The Business Year

Faisal Mansour Sarkhou

KUWAIT - Finance

AUM at over USD9.5 billion

CEO, KAMCO

Bio

Faisal Sarkhou joined KAMCO’s team in 2000 and was last promoted to lead KAMCO in the position of Chief Executive Officer in the first half of 2014 after heading the Corporate Finance Department from 2006 – 2010 and the Financial Services and Investment Division at KAMCO since 2010. Mr. Sarkhou is also the Chairman of Global Investment House as of September 2018. He has extensive experience of over 19 years in investment banking, asset management, financial products as well as financial services. Mr. Sarkhou commenced his career in the late ’90s with KPMG Corporate Finance in Kuwait. He serves as a board member on several reputable companies and funds. He also sits on a number of company and investment management committees as well as being a board member and treasurer at the Union of Investment Companies in Kuwait and a member of the advisory board of the College of Business & Economics at the American University of Kuwait. He is also a board member on the Industrial Advisory Board at the Australian College of Kuwait. He is an Economics graduate with honors from the University of Birmingham, UK and holds an EMBA with distinction from HEC Paris, France.

“As of September 30, 2018, we managed to maintain our Assets under Management (AUM) at over USD9.5 billion.“

With KAMCO recently acquiring the majority stake of Global Investment House, what will be the company’s new ambitions and how will its role change in the national and international market?

KAMCO has performed well this past year and our results are a testament to our progressive growth and enhanced operational performance. As of September 30, 2018, we managed to maintain our Assets under Management (AUM) at over USD9.5 billion and achieved a strong track record of 102 successful investment banking transactions worth approximately USD16.1 billion. In addition, we recently acquired a 69.5% majority stake in Global Investment House, one of the leading investment firms in Kuwait and the region. KAMCO continuously strives to enhance its contribution to a sustainable future in the local capital market by taking the role as lead managers in several debt issuances that have stimulated local and economic growth. As we grow into a larger entity, we will be able to offer a wider selection of diverse investment solutions and introduce new offerings that can add great value toward local and regional investors. Our acquisition is, therefore, in line with the Amiri 2035 Vision. By pursuing its vision of becoming the preferred asset management and investment banking player in Kuwait and the region, KAMCO can cater to a wider network through diverse investment solutions in various asset classes. This will assist the country’s vision of becoming a key regional financial hub. KAMCO has also been awarded an exclusive role in providing its extensive advisory services to assist in the Boursa Kuwait privatization initiative. KAMCO is seeking further roles and opportunities to collaborate with entities within the public sector, as well as future privatization initiatives. On a regional level, prior to purchasing the majority stake in Global, KAMCO assessed the benefits of gaining access to Global’s international presence in the UAE, Saudi Arabia, Bahrain, Egypt, Jordan, and Turkey. Through Global’s established presence, both firms can further expand their exposure and offerings throughout the MENA region. KAMCO has now taken the first step towards its vision of becoming the preferred investment firm in the region. The next step will include a collaborative approach to assess and identify the key strength areas within each firm. This collaborative approach will efficiently assist the business integration model in terms of product offerings, technology ecosystems, and geographical reach.

In what ways can the ratio equity market capitalization, GDP, and the debt market ratio be improved?

Kuwait’s market cap-to-GDP ratio at over 70% is broadly in line with major GCC peers. We look at this ratio from two angles—the first as a pure valuation metric of the market compared to the economy, and the other as a measure of the extent of corporatization in a country. Though the market cap-to-GDP ratio for Kuwait is below some of the developed markets where the ratio is well above 100%, the ratio does not fully represent Kuwait’s entire corporate market. This is mainly because the ratio excludes predominantly family-owned private businesses and conglomerate groups. Family businesses in Kuwait range from both single-industry corporate entities to large institutionalized multi-business conglomerate groups which contribute significantly to the economy. Family owned businesses in Kuwait are typically well run, funded by internal equity, and have high rates of return, which generally disincentivizes such entities from taking the IPO or listing route. Public stock markets’ performance is key to pushing the market cap-to-GDP ratio up as well. The performance of stock markets post the global financial crisis did make GCC investors more risk averse and led to lower trading activity on regional indices, and Kuwait was no exception. However, we expect the trading activity in Kuwait’s stock market and market performance to pick up from higher passive and active flows from regional mandates, as Kuwait witnessed upgrades in market status and features in global index compilers. The upgrades should drive the initial rally in large cap names included in these upgrades, as witnessed from the performance of the Premier Market Index YTD in 2018. However, high-quality names outside this list are also likely to see gains over the medium term from more passive and active flows. Primary stock market activity also becomes crucial in pushing up the degree of listed entities, and corporate issuers will look for leadership from larger issuers in terms of activity to ascertain the conditions for flotation. New Issuers will look at equity market valuations and market performance going forward. The development of SMEs in Kuwait is clearly the first step in realizing this goal; an independent private sector and ecosystem for smaller players is instrumental in realizing more advanced corporate evolution. At present, the contribution to Kuwait’s GDP from SMEs is in single digit, while the sector employs only around quarter of the workforce; however, the National Fund for SME Development, the Industrial Bank, and the Kuwait Small Projects Development Company are working toward the development of the SME sector. Corporate debt markets should improve going forward and should follow the lead of sovereign bond issuances by Kuwait. Kuwait’s sovereign bond issuances of over USD15 billion were instrumental in creating a secondary yield curve benchmark and should drive corporates to issue more conventional and Islamic debt instruments. Furthermore, we were also advisors to Kuwaiti Banks in issuing Basel III-compliant bonds and sukuk to enhance their capital base and will continue to assist corporates in their endeavor to diversify capital base. Kuwait’s eligibility for the JP Morgan emerging market government bond indexes starting from January 31, 2019 is also a big positive.

What will the roadmap and outlook for KAMCO’s key business segments and asset classes look like?

We see a potential for growth within each segment. Given the ongoing volatility in the global financial markets and the associated concentration risk for each asset class, we believe that investors should aim for a diversified portfolio of investments. Therefore, the company follows a risk-weighted framework for asset class selection that weighs in country risk, company risk, and return potential. We eventually offer our clients access to all assets classes globally while assessing them with our best-in-class technology. In terms of asset classes, equity markets in the GCC are expected to see higher institutional interest going forward, and this is further solidified by the recent inclusion of certain GCC countries such as Saudi Arabia and Kuwait as emerging markets into global index compilers such as MSCI and FTSE. As a result, we expect more passive fund flows, higher foreign ownership of stocks, and increased trading activity on the region’s exchanges. Being a prominent player both on the sell-side and as one of the region’s largest asset managers, KAMCO will continue to work with regulators and market participants to provide thought leading research, best execution in terms of trading, and asset management across funds and portfolios. We will also constantly upgrade our capabilities to be on par with global standards and aim to be at the forefront of the introduction of innovative products in this asset class. KAMCO will continue to cater to the strong interest for regional products, and develop innovative international product offerings for our clients, including products, investment advisory solutions, and platforms such as open architecture etc.

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