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ONE ON ONE: Concord carves niche in Egypt's capital market - Daily News Egypt

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ONE ON ONE: Concord carves niche in Egypt's capital market

CAIRO: Few people know that more than half of the assets managed by Concord Group worldwide are invested in Egyptian securities. But this success story did not happen overnight. In 1994, the New York-based investment management company saw an opportunity for growth in Egypt’s nascent capital market. A team of three visionary investment professionals – …

CAIRO: Few people know that more than half of the assets managed by Concord Group worldwide are invested in Egyptian securities. But this success story did not happen overnight.

In 1994, the New York-based investment management company saw an opportunity for growth in Egypt’s nascent capital market. A team of three visionary investment professionals – Mohamed Younes, Sherif Raafat and Prince Abbas Hilmi – launched the Cairo office of one of the largest fund managers of Egyptian securities: Concord International Investments.

Concord Group was founded in the United States in 1988 to manage the wealth of individuals, families, foundations and institutions. The group’s operations focus on portfolio management, investment strategy, corporate finance and strategic planning.

It was one of the first international firms licensed to establish a branch in Egypt to manage mutual funds. Directly and through its affiliates, Concord’s Cairo, Tokyo and New York offices manage assets of around $3.4 billion worldwide, approximately $2.8 billion of which are currently invested in Egyptian securities.

Today, the group has a 60-person team in Cairo, supported by a 10-person research department. The firm manages five domestic funds and eight international funds invested in Egyptian securities including listed securities, private equity, real estate and venture capital.

Several times, the International Herald Tribune ranked the Egypt Investment Company Limited – a closed-ended country fund managed by Concord – the top performing fund in the world out of a pool of 7,200.

Its main subsidiaries in Egypt are the Swiss Egyptian Portfolio Management Company and MIBC, a corporate finance advisory Company.

Daily News Egypt sat down for an interview with Senior Managing Director Prince Abbas Hilmi at the group’s four-storey Garden City offices to discuss developments in the local market and his vision for the future.

With 30 years of investment experience, 16 with Concord, Hilmi was the vice president of Kidder, Peabody & Co., the executive director of Kidder, Peabody International Investments, general manager of Schroder Asseily & Co., and is a member of the London Stock Exchange with Grieveson Grant.

Daily News Egypt: Who are Concord’s clients?

Hilmi: We manage mutual funds, which are varied and aimed at different clientele. We managed mutual funds for Egyptian banks such as Banque Misr and Arab African International Bank and these are mostly targeted to individuals, but institutions have also bought into them. Some of the funds we manage are closed-end funds, and they are held by institutions.

What is Concord’s advantage over other market players?

In asset management what you offer is your skills, and it is for the investor to decide who they trust with their money. It is quite competitive and we have managed to make ourselves a niche, people know us being rather conservative. We’ve had some of the top performing funds, with our policy of not trading. We are not traders, we never buy in order to sell again the next day.

How do you view the market today?

One of the characteristics of the Egyptian market is that it is roughly 60 percent individuals and 40 percent institutions, which shows that it’s not a very mature market. We would expect the proportions to be inversed, and they will be when institutions are built up in Egypt to come into the market.

When you have 60 percent individuals, a lot of these individuals have a very trading mentality, and the market becomes more volatile. Individuals are more likely to be swayed by moods, they all get scared, so they all get out of the market, and they might miss the market when it’s cheap, so they take losses. Professionals do the opposite.

When the market evens out, do you expect it to affect the way people invest?

There will be a lot more depth in the market. What we are hoping is that institutions come into the market. Pension funds are not investing in the market . they are mostly depositing their money with banks. When you have inflation, which has peeked over 20 percent, and you’re getting rates of interest of a maximum 9 percent, this is not going to be able to provide those pension funds with the necessary capital to pay the pensions. That’s a serious problem and they have to face it, and the only way to do it is to invest in assets, which will increase in price with inflation, in time.

It’s a very big responsibility. If you have a pension fund and you have people coming in to work today that are 20 years old, [expecting] a pension when they retire at 60, you have a 40-year period in which to protect their position. The way pension funds are being managed today is allowing these funds to be eroded, and they won’t be able to replace this money.

They [should] start investing in the capital market, and of course in real estate and other things. However, real estate is not so liquid, which is why they should restrict the amount of money they put in real estate. The capital market is more liquid. Equity investments give you the best return of any other investment, over a longer period. These people are the prime clientele for the market in Egypt, and they’re not in the market.

Is it lack of awareness or is it a delayed response?

One is a lack of qualified staff to manage this, but they could hand it over to people like ourselves and our competitors to manage their funds. It is also a lack of understanding that this is actually one of the safest ways to invest your money in the long term, even though in the short term it might be volatile, in our market especially.

The authorities look at it very short term and say it is too dangerous, but … one day the penny will drop and they’ll realize what they’re doing is going to cost them billions. They’re putting money in deposits, and getting a negative rate of return.

The other thing that should grow is the fixed-income size, which is very small compared to the size of the market. Fixed-income are bonds that give you a fixed rate of return. The bond market in the US or Europe, in more developed markets, represents about three quarters of the market. Here, equities are three quarters of the market.

Do you see it changing?

It will have to. The government is mostly borrowing in treasury bills and so on, which is short-term, and they should be issuing more bonds. This would encourage companies to issue bonds as well. The government has to lead . the best quality bonds are sovereign bonds, and the market is hungry for it. There’s huge demand but no supply.

How has foreign investor sentiment changed?

Egypt is now on the radar. A lot of institutions cannot invest less than a certain amount of money so they worry that this minimum amount is too big for the market they are investing in. They need a critical mass and the Egyptian market has grown enough to become attractive.

Institutions and professionals are looking at Egypt and are better informed. I went to the last Euromoney conference in London and most of the people who attended asked pertinent questions, which means that they studied Egypt and knew the main companies, the economy, which was not the case a year or two ago.

What is Concord’s market share?

A few years ago, we were considered the largest managers of assets in Egypt. We’ve been overtaken mainly by people who are managing money market funds, which we haven’t done so far. They manage huge numbers, much bigger than we do. I think now it’s more difficult to say who is number one or number two, and really it doesn’t matter. The size is not important … I think we are the biggest equity investors.

What is your vision for the future of the company?

We have diversified, managing portfolios for high net worth individuals and institutions. We manage mutual funds which are offered to the public, so that is retail, meaning we manage funds for clients who then market these funds through their branches. … We now manage funds for Japanese institutions investing in the market, so we’ve expanded our reach.

What is your advice to young profession
als whose incomes are increasing?

Young investors have to look to the future. Inflation is their main enemy. If you put money in the bank and you have any inflation, even if its 2 or 3 percent, that eats into your capital. You have to cover this built-in loss by investing. Egypt is on the threshold of important changes in its economy, so if you’re young and want to invest for your children, one of the best things you can do is invest in the capital market.

If you do not have the skills, you entrust someone else to do it. You buy mutual funds – hopefully they’ll look at our mutual funds – and over a number of years, they would do extremely well. We’ve seen what’s happened in the last 10 years, and what’s going to happen in the future is much more exciting. So you should be part of that, if you put your money in deposits, you’ll be on the sidelines.

Is this level of economic growth sustainable?

It should be – unless we do something very wrong. Egypt has taken off. We needed some major reforms. . Every country needs reforms, you can’t just sit around and be pleased with what you’re doing. Look at France, [President Nicolas] Sarkozy has brought tremendous amount of reform. I’m not taking political sides, but it shows that a very mature country needs a lot of reforms. We are in a virtuous circle now, having proceeded and achieved higher economic growth.

It’s two-sided. You have some sectors which are growing. …People who are not in the fast-growing sectors are not doing so well, but you can alleviate the problem by having targeted policies for the areas which have been left behind, like agriculture and so on.

Will the agricultural sector make a comeback?

No. Agriculture was the backbone of the Egyptian economy when the population was around 15 million. When it is 80 million, it’s not going to be enough to sustain that population so we have to keep developing more skills and the service industries.

If you go back a century, we were exporting cotton, similar to the way Saudi Arabia exports oil. Revenues were affected by the price of cotton. We depended on this cash crop. There’s no chance of getting back to that.

I’m no expert on agriculture, but I think we should focus on exporting quality products which the Nile Valley is capable of sustaining. Take advantage of the climate, and grow things that will bring us high return.

What is Egypt’s comparative advantage?

Egypt’s main advantage is its [geographic] position. We are at the crossroads, close to Europe, a key country in the Middle East. The ancient Egyptians had a prosperous economy, they benefitted from the country’s physical advantages. We are not always using it to our best advantage, but we are well on our way to doing it again.

To read the other stories in our bi-monthly special focus on Egypt s capital market, click here:



Topics: FJP

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