Global investment company Investcorp, which manages $10 billion in assets worldwide, sees a bright future for alternative investments. Nemir A. Kirdar, President and CEO, tells Stanley Carvalho that non-traditional investments for its clients will continue to be the area of focus for the company.
Investcorp, a global asset management company specialising in alternative investments, reaches a new milestone this year as it completes 25 years. The Bahrain and London-listed company has offices in Bahrain, New York and London, and is now pushing strongly in the booming Arab Gulf economies as it launches its fifth line of business - the Gulf Growth Capital - that would raise $1 billion in this region. Investcorp, which manages over $10 billion in assets globally, will draw on its 25 years of private equity investment expertise and a comprehensive pan-Gulf network of relationships to provide attractive opportunities for investors. Specialising in alternative investments, Investcorp acts as a principal and an intermediary in international investment transactions.
It focuses on private equity investing, including corporate investment in the US and western Europe, global asset management, real estate investment in the US and technology investment in the US and western Europe. Nemir A. Kirdar, the London-based President and CEO of Investcorp, speaks to Gulf Business.
Investcorp touches a significant milestone in 2007. Are you satisfied with the way the company has grown over these 25 years?
When we launched the company in 1982 offering non-traditional investments for investors here, we were the first and only ones to provide such investments. We started with a capital of $50 million, with ownership of the business community throughout the Gulf.
Today, after 25 years, we have a market capitalisation of $2 billion. We have paid back $500 million in cash dividends. Every single year in the last 25 years has been profitable for Investcorp under all circumstances - three wars in the region, recession - and we have paid dividends every single year. We have staff totalling about 350 drawn from 33 nationalities who have all integrated into the system.
Investcorp today has four lines [private equity, real estate in the US, hedge funds and venture capital and technology] of business managed by executives who joined the company at a junior level, but who rose to top levels and the businesses are performing at top quartile against any of our competitors. So, this is how we have grown and this is what Investcorp is - profitable, strong and with an established international brand name.
How has the company grown in terms of profitability in recent years and what is the outlook for the short term?
If you look at our profitability five years ago, we had net profits of $50 million, then $75 million the next year and $90 million a year after and then $110 million. Last year, we had net profits of $131 million. We expect that growth to continue. The machinery is there.
If you have to list some of the best achievements of the company, what would they be?
When we started, we said we were going to do something that was not available in the Gulf. We were the first to do it and we did it exactly that way and have proven ourselves successful over 25 years, which is achievement number one. Another is building a company that has a deep culture based on clarity of vision and emphasis on three principles - integrity, professionalism and teamwork - distinguishing features of Investcorp.
Specifically, could you highlight Investcorp's performance and growth in your core businesses?In private equity, we completed five realisations last year - Minimax, Saks, SI Corporation, Stahl and US Unwired, and one parallel realisation, Stratus, returning $1.2 billion in proceeds to investors. We made five new acquisitions - Autodistribution, Orefi and TimePartner in Europe, and CCC and FleetPride in the US, deploying $796 million of equity. Our hedge funds business produced excellent results, providing a highly attractive average spread over LIBOR [London Inter-Bank Offer Rate] of 7 per cent on Investcorp's own proprietary co-investment. Clients added another $314 million, taking the total client assets under management to more than $2.7 billion.
Real estate had another good year. We realised 15 properties and $153.7 million was returned to investors in the form of current returns and exit proceeds. We acquired 46 new properties, deploying a record $306 million of equity. These included both 'core plus' and 'opportunistic' investments across all property types and geographic sectors in the US. Four new portfolios were placed with investors, whose demand for our real estate product remains very high.
Our venture capital business completed four very profitable realisations, including the first one from Technology Fund II, and made seven new investments in Fund II. Investcorp placed $1.7 billion of its products with investors last year and $1.4 billion of this was placed with investors in the Gulf.
Investcorp's uniqueness lies in alternative investments. Could you briefly explain the philosophy of your concept?
Investors can invest in traditional investments like bank deposits or stocks and bonds that are available internationally. Alternative investments are non-traditional areas selected by us and brought to the attention of investors. And we look after those investments and add value. So, broadly, alternative investments today are made up of private equity, real estate, hedge funds and technology and in those areas we have gained distinction in the market place.
What is the status of Investcorp's fifth line of business?
Our fifth line of business - the Gulf Growth Capital - will raise $1 billion in the Gulf to be spent in the region for industrial and service projects, particularly greenfield projects. But we may also enlarge existing projects. Our role will be to use a portion of this fund as capital and bring in know-how from outside - it could be the US, Europe, India or China.
We will bring the know-how and through capital from the fund and establish the project. Once it is productive, we will sell it to the private sector. So, the foreign partner would stay and a local partner would replace us.
Why are you getting into this line of business?
Investcorp is now ready for the growth of a fifth line of business. If you see over the last 25 years, we had started with one line [private equity], then started another [real estate] and another [hedge funds]. But very importantly, it coincides with the intentions of the Gulf governments to expand their economies here.
There is high liquidity in this region, which is being earmarked for various projects. The major projects - billion dollar ones - are done by the governments, but that has to be supported by the private sector and if we can use our international experience to bring in know-how and expertise, put in the capital and sell it to the private sector, we are helping the private sector to expand their base. Investcorp should have a preferential role to play because of its international brand name.
So, how are you raising the capital?
I am here [in Abu Dhabi in mid-April] to announce this new line of business. It is to get commitments and we need commitments, we don't need the money now. As and when we have projects, we will withdraw that money. We are approaching institutions for commitments and so far, we have received enthusiastic support. Investors are receptive to the fund, the machinery or department is in process now and we will open up soon to say we are ready for business. As I said earlier, we are in a strong position to expand and the region is at a time when it wants to expand and it has the resources, the desire and leadership. It is an opportune time for us to participate in this and contribute to the growth. We are in the process of making a number of hires for the new fund, as well as utilising Investcorp's experts from our placement area and our private equity teams in London and New York.
How do you view competition, given the fact that some investment banks, both regional and international are present here?
This region is developing and is expanding and obviously there is room for diversified financial institutions to provide their services and facilitate that. It just vindicates our renewed focus on this region. But the way we are doing this business - no one is better equipped to do this.
We have 25 years of experience in the West with international companies and if we can bring some of that know-how into the region and establish a company and sell it to the private sector, that is a very commendable thing and in the interest of the various countries that are building their economies and we are participating in that and we can play a major role. I don't think we will have much competition.
What is your assessment of the private equity scenario in the Gulf?
We started this business when the phrase 'private equity' did not exist. We were one of the pioneers in the US in 1982. It was in the late 80s that the phrase was coined and it became a line of business. Our premise that time was that it was conducive to industrialised societies that were about 150 years old and that's why we started it in the US and Europe.
The Gulf is not 150 years old and all the projects are new because this is not an old society. But 150 years from now it may change. Today, we should call it creating value companies and that's what Investcorp should be doing in the Gulf. In the West, our business is private equity but in the Gulf, it is going to be establishing, strengthening and reviving opportunities that can make money now for the private sector. So you see the two different missions.
Briefly, how much does Investcorp manage in assets globally?
We have over $10 billion of invested assets under management. Investcorp's hedge funds team of more than 60 professionals oversees approximately $5 billion in assets under management of which about $2 billion is proprietary capital.
Any plans to expand into Asian markets or launching the next line of business?
To us, the new market is the Gulf now and this fifth line of business focused on the Gulf has to be established very well before we look into a sixth line of business.
Investcorp has sizeable investments in the US real estate market that is witnessing some slowdown. Is that something that worries you?
We are probably one of the largest foreign investors in real estate there. The slowdown you mention is not in our sector - the depression is in the housing side. Right now, we are doing $350 million of placements of new business and we have the capacity to increase that in the next three years. We are expanding too. We are operating our real estate business from New York and we are opening an office in Los Angeles soon.
Doesn't a booming real estate market in the Gulf seem attractive to Investcorp?
Our fund will not do real estate in the Gulf and it will not participate in local stock markets in the Gulf.
Why not?
Because we feel the local community is very capable of doing it and look at what's happening in Dubai for example. I want to see that we bring in additional value and we bring in a productive economic entity with know-how from outside and with our capital that produces something that is not done here. Real estate here is a very local business and we won't be doing it. We do it very well in the US with local establishments. Would we do it in Europe? It is quite possible. But now we are still expanding in the US.
Are you looking at acquisitions, something that is happening across the region?
Not unless acquiring something to be the base which means expansion of Investcorp's capital or fund. If that is the case, we will look into it but we are not gearing ourselves for it. It [Investcorp] is not an acquisition vehicle as much as establishing economically viable entities that add to the economy of the country. We have been doing acquisitions over the years and recently acquired the UK-based oil services firm Moody International.
What about Investcorp's hedge funds?
We are managing about $6 billion that includes a portion of our own money, as well as that of our clients'. Today, the majority of clients are in the Gulf states, but also western institutions are putting money with us. So, a portion of the assets we are managing is that of the US and some other countries. Our hedge funds are very profitable and a strong line of business with good performance over the last five years. We also have a long track record, of over 10 years of investing in emerging hedge fund managers.
Looking forward, how do you see Investcorp emerging in the next five to 10 years?
Of course as a very strong company. Investcorp is established to be there for 100 years plus. It has developed its own culture, its own niche, its own know-how, its own focus and that will continue. So long as clients here want to invest in non-traditional investments in the West, we should be the preferred vehicle to do that and hopefully this new fifth line of business will participate and contribute to the development of the industrial society in the Gulf and that is going to take hundreds of years and we are going to be partners in this and in fact we are going to be one of the engines for this.
© Gulf Business 2007
