Incorporated in Bahrain as an exempt stock company and approved by the Bahraini Monetary Agency (BMA) and UAE Central Bank, Makaseb Funds Company BSC (C) (MFC) will provide an umbrella structure enabling it to establish several mutual funds tailored to suit different investment strategies.
Mashreq, the oldest private bank in the UAE with a long history of marketing investment products, has been formally appointed to act as the investment manager of MFC, while Gulf Investment Corporation (GIC) has been appointed custodian and administrator. To ensure transparency and impeccable fiduciary propriety, international accountancy firm Deloitte have been appointed auditors of MFC and Ernst & Young as its registrar and transfer agents.
"Mutual funds are one of the safest ways for the public to invest for long term capital growth with minimal risk," said Mashreq CEO Abdul Aziz Al Ghurair. "They epitomize the principle of not putting all your eggs in one basket. By investing in blue-chip companies across a wide range of industries, it cushions investments against any market fluctuations in specific sectors. MFC will focus its investments in GCC stock exchanges, which are outperforming world markets, particularly the dynamic UAE exchanges."
Nabeel Waheed, Chairman of Makaseb Funds Company BSC (C), said the company will fulfil a pent up demand in the marketplace for such an investment vehicle. "Mutual funds have particular appeal to the many expatriates in the GCC who do not have state education, health or pension schemes to fall back on," he said. "Mutual Funds offer high growth potential and also the flexibility of being encashed at any time without the penalties associated with some savings schemes."
Shawki Khalaf, Head of Operations & Global Markets Support, GIC said "MFC will be one of the region's fully regulated, fully transparent mutual funds company. It will allow local investors to enjoy the same service and diversity of investment opportunities as international investors, while understanding the special needs and potential of the region".
"Both GIC and Mashreq agree on the importance of service quality, efficiency and highest degrees of neutrality while conducting business. To have segregation by function is undoubtedly in clear strict compliance with international banking practices and the regional regulators mandatory guidelines." added Khalaf.
MFC's first fund is the Makaseb Emirates Equity Fund (MEEF) which is listed on the Abu Dhabi Stock Market (ADSM) and will be listed on Dubai Financial Market, Bahrain Stock Exchange, as well as he Dubai International Financial Exchange (DIFX) when it opens later this year.
MEEF is an open-ended investment scheme denominated in US dollars and aimed at achieving long term capital growth by investing primarily in UAE equities listed on the ADSM and DFM. Taken together, over the last four years these markets have grown by a compound annual growth rate of almost 45 per cent.
"The Makaseb UAE Equity Fund will enable ordinary investors to benefit from the UAE's unprecedented economic growth," added Waheed.
Subscriptions and redemptions of the fund will take place on a weekly basis. The minimum investment and holding is $10,000.
Waheed said several factors combine to suggest that the UAE's market capitalization will continue growing at a remarkable rate over the coming years due to listing of new companies such Commercial International Bank of Egypt and National Bank of Sharjah. One of these is the new federal government regulation, issued in June 2004, which requires all UAE joint stock companies to list their shares on an authorized UAE exchange within a year. This will increase the number of listed stocks by at least another 50 companies.
Moreover, in an attempt to encourage more stock listing, the Emirates Securities and Commission Authority (ESCA) has established a new category called "Category II" to enlist those companies that have not fulfilled all the criteria of listing on the UAE exchanges. Market capitalization has also been positively impact by the recent increases in the prices of existing stocks, which in 2004 grew by 97 per cent.
The volumes and values of share traded on the bourses have also seen tremendous growth. Share trades in 2004 were 840 per cent higher than in 2003, which was itself 230 per cent ahead of 2002.
MEEF may also invest in other GCC bourses and unlisted securities subject to certain conditions. The portfolio risk will be managed by instituting sector and company limits based on market capitalization and free float criteria.
As the largest private bank in the UAE, Mashreq has substantial resources to analyze the UAE and regional economies, both at micro and macro economic levels. As of 31st of December 2004, Mashreq's total assets were Dh31.9 billion (US$8.7b). The bank has achieved consistent, profitable growth since incorporation and has continued to grow in the face of the difficult economic cycles that accompanied the oil price crisis of 1987, the Gulf Wars of 1980 and 1991 and the 2003 invasion of Iraq.
Nabeel Waheed added "The key driver of the Makaseb Emirates Equity Fund is the UAE's robust economy, which has proven its resilience time and again. During 2003, despite the uncertainties of the Iraq invasion, the country achieved a real GDP growth of almost seven per cent. In 2004 it achieved 7.1 per cent growth with over five per cent forecast for the coming 2 years. Higher oil receipts and the continuing strong growth in property, trade, investment and tourism look set to continue for the foreseeable future."
Another growth factor is the enthusiasm equity investors show everytime there is a new initial public offering (IPO). In 2004, UAE IPO's were oversubscribed by a weighted average of over 180 times.
This unprecedented demand for equity in IPOs may also encourage other private and public sector companies to tap the stock market. In the longer term, UAE federal and municipal governments may also decide to privatize public sector entities or companies in which they have a significant stake. Many of these have started to publish their annual and quarter reports, a move that could be interpreted as preparing themselves for eventual listing, the financial analyst said.
"Since the discovery of oil both private and institutional GCC investors have ploughed hundreds of billions of dollars into foreign stock exchanges. However over the past few years, with government encouragement, there has been a palpable reversal. GCC investors now see better investment opportunities on local bourses and, as an extremely cash-rich region, the potential for growth is virtually limitless." Waheed concluded.
About Mashreq (www.mashreqbank.com)
Mashreq psc is the largest private bank in the UAE. It is also the second oldest commercial bank in the UAE, having originally been established in Dubai as Bank of Oman Ltd in 1967. As of December 31, 2004 its total assets stood at $8.7 billion. The bank has received numerous awards, particularly for quality management, and has more ISO certifications than any other bank in the region by a wide margin. In 2003 it was named "Best Bank in the UAE" by both The Banker and Euromoney magazines. More recently, Moody's Investor's Service upgraded Mashreq's foreign currency deposit ratings to A2/ Prime 1 from Baa3/Prime-3.
About GIC (www.gic.com.kw)
GIC was established in 1983 and is equally owned by the six member states of the Gulf Cooperation Council: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates. It is one of the most highly capitalized financial institutions in the region. It is the Region's Prime Investment institution that offers different types of investment banking products. These products include Direct Investments, Portfolio Management, Fund Management, Corporate Finance, Financial Advisory, GCC Markets Research, Custody & Fund Administration services as well as Privatization Studies and Support. At the end of 2003, GIC had total assets exceeding $6.6 billion and shareholders' equity of almost $1.3 billion.
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