Alkhabeer Capital: a pioneer of Islamic finance

World Finance is delighted to announce that the 2012 Man of the Year is Ammar Shata, Founder and CEO of Saudi Arabian investment banking and asset management firm Alkhabeer Capital

 

Growing a successful financial business in Saudi Arabia, with its many regulatory conditions and emerging financial market, would be hard enough for most people. Sustaining that healthy growth during the extraordinarily adverse conditions imposed by the global financial crisis of the last few years is an achievement matched by very few.

However, that is something that World Finance’s 2012 Man of the Year, Ammar Shata, has done with his shrewd and steady guidance of Saudi-based investment firm Alkhabeer Capital, licensed by Capital Market Authority (CMA).

The company he founded in 2004, originally as a financial consultancy, has grown quickly to become a fully operational, sharia-compliant investment institution with operations across the globe. With an emphasis on real estate, private equity and capital markets, Alkhabeer has developed into one of the Middle East and North Africa (MENA) region’s leading experts in finance. In a Saudi market that is undergoing some belated regulatory reform and opening up to foreign investment, Alkhabeer Capital has led the way in offering sharia-compliant financial services.

Alkhabeer Capital’s recent financial results showed soaring revenues for 2012 of $28.6m, an increase of 66 percent, while net profits grew 62 percent to $8.3m and assets under management rose 17 percent to approximately $500m, showing resilience to external factors unmatched by many of its contemporaries.

The company has investment products across the region, as well as funds in the UK and the US, while its overall client base has grown by 70 percent. These increases show a company poised to lead the charge of MENA-based financial firms ready to establish themselves on the global stage. All this is down to the strategy and methods employed by the company’s founder, which put him head and shoulders above the competition in this year’s race for World Finance’s Man of the Year award.

Speaking to World Finance, Shata outlined his career achievements so far, what drove him to where he is today, what his ambitions are for the future, and why his career path has not followed his initial plan.

What is your background and how did your professional career begin?
It was by chance that I studied economics and finance. I was enrolled in a bachelor’s programme in electrical engineering at the University of Southern California in the US, when I was persuaded by my academic advisor to take an introductory course in economics as a graduation requirement. I was completely against taking this course, as I had no interest in such matters.

Alkhabeer Capital 2012

$28.6m

Revenues

8.3m

Profits

$500m

Assets under management

However, as the course progressed, I was surprised to find myself at the top of the class, which had more than 20 graduating students, most of whom were actually majoring in economics. I tremendously enjoyed the subject, and eventually completed my higher studies in finance and economics and went on to obtain a master’s degree in economic planning from the same university. After completing my university education, I sat for the CFA and am currently a Chartered Financial Analyst charterholder.

I started my career with a five-year stint at Islamic Development Bank in Jeddah, Saudi Arabia. It was a gratifying experience that developed my appreciation of work ethics, teamwork as well as financial advisory roles within a conventional finance and Islamic sharia environment.

Prior to founding Alkhabeer, I was director of the Islamic Product Development Group at National Commercial Bank (NCB) in Saudi Arabia. During that period, I looked at many investment opportunities before founding Alkhabeer Consultants in 2004: a financial advisory house. It was a business that grew rapidly to become Alkhabeer Capital in 2007, supported by a group of very high-profile Saudi investors and business leaders.

What originally inspired you to launch Alkhabeer Capital? 
Alkhabeer Capital was created to develop a portfolio of sharia-compliant investment products that could be offered to investors. Central to this idea was our ‘inclusive investment philosophy’. Our approach remains that once we identify a suitable investment opportunity, we establish an investment fund around it, in which we also invest.

Thus, our investors are certain that the investment opportunity is both well researched and supported by Alkhabeer. This practice has proven very successful, as we share both the profits and risks with our investors. In turn, this has created long-term relationships and loyalty for the Alkhabeer brand over the years. Our inclusive approach to investing was a key driver behind the creation of the Alkhabeer concept.

Just as importantly, we have been right in calling investment themes over time: from investing in real estate as an asset class, to foreseeing the desire of Saudi and regional investors for international diversification, to calling the crash of 2006 and the bottom of the Saudi equity markets in the last quarter of 2011. And these are only a few examples. Understanding market movements and their volatility, combined with the ability to predict business cycles and offer relevant investment products, have been key drivers in the growth of Alkhabeer.

How have you managed to grow the business over time?
We have grown assets under management by a factor of about 50 from 2009 to date. In 2009, managed assets were $10m; today they are approximately $500m. In addition, we have arranged bank finance and Islamic loans for our clients to the tune of $1bn since 2008.

Our growth is due to Alkhabeer being a well-managed and efficient business with top talent and market intelligence with the proven ability to really listen to what our investors want. As a result, we are able to identify appropriate investments that we should exploit before they are noticed or identified by competitors. Our other unique characteristic is our ability to understand what our investors will need tomorrow, not what they need today, and create appropriate product portfolios accordingly.

In my opinion, success is measured by the value that a person… brings to the community they live in

It is well known in the industry that, in order to innovate and structure a new investment product, the process can take three to six months. During this time period, if you are not 100 percent focused and forward-looking, market sentiment can change and significantly affect the returns of the investment product. Thus, our ability to predict investment sentiment has been very helpful.

As a business, we are also distinguished by the quality of our shareholders, who are all high profile business professionals and hail from families with strong trading heritages, which is an excellent endorsement of our services. All of these factors have positioned Alkhabeer as the largest private investment company not affiliated with a bank in the western region of Saudi Arabia.

What do you see your role entailing and how have you developed it?
A successful CEO is someone who recruits talented professionals to support him or her, and gives them the freedom to perform. In many ways the CEO is the Chef d’Orchestre whose principal role is to set the vision, keep the momentum and synchronise the performance of the organisation.

Having worked for larger institutions, I learned a lot about managing a business and managing people. But at Alkhabeer, my management ethos is very different. We run the business with the same spirit and passion as an entrepreneur. Every day must be both exciting and challenging if you are really contributing. I spend a not unsubstantial part of my time coaching talented individuals within our group whom I believe will compose the management teams of the future. I had the privilege of some great coaches in my life and strongly believe that developing talent should be part of a CEO’s role.

What are the major challenges within the Saudi business community? 
There are a number of challenges but from an entrepreneurial perspective I think there are two. On the regulatory front, all financial institutions within the Kingdom of Saudi Arabia need approval for their operations from several authorities including the Ministry of Commerce, Capital Market Authority (CMA), General Investment Authority (SAGIA) and the Department of Zakat and Income, in addition to the Ministry of Labour. Having to deal with this diverse mix of regulations, which on occasions is repeated, has the potential to slow an entrepreneurial business’ growth, in particular within our sector. Ideally, I would like to see a more streamlined and efficient regulatory framework in place.

Within the wider business community, since the majority of Saudi enterprises are family-owned, there is the belief that the best way to be profitable is to reduce costs. While this is theoretically true, reducing costs is a double-edged sword; it can help in the short term but can limit long-term growth. There are many family businesses that have grown over the years but currently need to invest to move to the next level. It is these businesses I think which need a lot of help and education on how private equity, for example, can provide them with the capital injection they need to invest in their operations and people, to become the Saudi conglomerates of tomorrow.

There is huge potential in our market but an education programme is needed within our business community on how finance can be used strategically, enabling the businessmen of today to have the full support they need to grow their businesses and become the next generation of Saudi industry leaders.

Saudi businesses have not moved up the learning curve yet to understand and appreciate the value of intellectual property – in the form of investment banking services or asset management services or consulting services. The idea of bringing in a third party that can add value to your business and contribute to it as a real partner is still foreign to many Saudi businesses.

What are your greatest achievements?
There are three. Firstly, transforming a small consultancy firm into Alkhabeer, a leading Saudi investment house with pioneering expertise in sharia-compliant real estate and private equity.

Secondly, managing to grow profits within Alkhabeer during the global financial crisis, expanding our client base seven fold while introducing ‘Saudi-isation’ to our workforce. And, last but not least, Alkhabeer Capital has been ranked as one of the best companies to work for in Saudi Arabia for two years in a row – and that is quite an achievement and the result of dedicated effort and vision in building the culture of the firm.

How do you measure success both for Alkhabeer and personally?
In my opinion, success is measured by the value that a person or an organisation brings to the community they live in, in a way that positively affects peoples’ lives.

I am grateful that I have had the chance to see people joining Alkhabeer early in their careers, accumulating a wealth of knowledge and experience and then leaving on their own journeys to achieve more success in their lives. I am also grateful to have had the chance to promote ethical finance and to create over 15 products throughout my career.

A successful CEO is someone who recruits talented professionals to support him or her, and gives them the freedom to perform

What is the main focus of Alkhabeer’s business strategy?
We are an asset management company focusing on alternative asset investments. As such, our business has a three-pronged approach across real estate, private equity and capital markets. As discussed, we invest our proprietary capital alongside our clients in all of our funds. As of the first quarter of 2013, we had six real estate funds spanning different models from development projects to income generating funds, locally and internationally.

In 2013, we will launch a real estate fund in Saudi Arabia, which will cater to investors in the region who want income generating returns, as well as expand on our international offering by launching a US fund with a number of underlying assets. Within private equity, we have launched a regional fund at the end of 2012 and we are planning on launching our second fund by the third quarter of 2013.

On the capital market front, we have two products available to our investors with strikingly different profiles: a money market offering as well as an equity offering focused on the GCC. We continuously invest in our business and are currently working on a number of additional initiatives in the areas of investment banking and wealth management.

How do you see the company evolving over the next 10 years?
While it is hard to foresee the next 10 years with any degree of certainty, we are focused on becoming a premier asset management firm in the region, with an international footprint. In addition, the industry is moving towards not only offering its own products and services, but rather becoming an ‘open platform’ whereby clients expect unbiased advice from their asset managers – a true wealth management company. This is a route Alkhabeer will also travel, which in turn will strengthen our regional presence. We are currently moving in this direction by investing in the development of a waqf management business, catering to the number of under-managed waqfs. This will ensure that the right legal framework is put in place and that an optimal fructification management policy is put in place to serve such clients.

Do you expect to grow your presence outside of the region in the coming years?
We already have an international presence via a number of products launched outside the Kingdom – in the UK, we have a real estate development product, and in the Gulf – for example in the UAE – we have a private equity product. We offer products that are of interest to our clients. In today’s environment of uncertainty and increased volatility, clients are increasingly looking for international opportunities to invest in and to diversify their investment strategies. We recognise this trend and in addition to the products launched we are already in the process of developing further opportunities in the international market by acquiring a number of US real estate assets.

In addition to serving our regional investors, we also strive to be the go-to investment manager for any non-Arab, non-GCC investor interested in the region. We are in the process of working with key international partners to bring the experience and know-how of some internationally established wealth managers to our clients, as well as developing key partnerships with internationally-based asset managers that have an interest in taking a stake in some of the fastest-growing companies in the region.

What other goals do you have, both personally and for the company?
For the company, I would like to position Alkhabeer as a leading alternative investment house in the real estate, private equity and capital markets space, both locally and in select international markets. My personal goal is to further the development and advancement of the community we live in: universal access to high-quality education and improved women’s rights are just some of the issues that are close to my heart, and that I continuously work on.