A ‘bingo’ deal? You’ll know it when you see it,” says Jassim Alseddiqi. “Before you execute that transaction, before you get the money. The ‘bingo’ feel of the transaction happens when you first source it.”
Alseddiqi knows that moment better than most. As the chief executive of Abu Dhabi Financial Group (ADFG), he has achieved a whopping 31 percent IRR (internal rate of return) on various investments since the initial company, Abu Dhabi Capital Management, was established in January 2011. It’s a record that most fund managers would kill for, but speaks volumes about a firm that has largely managed to fly under the radar.
Over the last four years, the company has evolved and expanded into an integrated financial services platform under the umbrella of ADFG, branching out into real estate investments and debt structuring and management.
With four subsidiary companies, ADFG is described as being a one-stop shop for a range of services that are usually the preserve of only the biggest institutional banks, encompassing alternative investments, asset management, advisory and research, financing and structuring solutions, securities trading, and real estate development.
Investors were hard to come by in the early days, but were hand-picked through the company’s own network.
In just four years of existence, starting with two people in a small office, ADFG now manages an investment portfolios worth $1.5bn (around AED 5bn) in assets.
In real estate, ADFG’s special purpose Spadille Corporation has $1.1bn worth of projects it will deliver to the market in the next three years in Central London, having previously delivered $1.6bn worth of property in the past.
Then there’s Integrated Alternative Finance — an alternative financing and structuring solutions provider — which will have structured and advised on $817m worth of debt by the end of this year. Qannas Investments Ltd (QIL) is a London Stock Exchange Alternative Investment Market (AIM LSE) listed vehicle focused on investing opportunistically around the world, with an investment programme of $300m.
Each of the subsidiaries in the group, which now employs over 40 people, work closely together to leverage each other’s strengths. “Every day we evolve and continue to morph. We are evolving quickly so the numbers constantly change,” says Alseddiqi.
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The core business is alternative investing and this is where Alseddiqi identifies the aforementioned ‘bingo’ deals.
“When we say alternative, what we talk about is non-conventional, specifically in the GCC region. Most of what we do, people have been doing for a long time all over the world, however in the region we are pioneers in this field and we do it well,” he says.
“After the financial crisis, we started the first secondary private equity fund targeting the Middle East. It was untested in the region, even though this type of fund has existed internationally for the past 50 years.
“Our fund was targeting the region, and focused on Middle East private equity funds, it was the first of its kind and hugely successful. Today, this is one thing we are recognised for,” he adds.
ADFG does not compete with other firms that invest in the markets or trade currencies, or even those who invest in property in order to collect a yield.
“We shy away from conventional opportunities, and we target and excel at the alternative transactions.
“We launched an alternative finance and a debt platform for alternative financing needs, meeting the necessity of global clients and their unique finance requirements.
“This platform does not compete with banks or traditional finance companies, it offers unique and unconventional solutions to our clients. From that sense, this is why we are defining ourselves as alternative,” he explains.
The tightening of controls on banks following the financial crisis has been an opportunity for ADFG, which tends to look at the broader picture when considering an investment.
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“Banks do not look at everything. If you have a good product, a good idea, a good asset, and a good sponsor, whether the underlying commercial side is good or not, and the background of the sponsor is positive or negative, some banks will still turn a lot of that business down,” Alseddiqi points out.
“This is for many reasons as they may have certain caps or they may have regulation that they cannot exceed on certain types of investments which creates a mismatch.
“What we do is come in, understand the need, structure the product required and arrange the alternative solution,” he adds.
In that scenario, ADFG approaches the banks and other financiers, and also covers any gap that may exists.
“This is a riskier approach to this business, but that’s what we do and we do it well,” he says. “We typically take more risk to achieve a higher reward, while always being cognisant of limiting our downside.
“The deals we have done in London and in the UAE are very alternative and were special situations. When I say alternative it means the typical financial institutions would have never looked at them,” he adds.
For the most part, ADFG’s investments carry the ability to get in and get out relatively quickly. Every deal carries an exit strategy before it starts, which knits all the components of the ‘bingo deal’ together.
“You know it once you see it,” Alseddiqi says with a wry smile, before explaining how the apex of Arab Spring provided an interesting backdrop to a distressed deal that needed funding.
“The Egyptian stock market was closed for one week, and there was a curfew in Bahrain. Those were the market conditions when we sourced one specific ‘bingo’ transaction.
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“It’s exciting, but it needs guts and intransigence. There was an investment in different assets in the Middle East: in Egypt, in Saudi Arabia, in the UAE and so forth.
“We bought that collection of investments at that time of uncertainty. There was even a deal in Bahrain we couldn’t close because of the curfew, so they couldn’t bring documents to us. It’s those types of deals, at that time, which were exciting for us,” the chief executive recalls.
The end result was an award-winning transaction that brought financial rewards for the company and its investors.
“We started receiving income after four months of closing the deal. We broke even after less than a year — the remainder received was pure profit.
“It’s the transaction that actually made our fund the best private equity fund of the year and led to us winning awards. We operate well in those kinds of environments,” says Alseddiqi.
ADFG also identified an opportunity in London, investing in the developer Northacre to help finish a project, before eventually acquiring a controlling interest in the company.
“In 2011, Bank of England was contemplating an emergency meeting to decide on what to do with the economic downturn being felt in the UK and globally. During those critical times, we extended a loan of $19m to a London-based developer to help them finish a marquee development.
“The loan got paid back fully, with the full interest. During those turbulent economic times, no one would have extended such a loan. However, for us it was another bingo deal.
“We do well at times of distress, but having said that, the most conducive environment is not always there and that’s why we look for both growth opportunities as well as distressed ones.”
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A year later, through its investment vehicle Spadille, ADFG took a 70 percent stake in Northacre, which Alseddiqi describes as being “a real estate developer of niche and high end developments”.
“The company was not in good shape at all. It didn’t secure any new projects and was in need of a tangential intervention.
“Today, Northacre is one of the largest development managers in Central London. It ranks in the top five Central London residential super-high-end developers, and it has consistently paid a dividend since our involvement,” Alseddiqi says.
“The company paid a dividend this year and had paid a dividend last year. There was an extreme turnaround we undertook in this company. It was very opportunistic when we acquired our stake and took an active role in it,” he adds.
Closer to home, Dubai’s property market has provided ADFG with healthy returns, particularly given its resurgence in recent years.
“In 2011, the market in Dubai was stagnant. We had seen every single stalled project in Dubai and met with a plethora of distressed developers. We had shortlisted a few and submitted offers for financing to a few. However, securing those opportunities proved more tedious than expected.
“Therefore, we decided as a team that we wanted to start working and taking the lead on debt transactions in real estate in Dubai in 2011. We did our market research and got all the projects that were stalled above 50 percent completion. We visited every single one of them.
“We talked through their situation. We ended up with a shortlist of potential opportunities. We didn’t wait for someone to come to us. Rather we were very proactive and this is how we do everything at ADFG, we always take the initiative,” he explains.
One of those property investments was in Dubai Marina’s newest and tallest tower — the soon-to-be-opened Marina 101.
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In May 2012, QIL entered into a two-year investment agreement.
“The Marina 101 transaction was one of the first sale and repurchase transactions completed in the region. The way we structured it was pioneering [and was] very innovative, in my opinion, and it has proved to be very successful for us and the developer,” Alseddiqi says.
In May this year, the developer of the project repurchased the property from us in accordance with the agreement, for $16.4m, representing a return of 51 percent on capital invested and an IRR of 22.8 percent.
“In this environment we are not in a mature market, we are still in an emerging market. Although the UAE’s legal and corporate framework is well advanced, the market participants are still not highly experienced, unlike in Europe and in the US. It is a very challenging market environment, but this is how you can extract value. This is why we go back to the theme of alternative and non-conventional approach,” he says.
Other investments include land bought on Abu Dhabi’s Reem Island (with permission for housing) for $3.3m in the second quarter of 2013. Earlier this year, the company sold it on $6.2m.
In December 2013, QIL exited its position in RAK Petroleum for approximately $7.1m, generating a return of 73.1 percent in approximately 20 months.
In May this year, ADFG invested in a business hotel in Montenegro, which Alseddiqi says is the first of many opportunities the company is exploring the Eastern and Mediterranean Europe regions, with projects valued at $630m over the next four years.
“The reason why we go into different jurisdictions is because of the team’s expertise. We believe we are experts historically in the prime Central London real estate market. In the UAE and the Middle East, it’s our backyard, so this is why we operate here,” he says.
The investors, Alseddiqi says, mainly come from the GCC region, but the international investors prove the strength of the company.
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“We have a club basically; investors that know us, investors that we have relationships with and so forth, those are all sophisticated investors, they would need to be to understand the opportunities we provide. A share of our investors are internationally based, and this is something great for us, confirming our investment prowess and solidifies our status of being a world-class firm,” Alseddiqi says.
About 15 percent of the firm’s investors are from Singapore, Switzerland and the UK — “we are talking about hundreds of millions of dollars,” Alseddiqi says — and the remainder consists of private companies, institutions and high net worth individuals from the GCC region.
At the heart of ADFG’s story is just how big the company’s operations have become in such a short space of time.
“We started as an investment company, investing in varied deals under one theme; today we are a truly an integrated financial group. Our business has evolved and our expertise and knowledge has equally evolved in all aspects of what we do and in the integrated financial services approach,” says Alseddiqi.
Getting it right, from the onset, has been an important facet for the success of ADFG.
“It’s all about having the right vision and goals in mind. We want to build something for the long term, something sustainable and is world-class. We’re not here for a quick buck, and that’s critical.
“That’s why you will not see us waving the flag of $20bn or $50bn worth of assets under management. We don’t want to be multi-billion with no real performance. Being of decent size is crucial, but what’s more important for us really is how much money we make for our stakeholders — investors, shareholders and employees who work with us.
“We put the right principles in place and we keep following them. Everyone who has joined our team believes in these principles and lives and work by them. This is a very important initiative that we have started and it is now evolving into something bigger and larger, and proven successful.
“The fact that we get foreign money from highly regulated countries like Singapore and the UK is a testament to what we have built in a very short period of time due to the principles we uphold, and the attitude we have towards what we want to build,” says Alseddiqi.
And given how the company has grown in the first four years of existence, it’s likely to be making more headlines for its alternative approach to investments in the years to come.
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