The risk taker

Private equity is one of the fastest expanding sectors in the region’s booming economy, and unlike other investment areas, shows no signs of slowing down. CEO Middle East talks to Ithmar Capital’s founder and managing partner Faisal bin Juma Belhoul, about not being afraid to make mistakes and how the longer you sleep, the further backwards you go

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By  James Bennett Published  March 13, 2006

|~||~||~|I don’t think I’ve ever been in a position when I’ve obviously made a wrong decision because my mentality is to always look for the right one.” If you know anything about the cut throat, competitive and emerging world of private equity and investment, not only in the region, but also on a global scale, then you will easily be able to connect with Faisal bin Juma Belhoul’s confident business speak. Belhoul, the founder and managing director of Ithmar Capital, one of the region’s largest and fastest growing private equity businesses, as well as the eldest son of the well-known Dubai-based Belhoul family that owns 100% of Ithmar’s Fund I, is one of the UAE’s brightest sparks and in charge of millions of Dirhams worth of investments. The 30-year old is also emerging as one of the region’s most respected young executives and was the only representative from the Middle East at the ninth annual European private equity and venture capital summit in Frankfurt, Germany alongside established giants such as UK investment house 3i (Ithmar Capital’s only foreign strategic partner) and its chief executive Philip Yea. So it’s no surprise when he coolly explains that even the biggest presentation of his life, in front of some of his most illustrious counterparts, doesn’t scare him one bit. Belhoul is someone who oozes optimism every time he responds to one of my questions – a young man way beyond his years with his business brain permanently switched on red alert 24-hours a day. “I have to be as prepared in meetings and my day-to-day decision making as I am in a conference. But I’ve never been the kind of person that has prepared for a presentation. I consider preparation a background issue compared to the real thing.” Having spent his senior educational years in Boston, a place he considers as the city with the “best networking opportunities” anywhere on the planet, he arrived back from the US to consider his future career options. Belhoul didn’t need to reflect for very long. When his father, founder and chairman of the family group, suggested that his eldest son should go and find any job he could and that the moment he received an offer he would double it, Belhoul knew in which direction he was headed. However, he is keen to add that the chance to earn a mountain of money wasn’t the main incentive. “I wasn’t really focused on that side of things. I’m the eldest son and I felt the responsibility, but more than that I saw the potential and I started spending more and more time in the managing director’s office. I noticed that there were a lot of opportunities because things were being done right. But then I thought right is a few decades ago, and what is right now requires development and a lot of changes,” he says. As soon as the former 35-year serving managing director left to pursue other interests, the hot-seat was the only place Belhoul wanted to be and he wanted to stamp his own mark of authority and, more importantly, positive change, straight away. He immediately set about identifying the core values and core strengths that allowed the business to exist, grow and last and then built on that with the requirements to grow and go forward – part of the major restructuring programme he successfully instigated re-inventing the firm as a regional asset management company, with investments in private and public equity and property. His ethos for change was essential to this process, something Belhoul is keen to emphasise: “Some people think they want to change everything and they just discard what is there and start from scratch. But I’m telling you, anything that works has some value, so you might as well understand what works and what could make it better. And based on that you cherry pick the components and core values.” “The group had a very strong position in the market in terms of its credibility, its integrity, its honesty and its dealings with people, its commitment to its employees and its solid financial position and stability. So we needed to make sure we understood what allowed us to reach that point and maintained those things and make sure that they do not deteriorate.” But it wasn’t just change that was needed, it was the courage and conviction that he was doing the right thing, not an easy task for such a youthful managing director. Making mistakes, however, is all part of the game for Belhoul. He was taught from an early age that whatever decision he made he would take full responsibility and with that, he says, “it makes sure you make the right decisions”. “Mistakes are often misunderstood. When you make a decision, a mistake is something you make when it is obviously a wrong decision. Working within a sheltered environment, where whenever you make a mistake someone else is there to correct it, is not the thing to do. “If you make a mistake and no one is watching then you will do whatever it takes to make the right decisions. I followed that approach with the help of a lot of support and internal and external advisors. It’s a combination of trying to get the perfect solution but not waiting forever to reach it.” Not waiting for opportunities to come to him but for him to get there first is another of Belhoul’s strong leadership qualities and something that has seen the group evolve into one of the largest private equity firms in the GCC. “Dubai is a city where you know that the longer you sleep, the more backwards you go because it is a city that doesn’t sleep, you have to react quickly and be open to rapid change and development.” The speed of change in the region makes it very difficult for private equity players and heavyweight investors to react and make the right decisions, however, you have to account for and accept a large dose of risk in an ever changing and developing market, says Belhoul. “The region is considered as one of the booming regions worldwide and developed markets cannot deliver what this market is delivering. This is accompanied with higher risk factors associated with any emerging market.” “Risk is driven by the sheer fact that with such high growth the supply and demand factor is always changing. So if I do a feasibility study in the UK and want to decide on building a hospital I can easily do it and predict why it is or it isn’t a good decision, but in the case of this market if someone tells you he’s started the same process he seriously doesn’t know what he’s talking about. A feasibility study here is only valid for six months from the day it appears.” Investment risk in the Middle East is not just down to a fast moving market but is increasingly political with many countries suffering from potential long-term instability. “It makes your job much more difficult”, says Belhoul, “and makes you take into account the high risk factor. In emerging markets there is a lot of growth but it’s unpredictable, the rents on properties are high, when you build a property the idea is to have a consistent return on that property over a period of 15 or 20 years and if you base that on rental properties today then you are really misleading yourself because you don’t know if these prices will sustain themselves. The conclusion is that they won’t – it is highly unpredictable.” Belhoul bases his investment strategy on a balanced portfolio based on various asset classes (investment by sector) and various geographies (investment by location). He says that with an emerging market you have to adapt and create a “different set of skills and approaches” and that a high return is possible, but only if you are conscious of the high risk factors. “In a balanced portfolio of investments you need to have a balanced approach of investments of different asset classes and different geographies. And as part of the assurances you need as an investor that you have the best diversification investment strategy that reduces your risk and maximises your return.” With emerging markets such as the UAE, private equity players head for investments with shorter exit horizons, particularly in areas such as construction and property where the exit strategy is on average between two and three years. The key in any private equity firm, and according to Belhoul’s “life PhD” is to make the investment experience “something you learn from, and to make it a true educational process instead of something that you forget about.” “It’s a matter of making sure you fine-tune your approach and understanding. That has been applicable in a lot of investment cases where the information we’ve had led us in a certain direction and only afterwards have we realised that there was a better way of doing things. Then we can factor this experience in our next assessment of an investment opportunity.” Belhoul’s philosophy, restructuring process and overall business mantra has led to the prospect of Ithmar Capital becoming one of the leading private equity firms in the GCC region. With its first fund, Ithmar I, closing at US $70 million and its second fund, Ithmar II, expected to close at over US $150 million it will be among the largest in size and is well on the way to reaching its goal. However, within fund management size is not necessarily what matters. It is the returns, mostly medium to long-term, that count. Belhoul says the next five years will truly define who are the top-tier players in the industry simply because it is in its infancy. “Ithmar is well positioned to lead the way because we have been through a best practice approach and are the only firm that has a full association with a global industry firm. This gives us the endorsement of international institutions plus some of the most well respected regional institutions backing us and investing in the funds. The key requirement for Ithmar now, like all private equity players, is to deliver and exceed the investor expectations through a well-planned and well-delivered execution in its investment decisions. As Belhoul says, in an emerging market, where several firms tend to jump on anything that moves, you need to be focused at all times and remember that what counts in the private equity game is execution, focus, discipline and, above all delivering the returns. The next five years will reveal all.||**||

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