Smart investments for smart CEOs

You’ve climbed the corporate ladder, earning a small fortune along the way, but what next for your rising personal wealth and what are the long-term options that could significantly boost your private equity? CEO Middle East uncovers the smart investment opportunities for your money

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By  Andrew Mernin Published  June 6, 2006

|~||~||~|THE STOCK MARKET As the price of oil, gold and other commodities continues to rocket while the region’s stock markets carry on sliding to new lows, selecting the right business to invest in can be a complex decision making process. With a little research and careful consideration, however even those of you that don’t know your ‘bear’ from your ‘box-spread’ can become major players in stock market investment. “I believe that banking and financial services, oil and gas, real estate, telecoms and logistics and warehousing are all likely to generate handsome growth and good return on investment,” says Rajiv Nakani, head of investment banking at Global Investment House. “At this point, valuations, especially in the Kuwaiti market, are very attractive to accumulate good stocks to good companies,” adds Nakani. In these uncertain times, especially for chief executives who are relatively unfamiliar with stock markets, investing in a mutual fund could be the most advantageous route to take. “Small and unsophisticated investors are always better off investing through such funds as they are managed by professionals and supported by strong research. They can also be structured around various strategies or hedge funds” adds Nakani. An increasing number of large-scale developments across the region, boosted by foreign direct investment, mean that the Middle Eastern real estate sector could also be the vehicle to bring healthy returns on your assets. “Given the largely youthful population in the region, stronger purchasing power and the growth in business travel and tourism, investing in publicly traded companies that engage in real estate projects is an attractive option. “Investors, however, must always consider the exit options available to them if they are considering investing directly in real estate,” he adds. In light of the rapid growth of the GCC economies, Nakani also stresses the importance of investing across a balanced range of sectors. “Following the all your eggs in one basket scenario can be a very dangerous proposition. “Investment must be approached from a portfolio point of view, and the best portfolios are well diversified across carefully selected asset classes, geographic areas and with a number of different investments in each class.” With the region’s markets still in their infancy and issues of regulation and transparency still being addressed, you may be more inclined to invest your private equity in markets outside the Middle East. Eirvin Knox, CEO of Abu Dhabi Commercial Bank tells CEO Middle East: “If you got into the [Middle East] share market early then great, prices were good, but the market is very nervous at the moment,” he warns. “Emerging markets are always worth looking at, whereas the well-developed and established markets have flattened out and are very stagnant at the moment,” he adds. While market investment may be a daunting prospect for the newcomer, by building a balanced portfolio over a range of sectors, a flutter in the world of stocks and shares could pay dividends for your personal wealth. THE HOSPITALITY SECTOR Dubai’s US $27 billion (AED100 billlion) Bawadi project, launched last month, is the latest in a long line of gargantuan hospitality developments planned for the region that could bring with it bucket-loads of foreign cash. For CEOs eyeing up a slice of the impending flood of tourism revenue, there may never be a better time to invest in the region’s hospitality sector. Jurgen Baumhoff, CEO of Qatar National Hotels Company, tells CEO Middle East: “Any hospitality investment in the Gulf is a good one. The fact that the backbone of the Middle Eastern economy is energy supports the development of the hospitality and tourism infrastructure.” Baumhoff believes the rewards in hospitality are more beneficial than many other sectors. “If you invest in hospitality at the moment, you can get 10 to 15% returns on your equity – and there aren’t many industries where you can say that,” he says. “Also, in terms of renting out holiday accommodation, rental prices are increasing double digit, particularly in areas like Dubai,” he adds. As well as the Bawadi project, which spanning 10 square kilometres (sq km) will be the largest hospitality and leisure development in the world with 35 hotels, there are a number of other similar investment options in the region. Baumhoff’s personal tip for the ‘most attractive investment opportunity in the Middle East’, is Qatar’s ‘Lusail’ project (see page 93 for more information). Covering 35 sq km, Lusail will house 200,000 people and incorporate Energy City (the first energy trading platform in the Middle East), two marinas, a lagoon and a vast range of real estate projects. Move fast though because on the day the second phase of the US $5 billion project was launched last month, 370 plots of land, worth over US $1 billion were sold in less than four hours. Whether you’re looking for a small nest-egg – perhaps a villa to rent out to tourists – or maybe you’re thinking bigger and want to be at the forefront of the region’s emerging tourism industry, there are a few things to consider. Marc Dardenne, vice president of Ritz-Carlton hotels in the Middle East says: “You have to research the project, see who is behind it, who is developing it, ask if they are a reputable partner and then look at the location. Of course there is also the good old gut instinct,” he adds. If the right opportunity comes your way and the “old gut instinct” strikes, then checking into the region’s hospitality sector could be a very smart move. VENTURE CAPITAL The game of venture capital – investing in fledgling or struggling businesses – carries with it high risk, but if a combination of vision and expertise plays its part, the returns on your equity can be sky-high. Having the entrepreneurial flair to separate a revolutionary business destined for success from a hair-brained scheme doomed to failure is a difficult task however, with the right preparation, the rewards are there to be reaped. Abdullah Al Subyani, president of the Gulf Venture Capital Association (GVCA), explains that your investment can provide a valuable boost to your nation’s economy. “With other forms of investment, such as stocks and shares, you will get rewards but it will have no value to the national economy, you won’t create jobs and you won’t create new technologies or businesses,” he says. “With venture capital, the business of creating businesses, you can achieve all these things and although the risks are high, so are the rewards.” The beauty of venture capital, says Al Subyani, is that if you discover a potential investment opportunity, you can also play an active role in the success of the business and have a direct impact in ensuring you make a decent profit. “You can work with them, help them to restructure the company and then get higher profits if you know how to manage the business. You can actively encourage them to grow and stand on their own two feet,” he says. Despite the high-risk factor of venture capital, there are a number of ways to minimise the risk and maximise the odds of receiving high returns on your valuable investment. “The venture capitalist should establish an investment fund with a profile of start-up companies. You need to invest in several companies so if a few ventures make a lot of money then you will make a profit,” says Al Subyani. “You should look at the patent and see how strong it is, find out who the nearest competitors are, evaluate the position of the business group in the market and the potential of the business.” If you play your cards right, embarking on a venture capital voyage could bring huge rewards and make a huge contribution to the region’s diversification away from oil towards a rich knowledge-based economy. OFFSHORE INVESTMENT To the untrained eye, talk of placing your money in an offshore account or investing in an offshore project, might generate images of an elaborate Mafia scheme with their sights firmly set on money laundering and tax evasion. Away from the less salubrious business world, however, it can also be a useful tool to protect and strengthen your assets, according to Laurence Black, head of private client offshore services for the Middle East at Standard Bank. “Most offshore funds offer an open unrestricted platform and the advantages are the flexibility, the tax-free environment and the fact that you can have an onshore base giving access to an offshore service,” says Black. “Obviously you need to choose the offshore investment that’s going to suit you and meet your needs. The Channel Islands is our main offshore destination and we offer a full range of services for private clients, expatriates or various sized corporations,” he adds. In recent years the offshore banking sector in the region has grown rapidly as a rising number of investors have realised its potential benefits. United Gulf Bank, a Bahrain-based offshore investment institution, announced last month that it expects its 2006 net profits to grow by 5% on the previous year to a record US $85 million.This trend reflects a countrywide level of growth across the sector that has created more offshore investment opportunities for chief executives in the Middle East. With its headquarters in Jersey in the Channel Islands, HSBC International claims its offshore services will “protect your assets more effectively” especially if you are living in what it cautiously refers to as “politically or economically unstable” countries. Standard Bank, on the other hand, provides a service known as a ‘Retail Fund’, which according to Black, “offers direct equity investment opportunities into emerging markets”. Retail Funds include asset selection funds, which offer the potential for high returns, alongside strategist funds, that are designed to provide long-term capital appreciation through investment in equity-orientated offshore funds. In pursuit of offshore investment opportunities, Black believes that injecting your equity into an offshore trust is a well-advised decision to make. “If you had US $10,000 to invest for example, you are only going to be able to buy one or two stocks – a very low valuation. If you go and invest through an offshore trust you can make 30 or 40 different investments.” With an increasing number of banking and investment opportunities lying in wait, maybe it’s time you set your hard-earned assets free and jumped on the offshore bandwagon. OTHERS TO CONSIDER: FOREIGN EXCHANGE Dealing in foreign exchanges is particularly beneficial in the current economic climate due to the consistent weakness of the US dollar (USD) according to Michael Dismorr, head of private wealth management for the Middle East at investment giant Deutsche Bank. “After having displayed a low volatility without any clear trend during the winter months, the key currencies all benefited in the first quarter of 2006 from the ongoing USD weakness and the fundamentals could continue to push the USD lower,” says Dismorr. Be warned, however, that this weakness could be technically corrected, as historically, a 6% move in less than a month has often been followed by the currency downfall being reversed. COMMODITIES The growth of the BRIC (Brazil Russia, India, China) economies means that a selection of commodities such as gold should continue to rise in value. With energy prices climbing, investing in commodities could be a good means of diversification. The obvious drawback, according to Dismorr, is the high price of gold and oil with the latter recently breaking the US $70 a barrel mark. FOREIGN PROPERTY Investing in overseas property, particularly in Europe, can according to the country, be restricted or limited by regional land-ownership laws against foreigners. This can be a potentially laborious process but also a sensible move for investors that are in the investment game for the long haul. UNFINISHED REAL ESTATE PROJECTS When investing in property projects that are still in the uncertain blueprint phase it is important to be “very selective,” warns Dismorr. “Questions can also be raised over the sustainability of the current level of investment in such construction projects and in the real estate sector in general.”||**||

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