Interview: Fahed Boodai
In what ways has the asset management industry grown over the last few years, and what new opportunities are being made available?
FAHED BOODAI: The asset management industry is being fuelled by the needs of institutional investors who are increasingly looking for new and unique solutions that demonstrate diversification, while at the same time optimising yields and returns. The hold period of pension funds, insurance companies and sovereign wealth funds is longer than the individual investor, and these institutions are seeking high-quality income streams, preferably inflation linked. Property that can be owned, leased, managed and traded is increasingly considered to be an institutional asset class.
The global bond and equity markets are considerably larger in scale than the global real estate markets. However, the increasing shift towards real estate over the past 10 years has changed some fundamental parameters of the global financial markets. One study indicates that direct commercial real estate will exceed $1trn per annum by 2030, compared with only $450bn in 2012. This growing stream of transactions will provide additional data points for more accurate valuations and pricing in the future.
In light of the recent institutionalisation of the real estate industry, what has this meant for asset management companies?
BOODAI: The institutionalisation of the real estate industry has occurred through sector specialist operators providing asset management expertise and joint venture operating models to extract value from the creation of portfolios and enhancement of troubled or undervalued assets. This also encompasses operators working with institutional sponsors and investors to create bespoke real estate investment trusts and other derivative financial products linked to real estate assets. In the case of Islamic finance, the rental income stream from property can be structured as a or Islamic bond. Over the past year or two, we have seen less single-asset investment deals, such as the acquisition of an individual commercial property, and more active real estate developers, as well as non-recourse financing. We have also seen an increase in the number of real estate private equity funds and a rise in professional property and asset management.
There is a strong trend to form strategic relationships with specialised asset managers to create an investment platform for debt and equity investment opportunities. Specialised real estate developers and asset managers, backed by large private equity houses, are dominating the institutional space by aggregating portfolios of scale and thus taking out the smaller, undercapitalised and higher-risk developers. While it is clear that capital is still chasing traditional office leases or yields found in higher-risk activities in developing markets, the broader global theme points to the trend of a growing pool of capital that seeks exposure to real estate of institutional quality. The creation of new asset classes, such as the Private Rented Sector in the UK, has the potential to create increased capital appreciation in more mature direct property acquisition schemes.
How can Kuwait create a more attractive investment climate for individual investors and banks?
BOODAI: A key element in any successful investment is strategy and dedication to creating innovative structures and products. Placing focus on diversification, whether in real estate, retail or banking, can boost Kuwait’s status as a financial hub. It is important to provide investors with highly skilled managers who are agile enough to react as the markets shift and change, but also capable of having the foresight to diversify across asset classes and ensure low correlation to traditional investments.
We believe that Kuwait’s banking sector should consolidate, and with increasing privatisation, the economy will slowly start to build its own niche market and compete with our regional counterparts.
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