Trends » Ehtesham Shahid

FUNDING FORTUNES

Ehtesham Shahid — Thu, 27 Nov 2008 06:57:46 +0000

Will they, wont they? That’s the question facing all those waiting to know whether Sovereign Wealth Funds (SWFs) will come to the rescue of beleaguered banks, financial institutions and other businesses across the Western hemisphere. For these investment vehicles, mandated by governments to manage reserves, the situation is a far cry from the days, not so long ago, when they were looked upon with suspicion, and even accused of having a political agenda. Now that the world of finance is on its knees, their former detractors view SWFs as the last hope for the financial sector.
The reason: assets under management in SWFs are set to surge fourfold by 2011 from $1.9 trillion to $7.9 trillion. So says Merrill Lynch, which is ironic considering that it too has had to be rescued from bankruptcy. Financial market research house CB Richard Ellis, forecasts SWFs to become one of the most significant investors in the world’s commercial property markets, potentially investing $725 billion over the next seven years. The Sovereign Wealth Fund Institute says Middle Eastern SWFs account for four of the top six commodity-based funds, worth an estimated $1.74 trillion.
Mixed signals have emerged, so far, from the managers of these funds – depending on where they stand on their investment cycle, mandate and depth of their pockets. However, considering the general opacity surrounding the way SWFs operate, few details are expected to emerge. Chances are, despite recently announcing an accepted principles and practices code (called the Santiago Principles), to ensure greater levels of public disclosure – SWFs will become even more secretive, going about their business silently.
That’s probably because it has been a case of once-bitten, twice-shy for SWFs in recent months. Some of their major investments in the United States have fallen flat on their faces. The Abu Dhabi Investment Authority (ADIA), for instance, purchased a 4.9 percent stake in Citigroup for $7.5 billion last year. At last count, the investment had lost almost half of the value, to $3.4 billion at time of press. Another example is the $3.5 billion investment by China Investment Corporation (CIC) in private equity firm Blackstone, which has lost 40 percent of its value since last year.
The real problem for these funds, in-dustry watchers say, is more on the transparency front, not the quality of the returns they’re getting. “If the SWFs were more consistent about releasing information on their portfolio those paper losses could be computed,” says Edwin M. Truman, a senior fellow at the Washington-based Peterson Institute for International Economics.

Timo Ahomaki

Ehtesham Shahid — Tue, 15 Jul 2008 07:58:41 +0000

How difficult is it to sell the idea of mobile Internet to a not so tech-friendly user?

It is difficult, and there has also been a shift in focus over time. In the earlier days we came from the SMS world, which was very closed and tightly controlled. We remember that the first portals were WAP-guarded, where the operator basically controlled everything. That was very easy selling as a concept because there was a clear revenue model and all of that. Then we started shifting away from that, towards a more open environment where there is more Internet and mobile. Today the consensus seems to be that there is one Internet – fixed or mobile – which is used with different types of devices.

With the growing problem of identity theft on users minds, how can you reassure people that mobile Internet is secure?

The concerns are certainly there, and in many countries there is legislation to deal with it. In mobile, especially [under] the European legislation, the operator is very often liable for those sorts of things. They have to have a degree of control, which of course creates a kind of additional complexity. But when you take care of these things, you have the possibility to create a better experience for the consumers. You can build in the protection that a lot of countries are doing. That includes things such as adult content control and protection of minors. Security and identity are certainly things that need to be looked at. However, I think there is no one-size-fits-all solution. There are different countries, different cultures and different legislation, and you just need to take those into account.

You are talking about mobile Internet at a time when Internet access has progressed slowly in some countries. Is that due to reluctance, or a lack of marketing?

It’s very hard to distinguish between whether it is a reluctance to accept, or whether it has to be sold. If people don’t know [services] are available then it’s hard for them to accept it. In mobile, almost every handset today has a browser in it and people can use the Internet on the mobile if they want to. The question is, do they know it’s there? And that’s a marketing thing. The second thing is that once people know that they have a browser, then what do they do with it? Do they have the services and the content that is interesting enough?

Hammer Time

Ehtesham Shahid — Thu, 10 Jul 2008 11:44:47 +0000

If number plates, horses and camels can go under the hammer, why can’t plots, apartments and villas? In a happening market such as Dubai’s, high-net-worth individuals are increasingly willing to bid handsomely for products of their choice – be it a piece of prime land, a room with a view or an ideal office space. They’re being dished out by owners of such properties, who use the auction route to extract the maximum price.

There’s nothing surprising about the rising trend of property auctions, but it sets them apart from the other investors who are either putting hard-earned money into property to save rent, or flipping them to make some fast cash. Even though the largest of auctions do not involve more than a few hundred bidders, the idea of property auctions occasionally stir up an already buoyant market. Most tier-2 developers in Dubai are acquiring prime plots from master developers through “close-door” auctions. It’s an extension of the demand that’s driving the industry, and the trend is here to stay. After all, if a car number plate can fetch a sum of five million dirhams ($1.36 million) then one can imagine the amount some would be willing to pay for a perfect plot to house a mixed-use development. Despite greater interest and widening options, however, the exclusivity factor is set to keep auctions an elitist activity. Since rich buyers openly bid in a charged environment, auctions also inflate sales prices, which may have a spiraling effect on the cost of property.

Dubai’s no stranger to the auction phenomenon. In June 2005, Dubai Properties – a subsidiary of Dubai Holdings – set up Mazad, the country’s first private property auction house. The idea was to cater to a growing number of high-net-worth investors looking for viable real estate opportunities with optimum re-turns on investment. Since 2005, Mazad has raised more than AED 2 billion ($544 million) in sales. On the sidelines of Cityscape 2006, during the copmany’s third public sale, Mazad raised more than AED 250 million ($68 million) for 11 select Dubai Properties lots. Recently, Mazad, which now operates under Salwan, also a subsidiary of Dubai Properties Group, fetched nearly 250 million dirhams ($68 million) from a private auction.

Most of what stands at Business Bay today is built on plots that were auctioned off by Mazad in the winter of 2005, which it collected AED 1 billion ($272.3 million) for. The biggest plot sold for AED 214 million ($58.3 million) and the smallest for AED 45 million ($12.3 million).