Having a Positive Impact

Non-traditional asset classes have surged in popularity as investors have sought protection from the market turbulence. As part of its asset management offering, Sharia-compliant Saudi financial services company Sidra Capital focuses on two key areas: real estate and structured trade finance.

Real estate is a popular investment for many investors in the region, where numerous projects have been launched. However, the investment case for real estate remains as strong as ever. Sidra’s real estate focus has been on international property particularly in the UK, says Sidra Capital’s Arif Rahim, vice-president – head of investment strategy.

“In terms of real estate we have invested in income-generating and development projects,” explains Rahim.

“The focus over the past few years has been in the UK with an emphasis on London, although we have recently completed our first transaction in South Carolina in the US. That was an income-generating, newly built property leased to a listed company.

“WHATEVER WE TRY TO DO WE TRY TO LOOK TO HAVING AT LEAST ONE POSITIVE IMPACT ON EACH INVESTMENT” – Arif Rahim, Sidra Capital

“We have also recently advised on a very large transaction in Central London and where we acquired Kinnaird House located near Trafalgar Square on behalf of a Saudi family office. That was our last transaction in London.”

More recently the firm has moved away from its UK real estate focus, says Rahim, concentrating more on local projects, particularly given some of the uncertainty generated by the recent referendum on British membership of the EU.

“Currently our focus has moved away from London and we are beginning to look at real estate opportunities with a focus on the local population rather than international investments,” he says.

“However, given the market dislocation with regard to Brexit, as USD-linked investors we have started to come across some interesting investment opportunities in the UK.”

Structured finance

As well as real estate, the firm also offers a range of structured finance products, an area which even Rahim admits is a more “niche” offering than its peers.

“Within structured trade finance we currently run three funds,” he says. “The first is called the Sidra Ancile Global Structured Trade Investment Fund which is currently the largest privately-held Sharia-structured trade finance fund in the world.”

He explains: “This particular fund supports growth in emerging economies by providing short term working capital to SMEs focusing on agricultural commodities, energies and metals.

“The second is the Sidra Ancile Debt Equity Conversion Fund, which offers short-term Sharia-compliant growth and consolidation capital, to non-speculative investees.”

Most recently the firm has launched a third fund, says Rahim: the Sidra Mutajara Fund. “This is also a structured trade finance fund but is better described as a performance enhancer to existing allocators of short-term investments,” he says. “The fund is firmly ingrained in our principle of investing into the real economy with no leverage or speculation and as an enabler to greater capital protection. “The first tranche of this fund is about to close, with the second tranche being offered to investors in the last quarter of this year.”

Opportunities

With markets in the region having fallen off since the onset of weaker oil prices, a greater number of investment opportunities have arisen. However, Rahim says the firm remains focused on its specialist areas. “In terms of other geographies, Saudi Arabia has been an important market for us and although the market is challenging since the price of oil fell we are seeing some interesting opportunities which we are now considering,” says Rahim.

“We are very mindful of not wanting to go into assets and geographies we don’t fully understand and are comfortable considering and analysing opportunities in real estate and structured trade finance. “In terms of the opportunity set we try and find investments within these asset classes rather than looking at more traditional investments such as listed equities or sukuk where we feel that there are far more capable Authorised Persons in Saudi Arabia than we are.”

Rahim adds structured trade finance remains one of the firm’s “main pillars” in its asset management offering. “We believe the opportunity set especially in volatile environments presents itself in terms of investing into structured trade finance,” he explains. “We have been able to consistently deliver increasingly better risk adjusted returns when markets are more volatile while working within the risk-return matrix similar to conventional money market trade finance funds in stable periods.”

Making a difference

As well as focusing on non-traditional asset classes, one of the other areas where Sidra Capital differs from peers is its approach to investing. The firm’s clients include family offices, multifamily offices, HNWIs and institutions, Rahim explains, giving it a different outlook than other asset managers in the region.

“Over the years the company has changed from being multi-family focus to one where both families and institutions are able to co-invest together,” says Rahim.

As a Sharia-compliant asset manager, Sidra Capital aims to take a more socially responsible investment (SRI) approach when deciding on which firms and investments to back.

“In the past decade SRI especially in Europe has become an asset class in its own right,” he says. “From our point of view the fundamentals of Sharia investment, especially in the region over the past six or seven years has started to take a front foot and is being regarded something very much as part of the investment remit that institutional investors look for.

“The core vision for us is that this kind of governance structure is something that is embedded in the firm since we started operating. We have agreed upon the foundations and cultivated it to make it far more fundamental than some of our counterparts would.”

He adds: “We take the fact that we are Sharia-compliant very seriously. There are many managers that like to say they are Sharia-compliant but we try to validate this approach of thinking throughout our structure, our company and our investments and we continue to do so.”

“What is important to us in terms of investment, whatever we try to do we try to look to having at least one positive impact on each investment,” says Rahim. “This could be some kind of sustainable development or poverty alleviation, food security, environmental or corporate governance, which is firmly ingrained in our investment ideology.

“We are very much focused on investing in industries and companies where there is a healthy respect for the laws and protection of workers, animals, people and the general environment,” he explains.

As Sidra Capital CEO Currim Oozeer notes: “We have evolved with a focus on investing in real economy transactions, our investment philosophy is consistent through each of our strategies and works together with our commitment towards being a socially responsible team that seeks to impact investors, employees, communities and the environment in a positive way.”

By Rob Langston