Seeking the ethical high ground • Focus: Islamic finance
Dubai is determined to overtake pioneering Islamic finance center Malaysia and become the global market’s innovative capital.
The core of our membership is composed of banks and investment banks active in the regional bond and sukuk market. They are the most significant contributors, and the number of them working with us continues to grow. The region is developing strong local players, such as First Abu Dhabi Bank, which has become a regional champion. We see similar banks in Bahrain and Kuwait that now lead transactions, adding value and thus competing with the global banks. A large portion of our work deals with regulatory matters. We have excellent relations with the regulators across different countries and with the relevant authorities and decision-makers. Legal firms are useful participants in our advocacy; they interact independently as well as through us, as we are a neutral forum.
“The green investor base is much bigger than the Islamic investor one, so if one has a product that is green and sukuk, it can truly grow the sukuk market. ”
What is your overview of the current regulatory framework concerning sukuks?
In the past few years, we have worked closely with the Emirates Securities and Commodities Authority (ESCA) on fundamental bond and sukuk regulations dealing with matters such as speeding up issuance processes, acquiring approvals, and managing different kinds of disclosure. Now, there are more nuanced regulations, and governments are becoming active participants. This leads to different regulatory questions on how to organize the market for government securities and relating that market to the capital market regulator, which deals primarily with equities and corporate sukuk. Furthermore, the role of Dubai's central bank needs to be defined in this relationship as it has a stake in the success of this market, as does the fiscal authority as an issuer. The diversity of the investors is still slightly lacking. There has been some forward motion, though not nearly enough diversification or development of the investor base. This space has to be filled so that the capital market reaches its potential.
Which areas currently exhibit the most potential for the sukuk market?
In more cases, the international use of sukuk was a one- or two-time occurrence, for example in Hong Kong, Luxembourg, and South Africa. These are all positive issuances, though they are mostly about establishing credentials. It is a powerful incentive to do the first sukuk. Indonesia is an interesting market that is developing locally as well as issuing sukuk internationally in large volumes. The issuances of sukuk in 2018 were strong. Health and education are growing sectors. In November 2018, we saw the first-ever sukuk by NMC Health. This is how regulation can help drive the sector in indirect ways, as health insurance was previously not required in UAE. The other story coming up is local currency. One reason for our existence is to promote local currency bond and sukuk markets. The UAE has not yet had local currency government issuance, though we could potentially see the federal government issuing securities. That would be supported by market infrastructure, which is being established with the central bank. This would help the latter improve its own monetary policy instruments. If the government issued medium- and longer-term securities, then the central bank could issue short-term securities.
Can you tell us about the development of green sukuks and how they are affecting the industry?
Indonesia had a green sukuk, and there have been issuances from Morocco as well. We have been talking about them for a long time. Green bonds, such as those issued by NBAD, was a great first step along the way to a green sukuk. The green bond market has grown grown explosively in recent years, offering a great opportunity for green sukuk. The green investor base is much bigger than the Islamic investor one. If one has a product that is green and sukuk, then it can truly grow the sukuk market, as well as do something consistent with its values. We look forward to further environment, social, and governance (ESG) investing. As a local organization, we want to promote the integration of ESG factors into investing. We are working with the UN principles for responsible investment (UNPRI) on raising awareness among regional investors. Our members are driving this, as they have the required expertise. ✖
How do you assess Expo 2020’s impact on the economy and the financial sector?
The main sectors benefiting from the expo will be tourism (including hotels) and retail. Telecoms could get a shortterm boost as well. Real estate companies will not benefit directly but will get a chance to promote their assets to a larger and new audience. The immediate benefits for the financial sector are limited. Over time, as concepts and ideas get commercialized, banks will be able to capitalize on intermediation both in lending activity and merchant banking activities through the generation of fee income. Dubai aspires to be a financial hub between Singapore and London. From this perspective, Expo 2020 should have a role to play as it is a unique opportunity to showcase Dubai to the rest of the world.
As the one to establish DIFC and position Dubai’s rise to where it is today, how will Dubai reach its always increasing ambitions and pioneer the future of financial hubs?
In 2019, Dubai rose up the ranks of the Global Financial Centres Index (GFCI) to eighth position, representing its highest-ever ranking. The city is the only financial center within Middle East Africa and South Asia (MEASA) region to appear within the top 10 rankings. With more than 24,000 professionals working across over 2,200 active registered companies, DIFC comprises the largest and most diverse pool of industry talent in the region. DIFC’s wealth and asset management market, which was reported to be USD424 billion in 2018, is equivalent to approximately 30% of the GCC’s combined GDP. Dubai has consistently risen within the rankings since the index was launched 12 years ago. The city’s steady ascent has been driven by DIFC’s remarkable success in building an ecosystem that fosters financial industry growth. DIFC key to success has been the continuous pursuit of excellence and a focus on innovation.
How does Al Mal Capital seek to position itself as these new opportunities begin to take shape and the UAE looks to rebound?
Al Mal is one of the leading financial institutions in the UAE and is uniquely positioned to benefit from Dubai's expansion as a financial center. The breadth of our platform, our ESCA license, and the backing of a strong shareholder (Dubai Investments) enable us to attract the best talents and to structure world-class financial products and solutions. Our platform is scalable, which means we can not only act as a hub for local and international product management but also as a local distributor of international third-party products. When it comes to UAE assets, Al Mal is well positioned across the value chain. For instance, Al Mal UAE equity fund has the best and longest track record on the UAE equity market with an 80% outperformance since its inception. We have always been at the forefront of real estate and private equity investments and continue to invest in local assets mainly thanks to the support of Dubai Investments. Local and regional capital markets activity will soon recover, triggering renewed appetite for IPOs and new issues. We aim to play a major role thanks to our corporate advisory capabilities.
2020 marks 15 years for Al Mal Capital. What are your strategic priorities and vision as we look to the coming decade?
From day one, Al Mal Capital’s vision has been to be considered as the investment institution of choice in the MENA region. We are among the few local institutions that have survived over the last 15 years. Still, we are only at the start of our story. There are tremendous opportunities ahead of us, and we are uniquely positioned to seize them. Our first strategic priority is to serve our clients in the best way. The whole firm needs to work hard and efficiently to deliver high-performing, differentiated, and compliant solutions with impeccable client servicing. We stick to our core offering which include direct investments, corporate advisory, asset management, and capital markets. ✖
We run not only some global strategies from Dubai but also local strategies. Since we have the range of global and local strategies, we arguably can offer more than the local players, whose strategies generally remain local. We have our feet in both buckets. With a roughly USD709.5-billion portfolio globally as of July 31, 2019, clients attach credibility and trust with us. At the end of the day, we are a business of trust.
What do you consider an ideal investment strategy for any clients looking to enter the region?
In terms of what is most ideal for investors, there are two things. One is that most global investors have a large domestic bias. If investors are getting decent returns buying in the local currency, they are not interested in taking their money elsewhere. However, some of the more sophisticated clients have the GCC as a big chunk of their portfolio as well as global equity, global fixed income, and investments in China or India. The challenge in the Middle East is that most private bankers are chasing high-end clients, so this segment is over banked. There is more work to be done in the mass market, especially the middle class, which is not well serviced at present.
We launched the industry’s first Islamic buyand-hold product. It was the first time such a fund was launched in the market. We have had more customized funds since as well. We have also acquired prestigious new institutional clients. This has given us great credibility in the market and will help us build a track record in the high yield space moving forward. We have also acquired different strategies, such as Brazilian equity. It gives us a great feeling that we have such a wide range of capabilities and strengths within the firm. Sharia assets have also seen great growth, representing over USD2 billion. ✖