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Dubai Group: Nasdaq deal was 'seminal'

The Dubai Group has a powerful grip on the region's financial services sector, with interests that focus on banking investments and insurance.

The firm, which is wholly owned by Dubai Holding, counts the Dubai Insurance Group, Noor Investment Group and Dubai Islamic Investment Group as some of its main subsidiaries.

Since inception in 2000, the Dubai Group has worked tirelessly to bolster its presence within the global financial services industry and currently has business interests in 26 countries.

CEO Tom Volpe tells Emirates Business that bets made on emerging markets in recent years have paid off in a big way for the group. He says its domestic interests were also served by last year's $6.5 billion (Dh23.8bn) Nasdaq deal, which cemented Dubai's status as the gateway to the Middle East, for companies pursuing a share sale.

Volpe explains how the current furore over sovereign wealth funds' investment decisions will die down and before long will be forgotten.

He believes sovereign funds' stakes in the United States and European financial institutions will rise.

He also discusses the opportunities for venture capital investment in Dubai, in light of this week's announcement by Noor Investment Group , a Dubai Group subsidiary, of a major outsourcing project with the help of US venture capital firm Norwest Venture Partners.

What key investments has the Dubai Group made in recent years?
We are investors that invest globally. We do it primarily in emerging markets and it has been an interesting time to be looking into new investments. And clearly prices have got more advantageous from our stand point. In our primary businesses, we look at financial service companies, investment and commercial banks, asset managers and the exchange business, which is very important to us.

We also invest in the Middle East and North Africa (Mena) markets and a lot of private equity in the region through Dubai Capital Group . We also invest a lot in India and other parts of Asia. If you are long-term orientated, which we are, then all the things we like are the same as before, it is just that they have gotten cheaper.

Where have you made the most lucrative deals?
The emerging markets that we invest in have be very good performers over the past five years. And Dubai Group witnessed very good financial results because it placed its bets in emerging markets.

The Mena region has been terrific for both public and private investing. We made a big investment in Emirates Cement in Fujariah a couple of years ago, which has been spectacular for us. And we have just made an investment in a glass factory in Egypt, so we like the Mena region. The Banking sector has been good and the trading of public stocks has been good. But a lot of basic industrial investment, such as fertiliser and cement, has been strong.

How have you built up Dubai's financial services credentials?
Through Dubai Financial Group we were involved in the Nasdaq transaction, which is the seminal transaction for this region. Dubai was already well ahead as the financial centre in the Mena region, but I think Nasdaq deal catapulted it even further. Ten years from now, after the formation of Borse Dubai from DIFX and DFM, and then the Nasdaq deal, people will look back at those as seminal events.

Every company in the world wants to know how to tap into Middle Eastern capital and most companies do a public offering, dual list. They will typically pick two markets over the coming years three or four markets. When you look at the capital generation going on in this part of the world, baring any disaster, people will say they want to list in the Middle East, then they will say where in the Middle East. It is clearer today as it was 18 months ago that Dubai is the capital market to list in in the Middle East.

What is your view on how the Middle East has used its liquidity?
It has been used very intelligently. It is obviously been very high-profile in providing the capital that Western financial institutions need. People forget that Kingdom Investment Authority has been around since 1956, so the notion of these big funds has been around for a long period of time. They have gotten bigger and their investment skills are now very refined. I think liquidity has been intelligently managed, certainly as well managed as the Calpers pension fund, which is the largest pool of capital in the US.

The issue of sovereign wealth fund money is continuing to dominate the agendas of struggling financial institutions in the US and Europe. How will this issue develop?
The recipients of the money, the US institutions, are learning how to deal with them. The providers of the capital, the sovereign wealth funds of this region, are learning how to work the US system. When we did the transaction with Nasdaq, we had to go through the CFIUS and were deeply scrutinised, as countries tend to view their exchanges as national assets. Both sides have learnt a lot. And I believe that three years from now people will say, what ever happened to the sovereign wealth fund issue.

People are really sensitive to it right now but I think that apprehension will start to disappear over a period of time. Sovereign wealth fund money will continue to flow to the US and Europe in the coming years, as financial institutions will continue to need liquidity. Most financial institutions in the West, not just in the US, that are looking for capital tend to look at the Middle East. If you are looking for capital then it is the place you have to come to, which is very different from five or 10 years ago.

Noor Investment Group , a Dubai Group subsidiary, this week announced a major outsourcing project with the help of US venture capital firm Norwest Venture Partners. How do you view this inflow of funds here?
To distinguish venture capital from private equity, which are the big leverage buyout firms, it's going to take a long-time for what knowledgeable people consider to be traditional venture capital to become active in this part of the world. Venture Capital, historically in Western markets, has gone 70 per cent to technology, 20 per cent to healthcare and 10 per cent to others, especially retailing.

Healthcare services, in particular, not products, is going to be a big opportunity in this part of the world. Others, especially retail, will be big because of the rapidly growing population and high disposable income. Pure traditional technology is not going to be a major wave in this part of the world for the foreseeable future.

What areas of investment will occupy Dubai Group 's time for the rest of 2008?
We tend to look at financial services, so it could be private equity or investment banking or the exchange business, which is a priority for us. We would consider returns in the 20 plus per cent range doable for investments in these areas.

PROFILE: Tom Volpe, CEO, Dubai Group
Tom Volpe has served as CEO of Dubai Group since February 2007 and managing member of Volpe Investments, a risk capital firm, since July 2001. Prior to this, he was Chairman of Prudential Volpe Technology Group from December 1999 to June 2001, and worked as CEO of Volpe Brown Whelan and Company, a private investment banking and risk capital firm, from its founding in April 1986 until its acquisition by Prudential Securities in December 1999.

Until April 1986, he was President and CEO of Hambrecht and Quist Incorporated, an investment banking firm with which he had been affiliated since 1981. Volpe is a member of the board of directors of 7th Inning Stretch, Cyalume Technologies, Kline Hawkes and Co, Minor League Baseball and the Dubai Group .
He oversees Dubai Group 's Dubai Investment Group, Dubai Capital Group , Dubai Financial Group , Dubai Islamic Investment Group, Dubai Insurance Group and Noor Investment Group .

By Ryan Harrison

© Emirates Business 24/7 2008