an overlay strategy? It is an extension of an existing strategy. An enhancement. It makes sense only if the underlying strategy makes sense.

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Equity Issuance: A Danger Signal

March 3, 2015 By in Management Tags: , ,

Companies issue equity all the time. It is considered a normal part of business. In fact, when equity markets are doing well, CEOs will often push for a rights issue, arguing that the market is over priced and therefore it makes sense to issue new shares and sell them into the market.

That might seem to make sense at first blush. But if a CEO thinks that this makes commercial sense then they are being naive. The only other explanation is that they are less than honest. Let us explore why.

As a first step, why is selling something at a higher than value price incorrect? In general, if it is a non-producing asset, then there is nothing wrong with this. Selling someone a pair of shoes should not cause any issues. The problem lies in what if it is a producing asset?

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Who Wins, the Trader or the Investor?

March 2, 2015 By in Trading, Investments Tags: , , , ,

The perennially favourite discussion topic is trading versus investing. What’s the difference? Is it short time horizon versus long time horizon? Is it growth versus value? Is it Soros versus Buffet?

This post is a continuation of my 2007 article in The National. Reading the previous article is not necessary to benefit from this post, but looking at the ideas across an eight year period might be helpful.

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The Challenges of Generational Change in a Family Business

March 1, 2015 By in Family Business Tags:

Andrew Carnegie, an incredibly successful American businessman, famously said “Three generations from shirtsleeves to shirtsleeves.” Here, shirtsleeves mean the clothing of a (poor) blue collar worker. This is probably the origin for the more modern day warning “The first generation builds it, the second generation enjoys it, the third generation loses it.”

In the GCC a quick and informal survey of family businesses would suggest that the second generation not only enjoys it, but often is the generation that loses it. This process seems to take years as often as it takes decades. Are there issues that we face that are different from those faced by the rest of the world, or are we just better at squandering family fortunes?

I will argue the former, and that blindly applying global best practice therefore harms regional family businesses. I will pick a number of the more salient issues that should reinvigorate the discussion.

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The Family Holding Company: More Than Just A Legal Structure

February 25, 2015 By in Family Business Tags: , , ,

عربي

With generational change increasing, the idea of institutionalising family businesses has gained wide spread acceptance. The magic formula seems to be create a holding company to hold the shares of the operating companies, a shareholder agreement, a terms of reference for the board and maybe add some independent directors to the board. Focussing on the holding company aspect, there quite often is no strategic plan let alone business plan. The holding company direction is set by the agenda of the constituent operating companies. Talk about the tail wagging the dog.

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